A Look at the Day Ahead in European and Global Markets by Stella Qiu

2024 is almost over. Several central banks have concluded their final policy meetings of the year; some held steady while others cut rates. All noted a more uncertain 2025, particularly with the prospect of Donald Trump returning to the White House affecting the global economy and trade.

This leaves the U.S. Core Personal Consumption Expenditures (PCE) – the Federal Reserve's preferred gauge of inflation – as the last significant data point before the typically quiet Christmas period. With inflation risks rising again, the PCE outcome could greatly impact markets.

Consequently, caution permeates Asia, with MSCI's broadest index of Asia-Pacific shares – excluding Japan – hitting a fresh three-month low on Friday. Nasdaq futures fell by 0.7%, while EUROSTOXX 50 futures dropped by 1%.

Investor concern extends to Republicans' skepticism towards Trump's spending plans, as the U.S. government faces a potential shutdown on Saturday without action.

For the core PCE, forecasts suggest a monthly rise of 0.2% for November. A flat reading could ease tensions, whereas an increase of 0.3% or more may jeopardize any Fed policy easing next year.

Current futures imply just 37 basis points of U.S. rate cuts in 2025, suggesting less than two cuts, with a terminal rate anticipated at 3.9%—much higher than predictions from a few months ago.

This outlook has heavily impacted the Treasury market, poised for a fourth consecutive year of losses. The benchmark 10-year yields surged by 40 basis points over the last two weeks, crossing the critical 4.5% level for the first time since May.

Looking back, equities, Bitcoin, and the U.S. dollar performed well this year, but little else did. Japan's Nikkei index surged 16% to test record highs, finally overcoming decades of deflation fears. Even struggling Chinese blue chips climbed 15% amid expectations of increased stimulus from Beijing to stabilize the economy.

The U.S. dollar has risen 7% against major currencies this year, reaching a two-year peak, forcing other currencies—especially in emerging markets—to fight for survival, prompting interventions to support them. The Japanese yen has notably declined by 12% this year.

In an impressive comeback, Bitcoin has surged 130% this year, hitting all-time highs, largely attributed to favorable Trump policies.

Key Developments Influencing Markets on Friday:

• UK retail sales for November
• U.S. PCE data for November
• Remarks by Irish Central Bank Governor Gabriel Makhlouf
• Speech by Norway Central Bank Deputy Governor Pal Longva