Bassanese Bites: Reality check – December 23 2024
Global markets
Global equities fell for the second week in a row following the ‘hawkish cut’ by the US Federal Reserve.
As alluded to last week, the major global highlight of the past week was the Fed meeting. Although the Fed cut rates by 0.25% as widely anticipated, the scaling back of expected 0.25% rates cuts in 2025 via the ‘dot plot’ from four to two rocked markets – even though this only validated where the market had already moved to.
Also jarring was the Fed’s upgrade to its inflation forecasts, with core PCE inflation expected to end next year at 2.5% rather than 2.2%. Again, this acknowledges the reality that US inflation has held up longer than expected in recent months, despite a softening in wage growth.
Blunting the pain somewhat was Friday’s better than expected PCE inflation result, with core prices up only 0.1% in November (market +0.2%). This allowed annual core inflation to hold steady at a still uncomfortably high 2.8%, and US stocks to recover some lost ground on Friday. The great hope now is that the US disinflation process re-commences in the new year, especially through reduced housing inflation.
Either way, the Fed is slowing rate cuts for a good reason – resilient growth – rather than out of concern for the downside risks to the economy. As such there’s no reason to suggest recent market weakness will be anything other than a healthy market correction, especially given the still bullish outlook for corporate earnings.
In other news, both the Bank of Japan and Bank of England held rates steady – in line with expectations.
Global week ahead
There’s only second-tier data and no central bank activity scheduled for the week ahead, which should allow markets to ease into their holiday slumber. The one wild card remains any further unpredictable threats from US President-elect Trump.
Australian market
The S&P/ASX 200 dropped 2.8% last week as part of the global sell-off, but was enjoying a 0.8% bounce in Monday morning trading at the time of writing – in line with Wall Street’s recovery on Friday.
