Week ending 6th December 2024.

As you can see from the accompanying table, it was broadly a positive week for financial markets as the holiday season gets well under way. US markets responded positively this week following a stronger-than-expected November jobs report, which revealed the addition of 227,000 jobs—well above forecasts and a sharp rebound from October’s hurricane-affected figures. However, the unemployment rate edged up to 4.2%, which tempered some of the report’s initial optimism. Investors interpreted the data as a “Goldilocks” scenario—strong enough to signal economic resilience, yet not so robust as to deter the Federal Reserve from pursuing rate cuts in the near future.

Also in the US, consumers are feeling more optimistic about the economy. The University of Michigan’s consumer sentiment index rose for the fifth consecutive month in December, reaching 74, up from 71.8 in November.

Attention now shifts to the upcoming US Consumer Price Index (CPI) report, scheduled for Wednesday 11th December. Inflation trends have been inconsistent, with October’s annual CPI rising to 2.6%, up from 2.4% in September, still falling short of the Fed’s 2% target. This report is expected to influence discussions at the Fed’s 17th–18th December meeting, where market expectations are increasingly leaning toward a 25-basis-point rate cut. Fed Chair Jerome Powell emphasised this week that the economy’s strength offers flexibility for policy adjustments, signalling caution in future moves.

European equities finished the week on a positive note. The French government faced a crisis this week after Prime Minister Michel Barnier failed to secure parliamentary support for a deficit-reduction budget, resulting in a vote of no confidence. Despite this political uncertainty, French stocks surged on Friday, posting their largest single-day gain in three weeks.

Reassurance from President Emmanuel Macron, who promised to appoint a new prime minister and work toward a “government of general interest,” helped calm market fears. Data-wise, reports revealed that the euro area’s output grew at a faster pace in the three months ending in September, compared to the previous quarter—0.4%, after growth of 0.2% during the three months to June. Germany avoided recession with growth of 0.1%, following a contraction of 0.3% in the previous quarter.

In the UK, Bank of England Governor Andrew Bailey hinted that the central bank might consider cutting rates up to four times over the coming year, depending on economic developments and inflation holding steady at the 2% target. This statement has captured the attention of markets, as the BoE grapples with persistent inflation and slowing economic growth, positioning rate cuts as a potential tool to address these challenges.

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Chinese stocks posted solid gains this week, driven by growing optimism around potential stimulus measures expected at the Central Economic Work Conference, which begins on 11th December. Hong Kong’s Hang Seng Index gained 1.44%. Positive manufacturing data also provided support, with the official Purchasing Managers’ Index (PMI) improving to 50.3 in November, signalling expansion. However, signs of cooling in non-manufacturing activity and slower growth in services, as indicated by private-sector surveys, suggest a mixed picture for China’s recovery.

Coming up this week: Chinese inflation and balance of trade data, key inflation data for the US, as well as UK and Eurozone industrial production. The European Central Bank will hold its final policy meeting on Thursday 12th December and is widely expected to deliver its fourth interest rate cut of the year, so investors will be looking for clues about what comes next.

Kate Mimnagh, Portfolio Economist