Summary of Global Financial and Political Developments 02.12.24

2 בדצמ׳

Summary of Global Financial and Political Developments (December 2, 2024):

Federal Reserve and Monetary Policy:

- Potential Interest Rate Cuts:

- John Williams (New York Fed President) indicated that monetary policy remains restrictive and future actions depend on incoming data. He expects inflation to decrease to 2% and anticipates U.S. GDP growth around 2.5% in 2024.

- Christopher Waller (Fed Governor) expressed support for a rate cut in December due to concerns about inflation stalling above 2%. He noted that the labor market is balanced.

- Raphael Bostic (Atlanta Fed President) stated that the economy is on solid footing and is open-minded about upcoming policy decisions, acknowledging uncertainties in the labor market.

Market Movements:

- U.S. Stock Markets:

- The S&P 500 closed at its 54th record high this year, driven by technology stocks like Tesla and Apple.

- The Nasdaq 100 rose over 1%.

- Treasury Yields:

- The 10-year U.S. Treasury yield increased to 4.22% as traders anticipated a potential rate cut.

- Currency Markets:

- The U.S. dollar strengthened against the euro and yen amid political uncertainties in Europe and expectations of U.S. rate cuts.

- Commodity Prices:

- Crude oil prices fluctuated due to OPEC uncertainty and a stronger dollar, with WTI crude settling at $68.10 per barrel.

OPEC and Oil Production:

- OPEC+ sources indicated that the group is likely to extend oil output cuts until the end of the first quarter of 2025.

- Iraq halted operations at the Basra oil refinery due to overloaded fuel oil storage tanks.

- OPEC crude output rose by 120,000 barrels per day to 27.02 million barrels per day in November.

Political Developments:

- France:
- Prime Minister Michel Barnier faced potential no-confidence votes over the government's budget proposal.

- The far-right National Rally party, led by Marine Le Pen, threatened to oppose the budget.

- The government made concessions by agreeing to scrap plans to reduce medication reimbursements.

- French bond yields rose, with the 10-year yield briefly trading above Greece's for the first time.

- The CAC 40 stock index dropped by 1.1% in early trading due to political uncertainties.

- United Kingdom:

- Prime Minister Starmer named Sir Chris Wormald as the new cabinet secretary and head of the civil service.

- South Africa:

- Clarified that BRICS has no plans to create a new currency, responding to threats of tariffs from Donald Trump.

Geopolitical Tensions:

- Middle East:

- Israel attacked targets in Lebanon after Hezbollah launched missiles toward Israeli territory, violating the ceasefire.

- Former U.S. President Donald Trump warned of severe consequences in the Middle East if Gaza hostages are not released before January 20.

- Pro-Iranian Shi'ite militias entered Syria from Iraq to support government forces against rebels.

- Syrian and Russian air forces conducted strikes on rebel-held positions.

-U.S.-China Relations:

- The U.S. tightened export controls on AI memory and semiconductor tools to China to curb technological advancements.

- China's Commerce Ministry condemned the U.S. measures as economic coercion.

- The Chinese yuan weakened to its lowest level since July.

Economic Data Releases:

- United States:

- ISM Manufacturing PMI for November rose to 48.4, still indicating contraction.

- Construction spending increased by 0.4% in October.

- Eurozone:

- Manufacturing PMI remained in contraction at 45.2 in November.

- Unemployment rate held steady at 6.3% in October.

- China:

- Caixin Manufacturing PMI increased to 51.5 in November, signaling expansion.

- Australia:

- Retail sales grew by 0.6% month-over-month in October, surpassing forecasts.

- Building approvals increased by 4.2% in October.

- Canada:

- Manufacturing PMI rose to 52.0 from 51.1, indicating improved manufacturing activity.

European Central Bank (ECB) Actions:

- ECB officials indicated that further rate cuts are likely in December due to persistent inflation concerns.

- Olli Rehn and Yannis Stournaras suggested that rate cuts may continue.

- Martin Kazaks mentioned that the ECB might discuss a larger rate cut but acknowledged high uncertainty.

- ECB's Philip Lane projected that inflation would reach a sustainable 2% in 2025 and noted that monetary policy remains restrictive.

Other Notable Events:

- Donald Trump nominated Warren Stephens as U.S. Ambassador to the UK.

- The Crypto Fear and Greed Index reached 80 out of 100, indicating extreme greed among investors.

- China's President Xi Jinping called for the promotion of the Belt and Road Initiative.

- China's central bank (PBOC) signaled plans to continue an accommodative monetary policy and reduce financing costs for enterprises and residents.

- Japan's government bond market dysfunction eased, according to a Bank of Japan survey.

Conclusion:

- Global markets are experiencing volatility due to a mix of monetary policy signals, geopolitical tensions, and political uncertainties.

- Anticipation of rate cuts by the Federal Reserve and the European Central Bank is affecting bond yields and currency valuations.

- Escalating tensions in the Middle East and ongoing U.S.-China trade disputes are contributing to market uncertainty.

- Political developments in France are impacting European markets and the euro.

- Mixed economic data across major economies highlight the uneven pace of global economic recovery.

- Investors are closely monitoring these developments for potential impacts on global financial markets and economic growth prospects.