The Year in Review: What Happened in 2024?

Economic

Summary:

All told, 2024 was a year that defied expectations - sometimes for the better, sometimes for the worse - underscoring the importance of maintaining a well-diversified portfolio.

2024 was a busy year. Global economic growth diverged amidst elevated uncertainty; nearly half of the world's population went to the polls, igniting debates around policy; inflation eased across major economies, with policymakers seemingly successful in engineering a "soft landing"; and risk assets performed well, though the dispersion of returns across asset classes widened.

What was behind these market moves? To answer that, it is important to unpack some of the themes that defined last year:

U.S. growth exceptionalism continued:

Coming into 2024, consensus estimates projected U.S. growth to normalize. Instead, the U.S. economy surprised to the upside, driven by resilient consumer spending and AI-driven private investment. In fact, current estimates suggest that the U.S. economy expanded by 2.8% in 2024, more than double initial estimates and driving a wedge between the U.S. and other developed economies. In the emerging world, the Indian economy topped the league tables, while China managed to achieve its 5% growth target thanks to year-end stimulus.

Rate cuts materialized, but bonds lagged:

2024 was expected to be the “year of bonds,” as markets anticipated rate cuts from major developed markets. While cuts did materialize, they did so unevenly: stubborn inflation (with policy-related risks anticipated in 2025) and warmer growth pushed U.S. long rates higher while hawkishly shifting rate expectations for this year. However, while duration disappointed in 2024, credit markets fared better despite tight spreads, supported by low default rates and attractive base rates.

Gold and the dollar soared:

Safe-haven assets flourished in 2024. Gold climbed 27% amid record central bank purchases while the U.S. dollar appreciated around 7% thanks to macro conditions — like strong U.S. growth and high U.S. yields — and geopolitical concerns. As a result, the historical negative correlation between gold and the dollar was challenged.

Risk assets had another banner year:

Despite muted expectations in early 2024, U.S. equities defied projections, posting a second consecutive year of 20%+ return, a feat achieved only four times since the 1930s. Once again, these returns were driven by large cap names, fueled by strong earnings, optimism around AI and potential deregulation under the new administration. Outside the U.S., European equities struggled alongside a weakening economy, while Japanese and emerging markets fared better, including particularly good performance from Taiwan and India. Meanwhile, Bitcoin more than doubled in value, following regulatory approval of spot ETFs and optimism around potential policy changes.

The Year in Review: What Happened in 2024?_1

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Warren Takunda

Economic

The Australian Dollar is advancing in value agains the British Pound and the trend looks set to extend.

GBP/AUD hit a high at 2.0301 in mid-December, but this looks to be the interim top, and the retreat we are observing looks to be consistent with previous pullbacks: Pound to Australian Dollar Week Ahead Forecast: 1.96_1

Pound to Australian Dollar Week Ahead Forecast: 1.96_1

If the current decline in GBP/AUD is a mere pullback in the uptrend, as per the previous episodes illustrated in the above chart, then the retreat is close to completing.

It could extend to 1.96 and then begin to slowly recover before resuming the multi-year rally that remains intact from a technical perspective.

Should GBP/AUD extend below 1.96 we would be seeing an initial signal that a broader, more sustained change in trend is underway.

The other key level to watch is the 200-day exponential moving average (EMA), located at 1.95. A general rule of thumb we use is that an asset is in a medium-term uptrend while above the 200 EMA, and a downtrend when below.

The 200 EMA is still rising, so it should more or less converge on the 1.96 level with the spot exchange rate in the coming days, providing a key level of support.

So, all signs point to further GBP/AUD weakness, but it is still too soon to say the bigger more relevant GBP/AUD uptrend is over.

Theres is some interest in Australia this week with the release of monthly employment statistics for December. Here, the market looks for a seasonal slowdown to just 10K positions, down from 33K in November. The country's unemployment rate is anticipated to increase slightly to 4%.

Of more relevance to the Aussie Dollar is China, where the domestic currency is under pressure and where market nervousness about Donald Trump's ascension to the White House is rife.

"Perhaps the most significant battleground today is in China. Here, USD/CNY onshore is pressing the +2% trading band around the daily fixing. The People's Bank of China (PBoC) seems to be announcing new measures each day in an attempt to support the renminbi," says Chris Turner, Head of FX Research at ING.

