Let’s Focus On The Good For A Few More Days

Economic

Summary:

Last week was chaotic.

Last week was chaotic. The Federal Reserve’s (Fed) hawkish 25bp cut, the hint from the dot plot that there would be only two rate cuts next year instead of four – because the US economy is too strong to continue the cuts as previously predicted – and the US debt limit shenanigans even before Trump took office gave a negative jolt to the US stock markets. But happily, things got better from Friday on as a set of US PCE data came in softer than expected, and got some investors hoping that maybe – but just maybe – the Fed’s got too hawkish on inflation. Second, the US averted a government shutdown and politicians disregarded Trump / Musk’s demand for suspending the debt limit. The US government will continue to run until mid March, then we will see what happens to that debt limit under the Trump administration. My best guess is that the US will regularly continue to push the debt limit higher – or Trump will scrap something that didn’t make sense anyway. In practice, nothing will change. The US debt will continue to grow, and as per inflation, I think that those who got their hopes up with one set of inflation data will be disappointed.

As a result, the US yields should continue to push higher regardless of how dovish the Fed tries to be. Note that the US 10-year yield advanced up to 100bp since the Fed started cutting the interest rates – and cut 100bp in three meetings. At least half of the cuts were unnecessary, and that’s why, not only did yields continue climbing as the Fed cut rates, but the possibility of a further rise in the 10-year yield toward 5% remains on the table—and that’s not necessarily good news for risk assets.

But anyway, Friday’s session saw a certain relief – at least in the US – because the mood in Europe was not great at all after Novo Nordisk slumped more than 20% at the open as their latest weight loss drug made patients lose less weight than the company had predicted. But across the Atlantic, the S&P500 rebounded more than 1% on Friday, while Nasdaq added 0.85%. The US yields were little changed but the US dollar retreated from more than 2-year highs.

In the absence of major economic data, this Xmas-shortened week could see a further rebound in the US equities – no one wants to miss the Santa rally – and a further retreat in the US dollar in favour of its major counterparts. Yet, beyond tactical trades based on last week’s softer-than-expected PCE measures, the story remains unchanged. The core PCE in the US has been moving up since the summer dip and settled at 2.8% for the second consecutive month, and – I can never repeat this enough but – Trump’s pro-growth policies, tariffs, mass deportations hint that the US inflation risks are tilted toward the upside.

As such, the US Dollar pullbacks could be interesting opportunities to buy the dips. The EURUSD could see resistance between 1.05/1.0545 area – a psychological level and the minor 23.6% Fibonacci retracement on September to December rally. Cable should see limited upside potential within 1.27/1.2720 area. The USDJPY’s way is cleared for a further advance to 160, until the yen bears get scared that the Japanese authorities will intervene directly in the FX markets to stop bleeding. The Bank of Japan (BoJ) will unlikely to make any changes to their policy until March, April next year. This is when the policymakers think that they will have a clearer view on the potential and the impact of Trump’s international policies. In Canada, the Loonie takes a breather on the back of a broadly softer US dollar but the political shenanigans keep the risks tilted toward the upside in the USDCAD as calls for Trudeau to step down are mounting. And finally, the AUDUSD forms support near the 62 cents level. The pair is oversold, but buying the Aussie looks similar to try to catch a falling knife since September.

In commodities, US crude is better bid above the 50-DMA – few cents below the $70pb level – but without a strong conviction to extend this rebound, the price rallies will likely see resistance into the 100-DMA – near $71.40pb and declining – and into $72.85pb, the major 38.2% Fibonacci retracement on late summer slump that should distinguish between the negative trend since then, and a medium term bullish reversal. The ongoing narrative of weak – and weakening – global demand and ample global supply should maintain oil prices in the bearish consolidation zone for now, with however a limited downside potential near the $67pb level.

In precious metals, gold is better bid this morning. Lately, the yellow metal has been pressured by the rising US yields that increase the opportunity cost of holding the non-interest-bearing gold – but an accelerated selloff in global equities could drive capital into the safe-haven metal regardless of the upswing in yields.

