Weekly Wrap: Jingle Bell Jitters - Week Ending December 20

This is the final Weekly Wrap of 2024. We wish you a happy and healthy holiday season, and we will resume on January 3. 

Market Movers

• Merry markets melt. Rising yields, tariff threats, and a potential US government shutdown kept markets choppy on the last liquid trading day ahead of the holidays. Although the Federal Reserve cut rates for the third time this year to 4.25%-4.5%, its hawkish tone signaled fewer cuts in 2025, triggering stocks to fall mid-week. The S&P 500 pared back losses, ending the week -1.65% to 5,953.02 week-to-date, the VIX volatility index briefly spiked 85% to 28.32, while 10-year US Treasury yields rose 0.12% over the week to 4.52%. The US dollar rallied to its strongest level in over two years, while Bitcoin slid from Thursday’s all-time high of $108K to $96,937.81.

• Tinsel-tangle. Latest headlines suggest the US may avoid a possible government shutdown at midnight tonight – US House Speaker Mike Johnson said an agreement has been reached on government funding. Oil was modestly weaker overnight after Trump suggested new tariffs on the EU if it did not increase its purchase of US oil and gas. Over the week, West Texas Intermediate crude fell 2.6% to $69.44.

• Frosty fluctuations. The Canadian dollar sold off to Covid levels, touching 1.4467, after Canadian Finance Minister Chrystia Freeland resigned earlier this week due to differences in fiscal outlook with Prime Minister Justin Trudeau. The Brazilian real plummeted to all-time lows of 6.3150. Brazil’s central bank has injected around $17 billion to aid the falling currency, which has deteriorated due to concerns around Brazil’s fiscal outlook and credibility.

Macro

• Hawkish holiday cut. The Fed’s updated dot plot now only projects two rate cuts for 2025 rather than three expected by economists. It also raised the long-term neutral rate to 3%, up from 0.5% a year ago. Fed Chair Jerome Powell said recent inflation forecasts have “kind of fallen apart,” and it may take much longer for inflation to reach the Fed’s 2% target. Market expectations have pared back rate cuts from 75 basis points to 35 through the end of 2025. The US core personal consumption expenditures price index, the Fed’s preferred inflation gauge, offered some relief: Month-over-month data came in at 12 bps versus expectations for 20.

• Dovish hold. The Bank of Japan left rates unchanged this week, in line with market expectations. BOJ Governor Kazuo Ueda’s comments, however, were dovish, as he stressed the dependence on upcoming wage and economic data. His statements cast doubt on whether the central bank will hike in January, prompting the Japanese yen to fall 1.83%, back to its weakest level since July. The Bank of England also left rates unchanged at 4.75% this week, as expected. Markets were surprised that three out of nine Monetary Policy Committee members voted to cut rates at this meeting and the BOE further pared down growth forecasts. Markets are currently pricing in a 72% chance that the bank cuts at its next meeting in February.  

Micro

• Tough talks. The US Supreme Court will hold an expedited hearing regarding a challenge to a law banning a popular social media platform next month if it isn’t sold by its Chinese parent company. Stocks of US social media companies rallied after the original ruling, which the Chinese company is now challenging as a violation of the Constitution’s free speech protections. A measure of social media stocks fell 1.77% week-to-date.

• Pack it up. Shares of a courier services company jumped 13% post market after the company said it plans to spin off its freight division into a publicly traded company to enhance operational focus, accountability, and agility. An ETF tracking supply chain companies is down 5.07% week-to-date.

• Merging lanes. Two Japanese motor companies are exploring a merger that would effectively consolidate the Japanese auto industry into two main camps and better position the combined company to face competitive challenges around the world. Stocks of automakers were down 0.96% week-to-date.

Checklist for the next week

• Major Economic Events in the US Include: Initial Jobless Claims; ISM Manufacturing; Conf Board Consumer Confidence; US Manufacturing PMI; MBA Mortgage Applications; New Home Sales
• Major Economic Events Around the World Include: UK GDP; Russia Gold and Forex Reserve; Singapore CPI YoY; Russia Industrial Production; Mexico Bi-Weekly CPI; Canada GDP