George Square Financial Management Monthly Review. In Conjunction with Albemarle Street Partners.
Central Banks Implement Historic Rate Cuts
December witnessed major central banks reducing interest rates, marking the most significant policy easing since the COVID-19 pandemic in 2020. The Federal Reserve, European Central Bank, and Sweden's Riksbank each reduced rates by 25 basis points, while Switzerland and Canada implemented 50 basis point cuts. Emerging markets followed suit, with Turkey cutting rates by 250 basis points. These actions culminated in a total of 825 basis points in cuts for 2024, the largest annual easing in 15 years. However, the accompanying communications from central banks remained notably hawkish, suggesting less scope for future rate cuts than markets had anticipated. This created a paradox where economic strength became a headwind for markets, as it implied higher-for-longer future interest rates and increased pressure on governments managing substantial deficit spending.
The Santa Rally That Wasn’t
The traditional end-of-year stock market rally failed to materialise in December as investors grappled with the implications of President-elect Trump's early cabinet picks and policy signals. His nomination of several prominent Wall Street figures suggested a push toward financial deregulation, while his continued tough stance on China rattled global markets. The S&P 500 pulled back from its November highs, with technology stocks particularly affected. However, energy and defence sectors showed surprising resilience, as markets began pricing in the likelihood of increased military spending and a more fossil fuel-friendly administration.
Bank of Japan’s Historic Move
After maintaining negative interest rates for nearly a decade, the Bank of Japan announced plans to move rates back into positive territory by early 2025. This marks a historic shift in global monetary policy, potentially ending the era of negative rates in major economies. The yen strengthened sharply on the news, causing ripples through Asian markets and forcing many global investors to reassess their currency positions. The move suggests growing confidence in Japan's ability to maintain inflation at sustainable levels, though questions remain about the impact on its massive government debt burden.
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