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Warren Takunda

Economic

Markets that began the year with investors expecting a global stock rally to fizzle, swift U.S. interest rate cuts to boost Treasuries and soften the dollar and emerging market currencies to strengthen have firmly defied that consensus.

World stocks are set for a second consecutive annual gain of more than 17%, unfazed by wars in the Middle East and Ukraine, Germany's economic contraction and government collapse, French budget chaos and China's slowdown.

That comes mostly thanks to a second year of huge gains for Wall Street stocks as artificial intelligence fever and robust economic growth sucked more global capital into U.S. assets and took the dollar up 7% against peers in 2024.

U.S. exuberance rose after Donald Trump's Nov. 5 election win, as traders focused on the President-elect's plans for tax cuts and deregulation, with the surge in animal spirits propelling cryptocurrency bitcoin to a 128% annual gain.

World markets enter 2025 increasingly exposed to U.S. trends - a risk factor that burst into life after the Federal Reserve roiled markets this month by pointing to fewer rate cuts in the year ahead.

That came after weak U.S. jobs data and a surprise midyear Japanese rate hike that pressured dollar-denominated assets and sent a volatility wrecking ball swinging through global markets and sparked a short-lived rout in August.

Debt investors, meanwhile, are growing anxious about Trump's proposed trade tariffs refueling inflation and fear excessive White House borrowing that could roil the $28 trillion Treasury market and spark wider government bond disruption.

"It's going to be difficult, in the event of a (U.S.) pullback, to find anywhere to hide," Barclays private bank chief market strategist Julien Lafargue said.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_1

The graphic is a grid of line charts depicting the performance of several assets in 2024, and 10-year treasury yield in 2024.

WALL STREET JUGGERNAUTS

Wall Street's S&P 500 share index is 24% higher this year after a similar jump last year, in its strongest two-year streak since 1998.

Shares in artificial intelligence chipmaker Nvidia rose 172% in 2024, Elon Musk's carmaker Tesla gained 69% while investors' exposure to U.S. stocks hit record levels in December.

The combined value of the so-called Magnificent Seven U.S. tech stocks accounts for around a fifth of MSCI's world share index, according to Schroders, raising market threat levels if their earnings or AI technology disappoint.

EUROPE'S STRUGGLES

The euro slid around 5.5% against the dollar this year while European stocks performed worse relative to their U.S. peers than they have in at least 25 years.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_2

US stocks gained 25 percentage points more than European stocks this year, a record gap between the two regions on data going back to 2004.

After four European Central Bank rate cuts, the euro zone economy is declining more slowly and some forecasters are tipping Europe for a 2025 rebound.

The chances of any international market rallying if the U.S. falters are usually slim. Gold gained 27% in 2024 as investors struggled to find other diversification trades.

MIGHTY DOLLAR

U.S. tariff fears and dollar strength have hit emerging market currencies particularly hard, exacerbating losses for struggling nations.

Currencies in Egypt and Nigeria , fell around 40% against the dollar following devaluations, and Brazil's real weakened more than 20% as worries about government debt and spending intensified .

A sparse set of mild annual gains included a 2% rise for Malaysia's ringgit . Among the top performers South Africa's rand , the Hong Kong dollar , and Israel's shekel hovered near unchanged for the year.

"We continue to be cautious on emerging market currencies, and the main reason behind that is the Trump trade war," said Arif Joshi, co-head of emerging market debt at Lazard Asset Management.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_3

The Federal Reserve's hawkish tilt at its final policy meeting of the year sparked a sharp rally in the U.S. dollar, sending other currencies to milestone lows

CHINA ROLLERCOASTER

Chinese stocks had a wild year, surging almost 16% in a single week in September after Beijing signaled its readiness to stimulate the weakening economy, with a number of deep weekly falls since.

Investors who held on to China in 2024 were rewarded with an 14.5% annual gain but many expect the short-term boom and bust cycle to continue, disrupting markets in Europe and Asia, until Beijing takes direct action.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_4

The line charts show China's retail sales, industrial output, new house prices and urban unemployment from November 2023 to November 2024.

