GUM: December 2024 Outlook

Dec 13, 2024
Reading Time: 7 minutes

December 2024 Outlook: United States-Slightly Positive | Europe-Neutral | Japan-Neutral | China & Hong Kong-Neutral | Asia-Neutral

The three major U.S. indices have reached new highs, with the Federal Reserve cutting rates by 0.25% in November. Economic indicators in Europe showed improvement, although the short-to-medium-term outlook remains uncertain due to ongoing conflicts and political changes. The Nikkei index has climbed back above 39,000 points but requires attention to U.S. tariffs. The Chinese Reminbi is under pressure, necessitating observation of developments in US-China relations. The overall Asia is affected by U.S. tariffs and a strong dollar policy and showing a divergence in regional trends.

🇺🇸 United States-Slightly Positive
Three Major Indices Reaching New Highs with Rates Cut by 0.25%
In early December, the three major U.S. stock indices achieved new highs. The Dow Jones Industrial Average stabilized above 45,000 points for the first time, while the S&P 500 and Nasdaq indices surpassed 6,000 and 19,000 points respectively. Regarding the interest rates, the Federal Reserve announced a rate cut of 0.25 percentage points in November, adjusting the target range to 4.50% to 4.75%. This reduction met market expectations and marked the second rate cut since the pandemic began.

In terms of the economy, following his re-election, former President Donald Trump’s policies – including strong dollar, corporate tax cuts, and deregulation – are expected to benefit the developments of companies. These measures are anticipated to support the domestic economy and attract capital inflows, positively impacting the U.S. stock market. However, his tariff policies could lead to rising inflation, which may slow down future rate cuts next year.

🇪🇺 Europe-Neutral
Economic Indicators Showed Improvement Amid Uncertainty in Warfare and Political Changes
As of December 10, the MSCI Europe Index has risen by 8.58% year-to-date, with a 1.41% increase in December, approaching the highs seen in September. The Consumer Price Index (CPI) for Europe in November was 2.3%, higher than the previous value, but inflation remains low. Christine Lagarde, the President of the European Central Bank, stated that the fight against inflation is nearing its end, although the economy still faces downside risks.

Regarding the Russia-Ukraine war, Trump has called for an immediate ceasefire between both countries, suggesting that Ukraine may not receive significant U.S. military aid in the future. Meanwhile, current U.S. President Joe Biden announced a new security assistance package of USD$988 million for Ukraine. The political situation in the UK and France is unstable. Keir Starmer, the UK Prime Minister, has low approval ratings, with 2.2 million netizens calling for a re-election. Michel Barnier, the French Prime Minister, and his coalition government are facing a vote of no confidence. Despite the improvements in the MSCI Europe Index, attention must remain on political and wartime developments in the short term.

🇯🇵 Japan-Neutral
Nikkei Index Climbed Back to 39,000 Points but Attention Needed on U.S. Tariffs
In early December, the Nikkei 225 index rebounded from around 38,000 points to above 39,000 points. During November, the U.S. dollar strengthened while the yen depreciated, with the dollar to yen reaching to 156. However, as the dollar weakened in December, the yen appreciated back to the range of 149 to 151. Despite this recovery, the yen’s weakness is expected to persist for some time. Kazuo Ueda, the Governor of the Bank of Japan, indicated that with inflation and economic performance meeting expectations, the timing for interest rate hikes is approaching, leading to growing market expectations for a rate increase in December.

In terms of the economy, Japan’s GDP grew by 0.3% quarter-on-quarter in Q3, surpassing market expectations and the initial estimate of 0.2%. Although economic indicators are performing well, Japan’s future economic growth will still face challenges from U.S. tariff policies, particularly concerning the automotive industry produced in Japan.

🇨🇳 China & Hong Kong-Neutral
Renminbi Under Pressure with Necessary Need to Monitor Developments of US-China Relations
As of December 8, the Renminbi’s exchange rate against the U.S. dollar has fallen to a nearly one-year low of around 7.27 RMB, due to the possibility of Trump imposing additional tariffs on China. The market anticipates that the Renminbi will face pressure in the coming year. By December 10, the Shanghai Composite Index had rebounded from about 3,200 points in September to around 4,000 points, while the Hang Seng Index rose from approximately 17,000 points to 20,000 points.

During the Political Bureau meeting on December 9, it was decided to implement more proactive macro policies and moderately easing monetary policies to stabilize the real estate and stock markets and expand domestic demand. However, with the U.S. potentially increasing tariffs on Chinese goods, Fitch has lowered its GDP growth forecast for China in 2025 from 4.5% to 4.3%, indicating that close attention must be paid to developments in US-China relations.

Asia-Neutral
Overall Impact of U.S. Tariffs and Strong Dollar Policy on Asia Leads to Divergent Trends in the Region
Asian currencies have generally depreciated due to the effects of U.S. tariffs and a strong dollar policy, creating pressure on Asian markets.

In addition to the impacts of U.S. tariffs and a strong dollar, different regions in Asia are facing unique challenges. The recent execution of martial law in South Korea highlights its political instability, which could have long-term effects on the capital market. India’s GDP growth for the third quarter was only 5.4%, below the expected 6.5%, with the rupee falling to 84.5 against the dollar, marking a historic low. In contrast, Singapore has raised its economic growth forecast for 2024 to 3.5%, indicating a stable growth. Overall, countries in Asia are exhibiting different developmental trends under the influence of U.S. policies, and investors should pay attention to the geographical distribution of Asian funds.

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