Global stock markets sustained heavy losses this week, with post-US election euphoria evaporating and Christmas cheer in short supply.
While the US Federal Reserve reduced interest rates as widely predicted on Wednesday, investors were spooked by Chair Jerome Powell’s outlook for 2025. The Fed currently expects to make only two further cuts next year rather than the four markets had been pricing in. Stubbornly high inflation and the potential impact of President Trump’s tariffs are to blame for the more cautious approach. The news led to sharp share price declines in America and around the world, as well as rises in bond yields.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 3.4% down for the week so far, with the S&P 500 falling 3%. In the wake of the presidential election, investors had been excited about the possibility of lower business taxes and a rolling back of financial and corporate regulations. But there is now growing recognition that Trump’s policies may not be entirely positive for markets – for example, if tariffs on imports from China, Mexico and other major trading partners drive inflation higher. The US economy remains in good health, with a fall in jobless claims reported this week alongside an unexpectedly large rise in service sector output.
UK
In the UK, the FTSE 100 closed on Thursday 2.3% lower for the week so far, after the Bank of England opted to keep interest rates unchanged and economic data remained lacklustre. Like the Fed, the BoE said it was now likely to only make two cuts in 2025 given ongoing price pressures in Britain. On Wednesday, it was reported that the UK’s CPI figure had risen to 2.6% in November from 2.3% the previous month. Meanwhile, data showed that firms had cut jobs in the wake of the Budget, when new employment taxes were announced, and there were worrying signs of lower retail footfall in the run-up to Christmas.
Europe
In Frankfurt, the DAX index ended Thursday’s session 2.1% down for the week, while France’s CAC 40 fell 1.5%. European markets followed the US lower after the Fed’s disappointing 2025 outlook statement, although European Central Bank officials suggested they were likely to take a more proactive approach to cutting interest rates in the eurozone next year. Government bond yields in France rose after a credit rating agency downgraded the country’s debt, while research from Germany showed a further decline in business confidence.
Asia
In Asia, the Hang Seng index in Hong Kong fell 1% as losses were limited by hopes that the Chinese government would introduce further stimulus measures next year. Data published at the start of the week was broadly disappointing, with a fall in new home prices and business investment, alongside an unexpected decline in retail sales in November. Japan’s Nikkei 225 index of leading shares, meanwhile, lost 1.5% as investors digested the higher-for-longer interest rate story from the US. The Bank of Japan, as expected, chose to make no change to domestic borrowing costs, while the announcement of a merger between two major motor manufacturers was also welcomed by the market.
December 13 | December 19 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8296.9 | 8105.3 | -2.3 |
FTSE 250 | 20891.7 | 20399.4 | -2.4 |
S&P 500 | 6051.1 | 5867.1 | -3.0 |
Dow Jones | 43828.1 | 42342.2 | -3.4 |
DAX | 20405.9 | 19969.9 | -2.1 |
CAC 40 | 7403.7 | 7294.4 | -1.5 |
ACWI | 866.1 | 839.6 | -3.1 |
Hong Kong Hang Seng | 19953.3 | 19752.5 | -1.0 |
Nikkei 225 | 39423.1 | 38813.6 | -1.5 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 19 December 2024.