BOND BULLS BRUISED

Interest rates fell across big economies this year but bond investors suffered annual losses after spending much of 2024 pricing in more monetary easing than central banks eventually delivered as inflation stayed stickier than expected.

U.S. 10-year Treasury yields rose roughly 60 basis points in 2024, Britain's 10-year gilt yield jumped 100 bps and 10-year German yields added 16 bps.

In Japan, where interest rates rose twice this year as inflation accelerated, the 10-year bond yield added 45 bps in its biggest yearly jump since 2003 .

Next year looks challenging for bond markets uncertain about how Trump's policies will sway the U.S. Federal Reserve. French debt turmoil last month also signaled the so-called bond vigilantes stand ready to punish governments for excessive borrowing.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_5

Annual change in Japan's 10-year government bond yield, in basis points (bps)

SURPRISE WINNERS

Bond investors' 2024 wins came from some of the riskiest markets.

Lebanon's defaulted dollar bonds returned around 100% over the year as investors anticipated Middle East conflict weakening armed group Hezbollah.

An ambitious reform programme and the prospect of Trump's White House return powered a 100% return for dollar bonds issued by Argentina, whose leader Javier Milei has close ties with the U.S. president-elect. Boosted by bets that Trump could end Russia's Ukraine invasion, Ukrainian bonds returned over 60%.

Markets in 2024: Wall Street's High-Octane Rally Keeps Investors Captive to the US_6

Graphic shows most distressed EM bonds in USD have outperformed the EMBIGD index

Source: Reuters

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Owen Li

Economic

The holidays are here. But many investors may be feeling like they made it onto the naughty list as they contend with challenges from turmoil in Washington as President-elect Donald Trump and Elon Musk flex their newfound political power to a souring outlook on the Fed's interest rate policy, with fewer cuts expected to come next year.

Markets gained ground on the final trading day last week. But it wasn't enough to overcome the double whammy of the threat of a government shutdown and hawkish signals from the Federal Reserve, which appears newly concerned about persistent inflation in the months ahead.

In the past week, the Dow Jones Industrial Average (^DJI) broke a 10-day losing streak but recorded a loss of 2.3% for the week. The Nasdaq Composite (^IXIC) shed 1.8%, while the S&P 500 (^GSPC) fell 2%.

After a dramatic week, investors are set to receive a relative trickle of economic news. Markets close early on Tuesday and won't reopen until Thursday. But the holiday-shortened week will still give Wall Street a chance to parse through the Fed's expectations for next year's interest rate decisions. Central bankers now predict a shallower rate-cutting path in 2025. A renewed "higher for longer" policy approach will hang over the final trading days of the year.

Wall Street Reevaluates 'Higher for Longer' Rates Post Fed Meeting: What to Know this Week_1

The Fed Grinch

Entering the Christmas holiday, markets are well down from the exuberant highs of early December. Much of that shift is tied to perceptions that the Federal Reserve, while initiating its third consecutive interest rate cut last week, is poised to take a more cautious approach next year. Instead of expecting four cuts in 2025, central bankers now foresee just two.

Markets are still wrestling with the implications of the latest "higher for longer" signal. Adding another wrinkle was Friday's reading of the Federal Reserve's preferred inflation gauge, which showed that, excluding volatile categories like food and energy, price increases fell month over month in November but still remained sticky.

The lone dissenter of the Federal Reserve’s most recent policy decision said she voted against the move to cut rates on Wednesday because “there is more work to do on inflation."

“Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold policy steady until we see further evidence that inflation is resuming its path to our 2% objective,” said Beth Hammack, the president of the Cleveland Fed.

But both the dissenter and Fed Chair Powell appeared to agree that a cautious approach to inflation is the right one. And the way markets roared back on Friday signaled that Wall Street may have overreacted to the central bank's message, which has arguably not changed all that much.