"On Friday, it was a large PBoC sale (planned for Wednesday) of CNH bills in order to drain liquidity. Today it is a relaxation of macro-capital measures that now allows Chinese corporates and financial institutions to raise more money overseas," says Turner.

The Australian Dollar is a G10 proxy for China and the Chinese Yuan, meaning pressures here inevitably translate into Aussie Dollar weakness, which could limit GBP/AUD downside

"Commodity and emerging currencies should take the brunt of the higher US rate story. Indeed, AUD/USD is not far from 0.60, where we could start to hear speculation over impending Reserve Bank of Australia FX intervention," aadds Turner.

There is a definite shift in sentiment towards the GBP underway, which could mean this time, the pullback in GBP/AUD will be more concerted, and a trend-turn is potentially underway.

Pound exchange rates sold off significantly last week as investors grew increasingly concerned about the UK's debt dynamics. The UK ten-year bond yield rose again on Monday and is at its highest level since the turn of the millennium, which speaks of acute pressures on the UK's finances.

The bond yield represents the interest rate the UK government pays its creditors; as they rise so the UK government must scramble for more money.

Economists think the UK will now need £10BN more just to service debts than was anticipated in October when Chancellor Rachel Reeves set out her budget. To stick to her fiscal rules, she must now find more money via taxation or cut spending.

News publications indicate that, for now, Reeves thinks she can find some loose change by telling government departments to cut spending.

However, departmental budgets have already been cut drastically, and there will be limited success in this strategy.

Until she goes after the balooning benefits bill, success on the expenditure side of the books will not be forthcoming. We think markets would reward a clear commitment to reducing this bill.

However, for Labour, this is a particularly unappetising approach to take, and we doubt it will be forthcoming.

As such, GBP weakness looks to remain a feature of early 2025.

Source: Poundsterlinglive

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Warren Takunda

Economic

Why bother engineering a soft landing, when you can just keep flying?

That's the message from the U.S. payrolls report, which is likely to lift the Atlanta Fed GDP Now estimate from its already above-trend pace of 2.7%.

With the labour market so resilient and inflation receding only slowly, markets may be wondering why the Federal Reserve is easing policy at all. A reading above +0.2% for core consumer prices on Wednesday could convince futures to start giving up on even one cut this year.

The Treasury market is clearly fretting that cuts are done and the next move might be up, especially if President-elect Donald Trump goes through with universal tariffs, mass migrant deportations and tax cuts.

China's reveal of a whopping $105 billion trade surplus with the United States in December only adds ammunition to those arguing for swingeing tariffs.

Add in an ever-expanding budget deficit and it would be no surprise to see 10-year Treasury yields test the 5% barrier.

That raises the bar for discounting corporate earnings, just as the profit season starts with the big banks on Wednesday. It also makes risk-free debt relatively more attractive compared with other investments including equities, cash, property and commodities.

So it's been pretty much a sea of red in Asian stocks so far on Monday. Japan is on holiday but Nikkei futures are down around 1.2%. S&P 500 and Nasdaq futures are both down around 0.5%, and European stock futures have lost 0.1% to 0.3%. There's no trading of cash Treasuries but futures are down 5 ticks or so.

The ascent of yields is stoking the dollar's bull run and causing stress across Asia, where central banks have to routinely intervene to prop up their currencies.

China's central bank is increasingly rummaging through its policy tool kit to support the yuan, announcing on Monday an increase in the cap on what local companies can borrow abroad. If they can borrow the dollars they require, then there is less need to buy dollars for yuan in the spot market.

Another currency under fire is sterling, which hit a fresh 14-month low at $1.2138 as markets fret about the Labour government's financial credibility. On a trip to China, finance minister Rachel Reeves had to reassure the media she would act to ensure the government's fiscal rules are met.

Oh, and oil is up another 1.5% as investors ponder the full implications of the latest round of U.S. and UK sanctions on Russian producers.

This move could really bite since it sanctions another 160 tankers of Russia's shadow fleet, taking the total to 270. Previous tankers so hit were severely curtailed in where they could travel and some ended up being scrapped.

