As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

The U.S. stock market saw a mixed week, with declines in major indexes offset slightly by a Friday rally. Smaller-cap stocks experienced steeper losses, and sentiment was dampened by cautious commentary from the Federal Reserve. The S&P 500 Index logged its 14th consecutive session with more decliners than gainers, the longest streak since 1978, adding concerns about the sustainability of recent market trends.

At the center of market focus was the Federal Reserve’s policy decision. As anticipated, the Fed announced a 0.25% rate cut, bringing the total reduction since September to 1.00%. However, Chair Jerome Powell’s remarks that policymakers foresee only two additional cuts in 2025—down from four previously—and higher inflation projections for 2025 rattled investors. The S&P 500 Index dropped nearly 3% on Wednesday, marking its second-worst day of the year.

Political uncertainty added to market volatility, with unresolved government funding negotiations raising fears of a shutdown. Despite this, U.S. economic data painted a more optimistic picture. Third-quarter GDP growth was revised upward to 3.1%, retail sales climbed 0.7% in November, and jobless claims fell to 220,000. The core personal consumption expenditures (PCE) index rose 2.8% year-over-year in November, a sign of steady inflation.

In bond markets, U.S. Treasury yields increased as expectations for rate cuts tempered. Municipal bond yields also rose, driven by thin liquidity and broader market weakness. High-yield bonds were mostly unchanged with subdued trading volumes ahead of the Fed’s announcement.

European stocks experienced their largest weekly losses in over three months, with the STOXX Europe 600 Index down 2.76%. U.S. President-elect Donald Trump’s warnings of potential tariffs on the EU and concerns about future interest rate paths weighed heavily on sentiment. Germany’s DAX fell 2.55%, Italy’s FTSE MIB dropped 3.22%, and France’s CAC 40 lost 1.82%. The UK’s FTSE 100 declined 2.60%.

The Bank of England (BoE) left its key interest rate at 4.75%, though three committee members supported a cut due to weak demand and labor market challenges. Governor Andrew Bailey highlighted inflation risks, noting that wage and price increases could prolong inflationary pressures. Meanwhile, headline inflation rose to 2.6% in November, up from 2.3% in October, driven by higher fuel and clothing costs.

Elsewhere in Europe, Sweden’s Riksbank reduced its rate to 2.50%, signaling the possibility of one final cut in early 2025. Norway’s central bank held its rate at a 16-year high of 4.50%, with expectations for easing starting in March 2025. In the eurozone, private sector activity contracted at a slower pace, bolstered by resilience in the services sector. However, Germany and France continued to face sluggish economic conditions. Adding to political uncertainty, German Chancellor Olaf Scholz’s coalition government lost a vote of confidence, prompting early elections in February 2025.

Japanese stocks declined, with the Nikkei 225 Index down 2.0% and the TOPIX Index falling 1.6%. Investor expectations for the Bank of Japan (BoJ) to normalize monetary policy diminished, with the central bank maintaining its key rate at 0.25%. Governor Kazuo Ueda’s comments suggested that any rate hikes may be delayed beyond January, as inflation and wage data are still being assessed. Japan’s core CPI rose 2.7% year-over-year in November, adding pressure on the BoJ to tighten policy.

Meanwhile, the yen weakened, benefiting export-driven sectors such as automakers. However, Japanese authorities signaled readiness to intervene if the yen’s slide continues. In China, equities also retreated, with the Shanghai Composite Index down 0.7% and the Hang Seng Index losing 1.25%. November data revealed uneven economic recovery. Retail sales grew just 3% year-over-year, while fixed asset investment and property investment lagged expectations. Industrial production provided a bright spot, increasing 5.4%, driven by demand for cars, solar panels, and robotics. Youth unemployment improved for the third consecutive month, but urban joblessness remained steady at 5%.

China’s property market showed tentative signs of stabilization, with new home prices falling at the slowest pace since June 2022. Analysts expect further government measures to stimulate growth as Beijing grapples with challenges, including heightened U.S. tariffs under the incoming Trump administration.

In conclusion, U.S. and European markets faced significant declines, with cautious Federal Reserve commentary and political uncertainties impacting investor sentiment, while robust economic data in the U.S. offered some support. In Asia, Japanese stocks dropped amid mixed signals on monetary policy, while China grappled with uneven economic recovery and property market stabilization.