Wall Street Reevaluates 'Higher for Longer' Rates Post Fed Meeting: What to Know this Week_2

Getting ahead of Trump

But a new threat to the Fed's efforts to slow inflation may be emerging. At least, that's what some market observers are arguing heading into the shortened week and the Washington showdown ahead of the second Trump administration.

As Allianz chief economic adviser Mohamed El-Erian explained in a video on X, there's a school of thought that believes the Fed is pre-positioning for the coming disruptions of a new Trump era, from tariff battles to immigration labor force shocks.

Rather than the Fed reacting simply to what it sees in inflation data, some see the central bank's shifting tone as a kind of Trump preemption. For his part, Powell insists that the Fed won't react to potential policy changes until they are actually implemented and can be properly analyzed.

"Hawkishness in the market and at the Fed has less to do with this trajectory, and more to do with the potential for inflationary policy change like new tariffs," said David Alcaly, lead macroeconomic strategist at Lazard Asset Management.

FWDBONDS chief economist Chris Rupkey said Trump's plans for spending, tax cuts, and tariffs risk halting inflation's climb downward. "After cutting rates at three straight meetings, the rate cuts anticipated over the eight meetings in 2025 will be much less frequent," he said.

But a lot can happen on the policy front.

"The only thing we can be certain of is that there will be even more uncertainty in early 2025," said Chris Zaccarelli, chief investment officer for Northlight Asset Management. Wall Street Reevaluates 'Higher for Longer' Rates Post Fed Meeting: What to Know this Week_3

Wall Street Reevaluates 'Higher for Longer' Rates Post Fed Meeting: What to Know this Week_3

Source: yahoo finance

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Warren Takunda

Stocks

London stocks fell in early trade on Monday as data showed the UK economy stalled in the third quarter.

At 0840 GMT, the FTSE 100 was down 0.2% at 8,066.81.

Revised figures released by the Office for National Statistics showed the economy flatlined in Q3, down from a previous estimate of 0.1% growth.

The ONS also revised its estimate for growth in April to June to 0.4%, down from 0.5% initially estimated.

The figures showed there was no growth in the services sector in the latest quarter, while a 0.7% increase in construction was offset by a 0.4% fall in production.

Liz McKeown, director of economic statistics at the ONS, said: "The economy was weaker in the second and third quarters of this year than our initial estimates suggested with bars and restaurants, legal firms and advertising, in particular, performing less well.

"The household saving ratio fell a little in the latest period, though remains relatively high by historic standards. Meanwhile real household disposable income per head showed no growth."

Paul Dales, chief UK economist at Capital Economics, said: "Overall, these data suggest that after a bumper first half of the year, the economy ground to a halt in the second half of the year due to a combination of the lingering drag from higher interest rates, weaker overseas demand and some concerns over the policies in the Budget.

"Our hunch is that 2025 will be a better year for the economy than 2024. But more recent data suggest the economy doesn’t have much momentum as the year comes to a close."

In equity markets, news was thin on the ground, but insurer Direct Line jumped after agreeing to be bought by rival Aviva for £3.75bn.

The offer values each Direct Line Share at 275p, a premium of 73.3% to the closing price of 158.7p on 27 November.

Aviva said it plans to achieve annual pre-tax cost savings of at least £125m through job cuts, "economies of scale and increased efficiency".

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Christmas has come early for Direct Line investors, as Aviva’s £3.7bn buyout has officially been signed, sealed, and delivered. The terms of the deal remain unchanged from what was floated to the markets earlier this month, and the festive confirmation has wrapped up what many investors had already baked into expectations, leaving little surprise under the tree.

"This deal strikes a balance that seems to deliver value for both parties. Direct Line has been navigating choppy waters, with its market share steadily eroding and a history of missteps from previous management leaving the ship off course. While the new management team has been working to steady the vessel, even they couldn’t deny that Aviva’s offer was the golden ticket they’d struggle to replicate on their own. Though they’ve expressed confidence in their independent strategy, this proposal was simply too compelling to pass up.