Key developments that could influence markets on Monday:

- U.S. Federal budget balance

Source: Reuters

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Economic

The European stock markets outperformed global peers last week, buoyed by expectations of a more accommodative monetary policy from the European Central Bank compared with the Federal Reserve. However, Friday's robust US job data unsettled investors, causing the US and European government bond yields to surge, leading to a broad-based selloff in equities.

This week, attention will centre on inflation data from major economies, including the US, EU, and UK.

Additionally, China's forthcoming release of its Gross Domestic Product (GDP) growth figures for the final quarter will be a critical gauge for its economic trajectory.

Europe

Eurostat is set to release final inflation data for December. Preliminary estimates indicate that the eurozone's annual headline CPI accelerated for the third consecutive month to 2.4% year-on-year in December, compared with 2.2% in November and 2% in October.

However, this uptick was largely due to base effects, as falling energy prices were no longer impacting the annual rate. Core inflation, excluding volatile items such as food and energy, remained steady at 2.7%, signalling that inflation may be cooling.

The figures reinforce expectations for the ECB to implement further rate cuts in January, with a total reduction of one percentage point anticipated this year. The ECB has projected that inflation will return to its 2% target by the end of 2025.

Nonetheless, rising energy prices and uncertainties surrounding Trump's presidency could complicate this outlook.

Germany is also poised to confirm its final CPI figures for December. Flash data revealed that annual inflation in Europe's largest economy rose to 2.6% last month, up from 2.2% in November, marking an 11-month high.

Core CPI increased to 3.1% year-on-year from 3% the previous month. The final inflation figures are expected to align with initial estimates.

In the UK, annual inflation climbed for a second consecutive month to 2.6% in November, the highest level since March 2024. December's CPI is anticipated to hold steady at 2.6%, while core inflation is forecasted to ease slightly to 3.4% from 3.5% in November. The data may slow the Bank of England;s pace of rate cuts.

Additionally, a recent selloff in UK government bonds and a weakening sterling suggest that investors are fleeing the country's assets amidst concerns of stagflation. The Labour government's tax-hiking budget plan is expected to exacerbate inflationary pressures while hindering economic growth.

United States

US CPI data will serve as a pivotal economic indicator for global markets this week. Annual headline inflation in the US accelerated for the third consecutive month to 2.7% in November, with core CPI rising 3.3%.

Consumer prices are expected to continue accelerating, reaching 2.9% annually in December, while core inflation is projected to remain at 3.3%. This persistent inflationary trend may prompt the Federal Reserve to adopt a slower pace of rate cuts in 2025, particularly in light of Friday's strong job report. Rising bond yields could further pressure US equity markets.

The Producer Price Index (PPI), which tracks the average change over time in prices domestic producers receive for their output, will also be released this week. November's PPI increased by 3% year-on-year, the steepest rise since February 2023, and a sharp jump from October's 2.6% figure. December's PPI is expected to show a similar 3% year-on-year increase.

Retail sales data, another key metric, is forecasted to grow 0.6% month-on-month during the holiday season, following a robust 0.7% increase in November. Strong retail figures could further influence market sentiment.

Asia-Pacific

China's fourth-quarter GDP and several other economic data will be closely watched to assess the trajectory of the world's second-largest economy. Consensus estimates suggest GDP growth will rise by 5% year-on-year in the final quarter of 2024, up from 4.6% in the third quarter, driven by Beijing's stimulus measures.

Full-year economic growth is expected to meet the 5% target in December. Other indicators, including industrial production, retail sales, and home prices, are also projected to show continued improvement.

This combination of critical data releases from major economies will set the tone for global markets in the coming weeks, influencing central bank decisions, currency movements, and commodity prices.

Source: Euronews

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Economic

London stocks fell in early trade on Monday as bond yields rose again, but oil majors gained in tandem with oil prices.

At 0830 GMT, the FTSE 100 was down 0.3% at 8,226.21,while sterling dropped to a 14-month low against the dollar, trading down 0.4% at 1.2156.

Richard Hunter, head of markets at Interactive Investor, said: "UK markets were unsurprisingly subject to skittish investor sentiment in early trade. Bucking the trend were the oil majors after the announcement of further US sanctions against Russia, which lifted the price of ‘black gold’ overnight, feeding through to gains of around 1.5% for both BP and Shell.

