Weekly Global Market Update

Weekly Global Market News – Dec 30 Weekly Markets Brief – Year-End Edition Overview Markets wrapped up the holiday-shortened week with a cautious tone as investors balanced resilient growth signals against the prospect of slower, but still positive, disinflation. Liquidity remained thin into year-end, amplifying intraday swings across equities, bonds, and commodities. While headline indices hovered near recent ranges, leadership continued to rotate beneath the surface—benefiting quality balance sheets and companies with clear cash flow visibility, while more speculative pockets saw mixed participation. Quick take Macro: Disinflation continues to trend gradually lower in major economies, while labor markets show signs of cooling without a sharp deterioration. Policy: Central banks remain data-dependent; markets are still calibrating the timing and pace of eventual rate cuts rather than debating further hikes. Equities: Breadth is improving but uneven; quality growth, selected cyclicals, and capital-light business models retain a premium. Fixed income: Front-end yields are sensitive to each macro print; curve shape remains a focal point for duration decisions. Credit: Investment-grade spreads remain resilient; high yield and loans are more idiosyncratic as refinancing calendars pick up. Commodities: Energy trades the push-pull of supply discipline versus growth expectations; precious metals track real yields. Currencies: Dollar direction is tied to relative rate expectations; yen remains sensitive to any normalization cues from the BoJ. Risks: Policy missteps, sticky services inflation, and geopolitical headlines are the key swing factors as we turn the calendar. Equities Global stocks were range-bound into the holiday period, with thin volumes masking notable factor rotation. Investors favored: Quality earnings and free cash flow over high beta. Businesses with pricing power as input costs normalize but wage trends remain steady. Select cyclicals tied to infrastructure, AI-related capex, and industrial automation. Healthcare and staples for defensiveness where valuations remain reasonable. Technology leadership broadened beyond megacaps in places, with semiconductors and software tied to AI infrastructure continuing to draw capital. That said, valuation discipline mattered: companies pairing growth with improving margins saw the most durable follow-through. Small and mid-caps showed intermittent strength as rate expectations eased, but dispersion within those cohorts stayed elevated. Fixed income Rate markets spent the week consolidating prior moves. The front end remains anchored to incoming inflation and employment data, while the long end is responding to growth expectations and term premia. Duration: With policy rates near a peak in many jurisdictions, selectively extending duration remains a live debate, particularly for investors underweight high-quality core bonds. Credit: Investment-grade corporate bonds continue to benefit from balance sheet conservatism and terming-out of debt. High yield is more bifurcated; credits with near-term maturities and weaker cash generation face a tougher refinancing backdrop even if all-in yields remain attractive. Municipals: Seasonals can be supportive into year-end, though individual credit fundamentals and tax positioning remain key. Commodities Crude oil: Prices are oscillating as production discipline and inventory draws square off against moderate demand growth and an uncertain global growth outlook. Geopolitical risk premia can spike quickly in thin markets. Gold: Supported by a softer trajectory in real yields and ongoing central bank demand; pullbacks have found buyers on dips. Industrial metals: Copper and related metals are tracking China’s policy impulses and global manufacturing momentum. Any pickup in capex and grid investment is a medium-term tailwind. Currencies US dollar: The path is driven by relative rate differentials and growth surprises. A measured glide path lower in US inflation relative to peers typically weighs on the dollar, but any growth outperformance can offset. Euro: Sensitive to Eurozone inflation prints and growth downgrades; the policy narrative is balanced between caution and flexibility. Yen: Markets remain alert to signs of policy normalization; small shifts in guidance can result in outsized FX moves. EM FX: Country-specific fundamentals dominate. External balances, commodity exposure, and credible policy frameworks are differentiators. Corporate earnings The upcoming reporting season will refocus attention on: Margins: Relief from input costs versus sticky wage bills and opex normalization. Guidance: Demand visibility, backlog quality, and pricing power in 2025. Capex: Ongoing spend on AI infrastructure, supply-chain resiliency, and energy transition projects. Buybacks and dividends: Capital return remains a support, but management teams are increasingly selective. Policy and macro Inflation: Goods disinflation is largely advanced; the focus is on services categories tied to wages and shelter. The trajectory still points lower, but month-to-month noise remains. Growth: Soft landing remains the base case for many, with risks skewed by credit conditions and consumer excess savings that have normalized. Central banks: Messaging emphasizes flexibility. Markets are calibrating the timing of any policy easing, likely gradual and dependent on data. The week ahead: what matters Inflation gauges: National CPI/PPI prints and Eurozone flash estimates will set the tone for rate expectations. PMIs and ISM: Manufacturing and services surveys will help validate whether activity is stabilizing. Labor data: Payrolls, wage growth, and jobless claims will inform the “slow-cooling” narrative. Central bank minutes/speakers: Any hints on reaction functions, balance sheet plans, or tolerance for upside/downside surprises. China: Official and Caixin PMIs plus policy headlines around property and credit conditions. Corporate: Early preannouncements, buyback authorizations, and capital expenditure updates. Three things to watch Breadth and leadership: Can participation broaden beyond a handful of mega-caps on improving earnings visibility and easing financial conditions? Services inflation: Progress here is the swing factor for the timing of rate cuts in major economies. Credit conditions: Primary markets and refinancing activity will be a real-time stress test for lower-rated borrowers. Strategy corner (education only) Equities: Balance quality growth with selective cyclicals exposed to capex and infrastructure upgrades. Consider diversifying factor exposure to reduce reliance on a narrow leadership cohort. Fixed income: Reassess core duration after the past year’s moves; high-quality bonds have regained their hedging role. In credit, emphasize upgraded balance sheets and manageable maturity walls. Multi-asset: With cross-asset correlations falling from peak levels, a more balanced mix across equities, high-quality bonds, and select alternatives can improve risk-adjusted outcomes. Risk radar Policy error: Cutting too early or staying restrictive too long. Sticky services prices: Particularly shelter and labor-intensive categories. Geopolitics: Energy supply disruptions,