"For Aviva, the price tag is sitting on the edge of what might be considered a bargain, but the strategic potential could prove to be a real cracker. Acquiring Direct Line cements Aviva’s status as the heavyweight champion in the UK home and motor insurance markets. Beyond bolstering their market dominance, the deal unlocks opportunities to put the Direct Line transformation on the fast track, while capitalizing on the efficiency gains that come with increased scale. It’s a bold move that could turn out to be a gift that keeps on giving."

Source: Sharecast

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Justin

Economic

Forex

As markets wind down for the year-end holiday period, forex trading activity turns subdued, with limited momentum across major pairs. Dollar, while maintaining its position as the strongest currency of the month, is facing challenges in decisively breaking last month’s highs against European majors. However, the greenback still made some headway against Yen and commodity currencies.

This week’s economic calendar is notably lighter, with the focus shifting to central bank minutes from BoJ, BoC, and RBA, alongside a handful of key data releases from the US, Canada, and Japan.

Technically, while EUR/USD failed to break through 1.0330 support on first attempt last week, it seems not giving up yet, with the recovery capped below falling 55 4H EMA. Another fall remains in favor through 1.0330 to 61.8% projection of 1.0936 to 10330 from 1.0629 at 1.0254. However, a significant breakout below this projection is likely to occur only after the New Year.

In Asia, Nikkei closed up 1.19%. Hong Kong HSI is up 0.70%. China Shanghai SSE is down -0.50%. Singapore Strait Times is up 0.88%. Japan 10-year JGB yield rose 0.011 to 1.067.

ECB’s Lagarde: Inflation target within reach, services inflation still stubborn

In an interview with the Financial Times, ECB President Christine Lagarde expressed optimism about nearing the inflation target.

She remarked that ECB is “very close” to declaring that inflation has been “sustainably” brought back to its 2% medium-term target.

The latest inflation reading of 2.2% reflects the success of ECB’s restrictive monetary policy. However, she highlighted persistent concerns in the services sector, where inflation remains high at 3.9%, describing it as “not budging much” despite showing slight signs of decline.

On the topic of US tariff threats, Lagarde emphasized the economic risks of retaliatory trade measures, stating, “Retaliation was a bad approach.” She warned that tit-for-tat trade conflicts could harm the global economy.

Natural gas prices surge on winter demand and long-term power trends

Natural gas prices climbed to a nearly two-year high, driven by immediate weather-related demand and a bullish long-term outlook for global energy consumption.

In the short term, forecasts for below-average temperatures across the northern hemisphere—including North America, Europe, China, and Japan—are expected to significantly increase daily heating demand as these regions, which account for more than two-thirds of global gas consumption, enter their peak heating season. This has bolstered sentiment, with limited downside for prices likely until well into 2025.

Beyond the seasonal factors, the long-term outlook for natural gas remains robust. Rising electricity demand as the race for artificial intelligence accelerates, is projected to grow power consumption for such facilities by 10–15% annually through 2030, potentially accounting for up to 5% of global power demand by that time.

Natural gas is expected to play a pivotal role as a baseload energy source in this transition, given its current dominance in power generation. In the US, natural gas powers approximately 40–45% of electricity production, while globally, that share is closer to 25%. However, as more countries transition from coal to gas, the share of gas in electricity generation is anticipated to increase.

Technically, the break of 3.446 resistance last week was an important sign of underlying medium term momentum. Rise from 1.570 (Feb low) is now expected to continue to 161.8% projection of 1.570 to 3.024 from 1.852 at 4.204.

Nevertheless, momentum should target to wane above 4.204, and, in particular, as it approaches 38.2% retracement of 10.03 to 1.570 at 4.80.

Minutes and deliberations from BoC, BoJ and RBA highlight a holiday week

With the global markets winding down for the holiday season, the week ahead features a much lighter economic calendar. The spotlight will fall on central bank deliberations and meeting minutes from BoJ, BoC and RBA. A handful of key economic data releases from the US, Canada, and Japan will also attract attention as the year concludes.