"Nonetheless, the general attitude was circumspect, especially with regards to an uncertain outlook for the UK economy which has already wiped 4.3% from the more domestically focused FTSE 250 in the month of January.

"In contrast to other indices, the FTSE100 has posted a marginal gain of 0.6% so far this year, although this is more likely to have been underpinned by the weakness of sterling as opposed to any flights to the UK as an investment destination."

In equity markets, Ladbrokes owner Entain surged to the top of the FTSE 100 as it reiterated its guidance for FY24 EBITDA. The shares were hit last week after rival Flutter Entertainment downgraded its US guidance due to unfavourable sports results.

Flutter was also a high riser.

Richard Hunter said Entain had been expected to be hit by a series of consumer-friendly sports results over recent weeks.

Oxford Nanopore was in the black after a well-received full-year trading update.

GSK traded a little lower as it announced the acquisition of US-based biopharmaceutical company IDRx for up to $1.15bn. IDRx specialises in developing treatments for gastrointestinal stromal tumours (GIST). GSK will pay $1bn upfront with the potential for a further milestone payment of $150m.

Fintech group Plus500 lost ground despite saying that results for 2024 had beaten market forecasts, driven by a solid end to the year with customer numbers surging 45% over the final quarter.

PageGroup tumbled as the recruitment firm said annual operating profit would be at the lower end of consensus expectations after fourth-quarter earnings fell 17% as market conditions worsened in Europe, with companies low-balling offers to potential job candidates.

Source: Sharecast

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Stocks

Asian stocks retreated on Monday after U.S. stocks fell as good news on the job market raised inflation worries.

Markets in Japan were closed for a holiday.

U.S. futures dropped while oil prices surged more than $1 a barrel after President Joe Biden’s administration expanded sanctions against Russia’s critically important energy sector over its war in Ukraine. The Biden administration said the sanctions announced Friday were the most significant to date against Moscow’s oil and liquefied natural gas sectors, drivers of Russia’s economy.

U.S. benchmark crude oil surged $1.23 to $77.80 per barrel, while Brent crude, the international standard, rose $1.19 to $80.95 per barrel.

China reported its exports grew at a faster pace than expected in December, as factories rushed to fill orders to beat higher tariffs that U.S. President-elect Donald Trump has threatened to impose once he takes office.

Exports rose 10.7% from a year earlier. Economists had forecast they would grow about 7%. Imports rose 1% year-on-year. Analysts had expected them to shrink about 1.5%. With exports outpacing imports, China’s trade surplus grew to $104.84 billion.

But the upbeat data failed to boost the region’s stocks. Hong Kong’s Hang Seng dropped 0.8% to 18,911.21, while the Shanghai Composite lost 0.3% to 3,160.76.

“Adding to the skittish sentiment is the uncertainty over how Asian economies, especially China, will fare under the shadow of the incoming Trump administration’s ‘America First’ trade policies,” Stephen Innes of SPI Asset Management said in a commentary.

Australia’s S&P/ASX 200 dipped 1.2% to 8,191.90. South Korea’s Kospi shed 1% to 2,489.56.

On Friday, the S&P 500 tumbled 1.5% to 5,827.04, ending its fourth losing week in the last five. The Dow Jones Industrial Average dropped 1.6% to 41,938.45, and the Nasdaq composite sank 1.6% to 19,161.63.

Stocks took their cues from the bond market, where yields leaped to crank up the pressure after a report said U.S. employers added many more jobs to their payrolls last month than economists expected.

Such strength in hiring is of course good news for workers looking for jobs. But it could also keep upward pressure on inflation by keeping the overall economy humming. That in turn could dissuade the Federal Reserve from delivering the cuts to interest rates that Wall Street loves. Lower rates can not only goose the economy but also boost prices for investments.

The Fed has already indicated it’s likely to ease rates fewer times this year than it earlier expected because of worries about higher inflation. That’s in part because some officials are taking seriously the possibility of tariffs and other policies coming from President-elect Donald Trump that could worsen inflation.

