USA

The U.S. equity markets delivered strong gains during the week, buoyed by positive inflation data and a dovish tone from the Federal Reserve. Investor optimism pushed the S&P 500 up by 1.7%, with technology stocks leading the NASDAQ to a 2.1% gain, while the Dow Jones rose 1.5%, supported by industrials and financials. U.S. inflation data for November, released this week, aligned fully with economists' expectations but revealed underlying concerns. Both headline and core inflation rose 0.3% month-over-month, with core inflation remaining elevated for the fourth consecutive month. As a result, annual headline inflation edged up to 2.7% from 2.6%, while core inflation held steady at a high 3.3%.

Producer Price Index (PPI) data added to the mixed sentiment. Business-to-business inflation increased by 0.4% m/m, surpassing the forecast of 0.2%, and October's data was revised upward to 0.3%. However, core PPI matched expectations at a moderate 0.2%.

Meanwhile, labor market data showed unexpected weakness. Initial jobless claims climbed to 242,000 (prior: 225,000; forecast: 221,000), and continuing claims rose to 1.89 million from 1.87 million, signaling softening conditions. The market response was mixed: while participants priced in a near 100% probability of a Fed rate cut in December, concerns about persistent inflation and a cooling labor market tempered investor sentiment.

Europe

The European Central Bank (ECB) cut its three key interest rates by 25 basis points, lowering the deposit facility rate to 3.00%, effective December 18, 2024. This decision reflects an updated inflation outlook and easing financing conditions, though monetary policy remains restrictive. Eurozone inflation accelerated to 2.3% in November due to base effects in energy prices, while core inflation held steady at 2.7%. ECB staff project headline inflation to average 2.4% in 2024 and reach the 2% target by 2026, with economic growth expected at 0.7% in 2024. The ECB emphasized a data-dependent approach for future rate decisions while continuing balance sheet normalization. European markets responded positively, with equities rising and bond yields easing on expectations of improved liquidity.

Japan

Japanese equities struggled during the week, weighed down by weak economic data and currency movements. Japan's GDP for the third quarter contracted to 0.3% quarter-over-quarter, marking a steeper decline than expected and raising concerns about economic momentum. The Manufacturing PMI increased to 49.50 in December, above the market forecasts of 49.2. As a result, the Nikkei 225 rose 1.0%, while the broader TOPIX increased 0.7%.

China

This week brought a flurry of economic data from China, painting a concerning picture of its economy. November's key indicators showed mixed results, with retail sales growing by only 3.0% year-over-year, falling short of the expected 4.6%, while industrial production met expectations at 5.4%. Meanwhile, property prices continued their downward trend, declining by 5.7% year-over-year, reflecting ongoing weakness in the real estate sector. The unemployment rate held steady at 5.0%.   Adding to investor concerns, China's capital markets experienced a significant outflow. The latest data revealed a record $45.7 billion in investor outflows for November. This aligns with broader trends, as the People's Bank of China reported that foreign investors reduced their holdings in Chinese bonds for the third consecutive month. The Institute of International Finance (IIF) also noted capital flight across both bonds and equities.   The weak economic data and persistent capital outflows weighed on market sentiment. Concerns about structural economic challenges and reduced foreign confidence continued to pressure Chinese equities, with investors closely monitoring potential policy responses to stabilize the economy. Geopolitical tensions with the U.S. and concerns over the property market further dampened sentiment, leading the Shanghai Composite to decline 0.5% and the Hang Seng Index to fall 0.9%.