For BoJ, Summary of Opinions for December, due on Friday, holds more weight than Tuesday’s October minutes, as markets seek clarity on the board’s discussions regarding a potential rate hike in January. The report will also provide insights into BoJ’s perspective on two critical issues: the uncertainty surrounding wage growth in 2025 and the risks posed by US trade policies. These considerations are likely to influence the pace and direction of Japan’s policy normalization, shaping expectations for the coming months.

BoC’s December meeting marked a turning point in its monetary policy stance, with a 50bps rate cut and a clear message that further easing would no longer be automatic. Policymakers indicated that decisions would now be taken on a meeting-by-meeting basis, reflecting a shift toward caution after substantial easing since June. The minutes will be analyzed for clues about how close the BoC is to a pause, the expected pace of additional cuts, and how deep further easing might go.

Meanwhile, RBA introduced a surprising dovish pivot at its December meeting. Growing confidence in the disinflationary trend led the board to omit language suggesting openness to further tightening. However, while this shift suggests the RBA is exploring a less restrictive path, it does not necessarily mean the first rate cut is imminent. Market participants will scrutinize the meeting minutes to understand the reasoning behind this “big pivot” and gauge what data RBA considers essential before moving toward easing.

On the data front, attention will turn to US consumer confidence and durable goods orders, Canada’s monthly GDP, and Tokyo CPI from Japan.

Here are some highlights for the week:

Monday: Germany import prices; UK Q3 GDP Final; Swiss UBC economic expectations; Canada GDP, IPPI, RMPI; US consumer confidence; BoC summary of deliberations.

Tuesday: BoJ minutes; RBA minutes; US durable goods orders, new home sales.

Wednesday: Japan corporate services prices.

Thursday: Japan housing starts, US jobless claims.

Friday: Japan BoJ summary of opinions, Tokyo CPI, industrial production, retail sales, unemployment rate; US goods trade balance.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6219; (P) 0.6247; (R1) 0.6278; More...

Intraday bias in AUD/USD remains neutral for sideway trading above 0.6198. Consolidations should be relatively brief as long as 0.6336 support turned resistance holds. Break of 0.6198 will resume the fall from 0.6941 to 0.6169 long term support, and then 138.2% projection of 0.6941 to 0.6511 from 0.6687 at 0.6074. Nevertheless, firm break of 0.6336 will bring stronger rebound lengthier correction before staging another decline.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term consolidation to the down trend from 0.8006. Firm break of 0.6169 support will confirm down trend resumption for 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806 next. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6588) holds.

Source: ACTIONFOREX

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JPMorgan

Economic

At its final meeting, the Federal Open Market Committee (FOMC) voted to reduce the Federal funds rate by 0.25% to a target range of 4.25%-4.50%, cutting rates by a 100 basis points (bps) or 300bps annualized in 2024. However, forward guidance via the Summary of Economic Projections (SEP) suggests a shallower path of rate cuts next year. Moreover, the statement tilted hawkish suggesting the Fed will pause cutting at its next meeting and wants the optionality to not have to cut rates at all next year depending on how the data evolves. Altogether, why did the Fed shift hawkishly?

Updates to the SEP argue for less rate cuts next year and suggest arguably a no-landing scenario forecast rather than a soft landing:

Real GDP growth projections were upgraded to 2.5% this year, 2.1% in 2025 and reaches trend growth of 2% by the fourth quarter of 2026. Unemployment rate projections were nudged lower to 4.2% and 4.3% in 2024 and 2025, respectively and remains at 4.3% through 2027.Both headline and core PCE projections were raised to 2.4% and 2.8% in 2024 and to 2.5% in 2025 before normalizing to 2.0% by the fourth quarter of 2027. The committee slashed its median policy rate projections (dot plot) signaling just two rate cuts next year, down from four rate cuts at its September meeting. Long run Fed funds rate projection was also raised to 3.0% from 2.9%.

The impressive resilience of the US economy is clear with growth tracking ~3.0% q/q for the fourth quarter. Moreover, the bounce back in job growth last month suggests a labor market that is cooling but not crumbling. That said, given progress on inflation has slowed recently, Chairman Powell highlighted a renewed concern around inflation, all suggesting more modest easing.