Friday’s jobs report might not have been as strong as it appeared, given weakness in manufacturing.

Markets have been deflating after traders sent U.S. stock indexes to dozens of records last year, banking on a stream of rate cuts coming from the Fed. If fewer cuts materialize than expected, stock prices would likely either need to fall, or profits at companies would have to rise more strongly to compensate.

Insurance companies were also under pressure as wildfires continue to burn in the Los Angeles area. Many of the homes that have been destroyed were in expensive areas where the typical price can top $3 million, and such high-priced damage could eat into insurers’ profit. Allstate fell 5.6%, Travelers dropped 4.3% and Chubb lost 3.4%.

Delta Air Lines was able to fly 9% higher because it delivered a stronger profit report for the last three months of 2024 than analysts expected. The airline said it’s seeing strong demand for travel, which accelerated through the end of last year, and it expects that to continue into 2025.

In other dealings Monday, the U.S. dollar fell to 157.34 Japanese yen from 157.82 yen. The euro dropped to $1.0220 from $1.0244.

Source: AP

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Warren Takunda

Economic

The Pound to Dollar (GBP/USD) exchange rate faces the prospect of a fifth daily decline and is forecast to remain under pressure in the coming week. The initial target is 1.2042, which forms a graphical horizontal support line from October 2023.

Beyond here is 1.18, which can be achieved over the next couple of weeks. Pound Sterling Selloff Resumes, GBP/USD Eyes 2023 Lows This Week_1

The outlook is downbeat and the route of least resistance is to the downside.

However, GBP/USD is now starting to screen as being technically oversold, with the Relative Strength Index hitting 30, which advocates for either a recovery or a period of consolidation.

This by no means suggests a strong rebound is likely and all signs point to any GBP strength being tepid in the absence of a decisive fundamental shift in sentiment.

For that to happen, Chancellor Rachel Reeves should announce a significant shift in policy aimed at stabilising the UK's finances.

There is talk of cuts to the benefits bill being in the pipeline, which would represent the first major step in shrinking the bloated British state.

Chancellor Reeves announced a significant boost to spending in the October budget, which would be financed by taxes and increased borrowing. Markets stomached the announcement as Reeves said her budget would boost growth in 2025, which meant the economy would fund the debt.

But, the post-budget data is coming in, and investors don't like what they see: economic growth has stalled and unemployment is rising, raising serious questions about the UK's debt dynamics.

As a small, open economy, the UK doesn't have the same leeway as the U.S. and Eurozone to engage in frivolous fiscal experiments. The surge in UK debt costs seen this year and the fall in the Pound is the market's way of pulling the reins and course-correcting the UK.

Reeves returns from a trip to China this week, and investors are clearly waiting to hear details of how the UK will navigate the current uncertainty.

UK inflation is due for release on Wednesday, where a figure of 2.6% is expected. Economists will likely update forecasts in the wake of the data to show UK inflation is headed to 3.0%, taking it further away from the Bank of England's 2.0% target.

The Bank of England looks set to cut interest rates again in February, as the slowdown in the economy and rise in unemployment warrant this action.

However, the decision will prove controversial, as the Bank risks losing credibility by raising interest rates as inflation rises, destabilising UK inflation expectations.

It is difficult to say how the Pound might react to the inflation data: the rule of thumb says an above-consensus reading would boost the GBP as it implies higher interest rates for longer at the Bank of England. But in the current climate, the dynamic has been turned on its head, and we wonder if a lower reading would, in fact, benefit Sterling.

Either way, any positive reaction in GBP/USD should prove short-lived, given the overall strength of the downtrend.

Thursday sees the release of UK GDP data, and there is the risk that the UK will release a third consecutive monthly decline in GDP, following September and October's -0.1% prints. Recall, it is stalling growth that is a significant factor behind the market's desire to sell UK bonds and the Pound.

An above-consensus reading could be what is needed to stoke a relief rally in the Pound.

Friday brings UK retail sales for December, which also offers the prospect of a positive surprise. Markets look for a strong rebound in the annual figure to 3.3% growth from 0.5%. The monthly figure is anticipated to show a doubling in growth from 0.2% m/m to 0.4%.

A beat would offer GBP/USD a welcome respite ahead of the weekeend.