A look at the day ahead at the US and global markets from Dhara Ranasinghe.
Don’t be fooled by what could prove to be a positive start to the new year, with stock futures pointing to a strong open on Wall Street on Thursday.
According to the last four years, the first trading day of the year has been a contrarian indicator Deutsche Bank (ETR:) study, which notes that the broad stock index ended each year in the opposite direction to day one.
Take last year, for example: The S&P closed roughly 0.6% lower on the first trading day of 2024, but ended the year more than 20% higher and posted a two-year jump of about 53% – its strongest consecutive annual performance. since 1998.
Instead of where stocks close on Thursday, perhaps more attention can be paid to the signals coming from the markets in the final, albeit quieter, last two trading weeks of 2024, where some decisive selling took place.
According to data from LSEG Lipper, investors liquidated global equity funds at the fastest pace in 15 years in the week to December 18 in a move partly explained by profit-taking with huge gains and also by the hawkish signal from the Federal Reserve at its December meeting . meeting for fewer interest rate cuts and higher inflation.
On the one hand, US economic exceptionalism, supported by robust consumer spending and a resilient labor market, deregulation and hopes for a Chinese recovery, bodes well for global markets in 2025.
Chinese President Xi Jingping said in his New Year’s speech on Tuesday that the country will adopt a more proactive policy to promote growth in 2025.
Factory activity grew in December, albeit at a slower pace than expected, according to the Caixin/S&P Global private sector survey.
On the other hand, there is the more cautious story that persistent inflation could force the Fed to suspend rate cuts and that new US President Donald Trump’s rate hike plans could hurt global economic growth, just as political uncertainty in France and Germany undermine confidence in the economy. currency block.
Chinese shares closed sharply lower in the first trading session of 2025, their weakest New Year’s start since 2016.
Geopolitical risks are also on the concern list. Russian gas exports via Soviet-era pipelines running through Ukraine came to a halt on New Year’s Day, marking the end of decades of Moscow’s dominance over European energy markets.
However, the widely expected shutdown will not impact prices for European Union consumers unlike in 2022, when declining supplies from Russia pushed prices to record highs, worsening the cost of living crisis and affected the bloc’s competitiveness.
Still, the move could pose a potential problem for central European countries, analysts say, while the European economy’s rise to its highest level in more than a year could add to inflationary pressures in the eurozone.
Ahead of the U.S. opening, dollar and U.S. Treasury yields fell, while oil prices were about a third of a percent higher.
Key developments that should give more direction to US markets later on Thursday:
– US weekly mortgage market index, initial unemployment claims
– S&P Global US December PMI (final)