Notably, when asked how tariff policy might impact the committees’ forecast, he pointed to the Fed’s approach in 2018 in which the committee looked through tariffs. However, Powell mentioned a few members did incorporate potential fiscal and tariff policies under the incoming administration in these estimates.

Treasury yields popped, stocks sold off and the dollar spiked as cuts were priced out. For investors, the macro backdrop has not shifted materially, we still expect growth and inflation to normalize, labor to gradually cool and for modest policy easing next year. This should keep earnings growth positive providing support for equities and credit next year, and elevated yields keep income attractive in bond markets. However, in the face of significant policy uncertainty maintaining broad diversification across stocks, bonds and alternatives is the best protection.

FOMC December 2024 Forecasts

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Warren Takunda

Economic

Shares mostly gained in Asia on Monday after U.S. stocks capped a mostly dismal week with a broad rally that still left the benchmark S&P 500 down 2% for the week.

U.S. futures and oil prices advanced.

One shadow over markets was cleared when U.S. lawmakers passed a budget deal in the early hours of Saturday, narrowly averting a pre-Christmas government shutdown.

Tokyo’s Nikkei 225 index jumped 1.3% to 39,201.48, while the dollar was trading at 156.65 Japanese yen, up from 156.48 yen.

Honda Motor Co. and Nissan Motor Corp. were expected to hold a news conference later Monday as reports speculated on a possible merger between Japan’s second and third-largest automakers. Honda’s shares, which fell after news of the talks on a deal surfaced last week, were up 2.3%. Nissan’s, which had soared, rose 0.5%.

Elsewhere in Asia, Hong Kong’s Hang Seng gained 0.7% to 19,857.37, while the Shanghai Composite index slipped 0.1% to 3,363.01.

Australia’s S&P/ASX 500 jumped 1.7% to 8,201.60.

South Korea’s Kospi added 1.5% to 2,441.82 and Taiwan’s Taiex jumped 2.6%, with TSMC, the world’s biggest computer chip maker, gaining 4.4%. Hon Hai Precision Industry, which reportedly has been maneuvering to buy a big stake in Nissan, jumped 3.8%.

In Bangkok, the SET advanced 0.4%.

On Friday, the S&P 500 rallied 1.1%, closing at 5,930.85. The Dow Jones Industrial Average jumped 1.2% to 42,840.26 and the Nasdaq composite gained 1% to 19,572.60.

Roughly nine of every 10 stocks in the S&P 500 rose.

Superstar stock Nvidia and other Big Tech companies led the market, which got a lift after a report said a measure of inflation the Federal Reserve likes to use was slightly lower last month than economists expected. It’s an encouraging signal following recent reports suggesting inflation may be tough to get all the way down to the Fed’s 2% goal from its peak above 9%.

The threat of higher inflation was one of the reasons Fed Chair Jerome Powell gave last week when the central bank hinted it may deliver fewer cuts to interest rates next year than it earlier expected.

That warning sent a shock through the stock market, which had run to 57 all-time highs this year amid the widespread assumption the Fed would deliver a string of cuts to rates into 2025. Now traders are largely betting on one, two or perhaps even zero next year, according to data from CME Group.

Critics had been warning stock prices were vulnerable to drops after running so high and that the market likely needed everything to go correctly to justify its stellar gains for the year. Besides the diminished hopes for several rate cuts next year, Wall Street got another reminder late Thursday that everything may not go as expected.

The U.S. stock market has lost a chunk of its gain since Trump’s win on Election Day, which raised hopes for faster economic growth and more lax regulations that would boost corporate profits. Worries have risen that Trump’s preference for tariffs and other policies could lead to higher inflation, a bigger U.S. government debt and difficulties for global trade.

In other dealings early Monday, U.S. benchmark crude oil picked up 37 cents to $69.83 per barrel.

Brent crude, the international standard, was up 34 cents at $73.28.

The euro rose to $1.0442 from $1.0433.