No Santa Claus Rally This Year

For the week ending 3 January 2025

As of midday Friday, global equities were lower on the holiday-shortened week. The yield on the US 10-year Treasury note fell five basis points from the start of the week to 4.57%. The price of a barrel of West Texas Intermediate crude oil firmed about $3 to $73.60 amid a decline in US inventories and an expected decree from US President Joe Biden permanently banning new offshore oil development in some US coastal waters. On a net basis, volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), was little changed on the week at 17.3 after approaching 19 on Thursday.

MACRO NEWS

Mixed bag of PMIs but US solid

Purchasing managers’ indices for the manufacturing sector were mixed in December, but there was an uptick in the United States. China saw modest slippage, with the index falling to 50.1 from 50.3, while activity in Japan picked up, lifting the index to 49.6 from 49.0 in November. In the eurozone, the index was little changed at 45.1, down from 45.2 the month before, while activity in the United Kingdom fell to its lowest level in a year at 47.0, down from 48.0. China’s services sector reading jumped to 52.2 from 50, lifting the composite index to 52.2 from 50.8. The ISM manufacturing index rose to 49.3 from 48.4 in November, led by a gain in the new orders index.

Credit card charge-offs rise

The financial times reported this week that US credit card lenders wrote off $46 billion in seriously delinquent loans in the first nine months of 2024, up 50% from the same period in 2023 and the highest level in 14 years. Analysts noted that lower-income borrowers are showing the most distress after several years of high inflation.

Value beat growth — in Europe

Growth continued to wildly outperform value in the US in 2024, but the MSCI Value Index beat its growth counterpart modestly last year. The value measure gained 5.8% while growth added only 3.9%. In the US, the Russell 1000® Growth Index rose 32.5%, trouncing Value’s 12% gain.

PBoC to target benchmark interest rate

The People’s Bank of China will prioritize the role of interest-rate adjustments and move away from quantitative objectives such as loan growth in its monetary policy this year, officials told the Financial Times. That will bring the central bank more in line with the policies followed by the US Federal Reserve and the European Central Bank. The PBoC will likely cut interest rates from the current 1.5% level at an appropriate time, the central bank told the FT.

QUICK HITS

A state funeral for former US President Jimmy Carter will be held in Washington on 9 January. US exchanges will be closed in observance of a national day of mourning.

New French finance minister Eric Lombard said his 2025 budget proposal will aim for a deficit “slightly above” 5% of GDP, more than the 5% proposed by the previous government. The 2024 deficit is expected to come in at 6%.

After refusing to renew a gas transit agreement, Ukraine halted the last trickle of Russian gas exports to Europe through Ukrainian pipelines on New Year’s Day.

US President-elect Donald Trump endorsed Speaker of the House Mike Johnson ahead of Friday’s leadership vote. Johnson can afford to lose only a single vote and still retain the speaker’s gavel.

Mastercard SpendingPulse reported that US holiday retail sales beat expectations and increased 3.8% year over year, beating estimates. Sales rose 3.1% during the holiday period a year ago.

The US Department of the Treasury announced this week that its sanctions office had been hacked by Chinese state-sponsored hackers.

A worsening outbreak of H5N1 avian flu is pushing US food prices higher, particularly the price of eggs.

Bloomberg reported this week that UK credit and debit card spending barely grew in 2024 as consumers shunned big-ticket items.

Investigators in New Orleans and Las Vegas continue to investigate a pair of apparent terrorist attacks on New Year’s Day. The Las Vegas police noted strange similarities between the cases, though the FBI said they are not definitively linked.

In a meeting several weeks ago, US National Security Adviser Jake Sullivan presented President Biden with options for a US attack on Iran's nuclear facilities if the country moves toward developing a nuclear weapon before Biden leaves office on 20 January, Axios reported Thursday.

China’s President Xi Jinping said this week that he expects the country’s economy expanded about 5% in 2024.

The Case-Shiller US home price index rose 3.6% in October for the year before, slower than the 3.9% pace in September.

US Treasury Secretary Janet Yellen cautioned this week that the US may hit its debt limit by mid-January, forcing her to resort to extraordinary measures to avoid default. The department is estimated to have enough cash on hand to fund government operations until mid-June, giving Congress time to raise or suspend the politically sensitive limit.

THE WEEK AHEAD

Monday: Services PMIs ex US, US durable goods orders

Tuesday: ISM services PMI, eurozone CPI, US JOLTS data

Wednesday: Australia CPI

Thursday: Australia retail sales, eurozone retail sales

Friday: US and Canadia employment reports