Markets that began the year with investors expecting the global stock rally to run out of steam, rapid U.S. interest rate cuts to boost Treasuries and weaken the dollar, and emerging market currencies are strengthening, have firmly defied this consensus.
Global stocks poised for second straight annual rise of over 17%, regardless of wars in the Middle East and Ukraine, shrinking German economy and government collapse, budget chaos French and the slowdown in China.
That's mainly due to a second year of huge gains for Wall Street stocks, as artificial intelligence fever and robust economic growth sucked more global capital into U.S. assets and sent the dollar soaring 7 % compared to its peers in 2024.
American exuberance rose after Donald Trump's election victory on November 5, with traders focusing on the president-elect's tax cut and deregulation plans as the surge in animal spirits propelled the cryptocurrency bitcoin to an annual gain by 128%.
Global markets enter 2025 increasingly exposed to U.S. trends – a risk factor that gained momentum after the Federal Reserve rattled markets this month by indicating it would cut interest rates over the coming year.
The move follows weak U.S. jobs data and a surprise interest rate hike in Japan mid-year, which put pressure on dollar-denominated assets and caused a shock of volatility on global markets, triggering a brief rout in August.
Debt investors, meanwhile, are increasingly anxious that Trump's proposed trade tariffs will fuel inflation and fear excessive borrowing from the White House that could shake up the $28 trillion Treasury market. dollars and trigger a broader disruption on government bonds.
“It will be difficult, in the event of a (US) retreat, to find a place to hide,” said Julien Lafargue, head of market strategy at private bank Barclays.
THE MASTODONS OF WALL STREET
Wall Street's S&P 500 index is up 24% this year, following a similar jump last year, marking its biggest gain in two years since 1998.
Shares of artificial intelligence chipmaker Nvidia are up 172% in 2024, Elon Musk's automaker Tesla has gained 69%, while investors' exposure to U.S. stocks hit record levels in December.
The combined value of the so-called Big Seven U.S. tech stocks represents about a fifth of the MSCI global stock index, according to Schroders, raising the market's threat levels if their earnings or artificial intelligence technology disappoint.
EUROPE’S DIFFICULTIES
The euro has fallen about 5.5% against the dollar this year, while European stocks have underperformed their U.S. counterparts, something not seen in at least 25 years.
After four rate cuts from the European Central Bank, the euro zone economy is slowing its decline and some forecasters are counting on a rebound in Europe in 2025.
The chances of an international market recovering if the United States fails are generally slim. Gold is up 27% in 2024 as investors scramble to find other opportunities to diversify.
POWERFUL DOLLAR
Fears over US tariffs and a strong dollar have hit emerging market currencies hard, exacerbating losses in struggling countries.
The currencies of Egypt and Nigeria have fallen about 40% against the dollar following devaluations, and the Brazilian real has weakened more than 20% as concerns over debt and spending Public protests intensified.
Among the few annual gains, the Malaysian ringgit rose 2%. Among the best-performing currencies, the South African rand, Hong Kong dollar and Israeli shekel remained virtually unchanged during the year.
“We remain cautious on emerging market currencies, primarily due to the Trump-led trade war,” said Arif Joshi, co-head of emerging market debt at Lazard Asset Management.
ROLLER COASTERS IN CHINA
Chinese stocks have had a wild year, jumping nearly 16% in a single week in September after Beijing signaled its desire to boost the weakened economy, with a number of deep weekly falls since then.
Investors who held on to China in 2024 were rewarded with a 14.5% annual gain, but many expect the near-term boom-bust cycle to continue, disrupting markets as Europe and Asia, until Beijing takes direct action.
BRUISED BOND BULLS
Interest rates have fallen in major economies this year, but bond investors have suffered annual losses after spending much of 2024 counting on more monetary easing than central banks ultimately delivered. implemented, as inflation remained higher than expected.
US 10-year Treasury yields rose about 60 basis points in 2024, the UK 10-year gilt yield jumped 100 basis points and German 10-year yields rose 16 basis points.
In Japan, where interest rates have risen twice this year due to accelerating inflation, the yield on 10-year bonds rose 45 basis points, the largest annual rise since 2003.
Next year promises to be difficult for bond markets, uncertain about how Trump's policies will influence the US Federal Reserve. The French debt turmoil last month also showed that “bond vigilantes” are ready to punish governments that borrow excessively.
SURPRISE WINNERS
Bond investors' gains in 2024 are coming from some of the riskiest markets.
Lebanese dollar bonds in default returned almost 100% for the year, as investors anticipated the armed group Hezbollah to be weakened by the conflict in the Middle East.
An ambitious reform agenda and the prospect of Trump's return to the White House have helped dollar bonds issued by Argentina, whose leader Javier Milei has close ties to the US president-elect, to post a 100% yield. Spurred by bets that Trump could end Russia's invasion of Ukraine, Ukrainian bonds have returned more than 60%.
