HIGHLIGHTS
Equities finished the holiday-shortened week higher. The markets have reduced their expectation of monetary easing in 2025 sharply, from 125bps in September to 40bps recently.
Trade Deficit: US President Trump mentioned that the European Union (EU) should make up their deficit with the US by purchasing oil and gas from the US. Otherwise, US will likely to impose more tariffs on EU. Markets expect EU is likely to increase its purchases from US. Also, EU would like to wean itself off the supplies from Russia.
ECB: European Central Bank (ECB) president mentioned the progress on controlling inflation while she remain concerns about services. There are more questions raised about the future path of monetary policy in eurozone driven by the prospect of renewed trade tensions between EU and US, and the implications on growth and inflation.
China: The manufacturing profit in China continues to drop. The reported PMI data showed that the stimulus policies have yet to slow down the decline in earnings that are under pressures from deflation in China over the previous year.
MARKETS
19,722.03 | +0.76% | |
S&P 500 | 5,970.84 | +0.67% |
Dow | 42,992.21 | +0.35% |
10-Year | 4.62% | +10bps |
Brent | 73.81 | +1.12% |
DXY | 108.01 | +0.18% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: Americans are holding more than 37% of all assets in equities now. As stocks are expensive with the ambitious 2025 earnings forecast, risk premiums are very thin. This suggests for rebalancing, especially among households in the US to build a more diversified portfolio.
HSBC: The strongest momentum has been in US large-cap stocks, especially in tech. Growth stocks have outperformed while value stocks have lagged. Besides, emerging market equities performance was not great in Q4.
Fixed Income
Morgan Stanley: Surprisingly, the Fed pushed up the inflation forecast and neutral rate in the last meeting, and lowered the rate cut expectation in 2025 from 4 to 2 times.
Goldman Sachs: We see better setups for longs at the US front-end after the sharp increase in the yields over the last 2 months. However, we are not that bullish on Europe as most of the divergence with the US has priced in already.
Economy
J.P. Morgan: In 2024, economic growth was better than expected and equity markets hit new all-time highs. However, progress on inflation has stalled. Consumers can feel the pain of higher prices this holiday season.
Goldman Sachs: Although the GDP growth is solid, there is no clear signal that the labor market utilization is stabilized. The flow from unemployment to employment has dropped. If the coming labor report comes in worse than expected, it is more likely to have additional rate cuts in 2025.
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DISCLOSURE
This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.
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