• Bitcoin, the decentralised cryptocurrency, surged past US$100,000 marking a 129% increase year-to-date

The week ahead: key events include the US inflation report on Wednesday, the China CEWC on Wednesday-Thursday, and the European Central Bank (ECB) policy meeting on Thursday.

Markets Last Week

Equities

Global equities opened December on a strong note, rising 1.3%. However, performance varied widely, with global growth stocks gaining 3.5%, while value stocks lagged, declining by 1.2%.

On a global sector basis consumer discretionary, communication services, and technology all gained over 3% while most sectors declined over the week with energy, utilities and real estate the underperformers.

The US large-cap index marched to fresh all-time highs, while mid-caps declined after back-to-back weeks of outperformance. In the UK it was the mid-cap FTSE 250 that outperformed rising 1.4% vs the large-cap FTSE 100 which managed 0.3%. European equities were strong rising 3.4%, seemingly undeterred by the collapse of the French government.

France: political turmoil

France’s parliament ousted Prime Minister Michel Barnier’s government in a vote of no confidence, driven by the National Rally party to the right and the left-wing New Popular Front. This move aimed to block the proposed deficit-reducing budget for 2025.

This political instability caused the yield spread between German 10-year bunds and French 10-year OATS (French government bonds) to widen to 88 basis points (bps), the highest level since 2012. However, the gap narrowed to close the week at 77bps after President Macron announced plans to appoint a new prime minister and form a new government.

Analysts expect Macron to nominate a technocratic prime minister who will be backed by his centrist allies. This new government is expected to stand until June 2025, when parliamentary snap elections can be called again. In the meantime, the 2024 budget will be rolled over and the fiscal deficit is likely to remain at around 6% or higher.

Despite these political challenges, French equities showed resilience, rising 2.8% as markets anticipated faster policy easing by the ECB.

China: anticipation of stimulus

Chinese equities rose 1.1% while Hong Kong equities gained 2.2% on anticipation of fresh stimulus measures. China’s leadership is anticipated to announce further actions to support the economy during the upcoming CEWC this week. In this annual meeting, top officials map out the economic agenda for the next year. Economic growth and plans for further stimulus are among the key topics for investors. Many analysts believe that China will not be able to hit their 5% growth target next year without further stimulus.

Bitcoin: reaching new heights

Bitcoin, the decentralised cryptocurrency, surged past the US$100,000 mark on Thursday after finding resistance just below this level in recent weeks. Bitcoin peaked at US$104,000 but softened to US$100,000, where it is currently trading at. This milestone, eagerly awaited by the cryptocurrency community, marks a 129% increase year-to-date.

The Week Ahead

Wednesday: US inflation

Our thoughts: The Consumer Price Index print is the last before the US Federal Reserve (Fed) meeting on 18 December. Economists predict that headline annual inflation in November will increase to 2.7% from 2.6% in October. Futures markets are pricing in an 85% probability that the Fed cuts rates in its December meeting.

Wednesday-Thursday: China Central Economic Work Conference

Our thoughts: In this two-day annual conference Chinese officials may reiterate their commitment to China’s 5% GDP growth target, potentially simultaneously announcing fresh stimulus measures for their struggling economy.

Thursday: European Central Bank policy meeting

Our thoughts: The ECB are likely to maintain a dovish stance announcing a further 25bps cut, taking their deposit facility rate to 3.0%. Swap markets are currently pricing in a dovish path for the ECB with around six cuts expected between now and the end of next year, implying a policy rate of 1.7%.