T3 Monthly Insights - Dec 2024

Wall Street closed out a stellar 2024, driven by resilient economic growth and post-election optimism. The S&P 500 surged over 23% for the year, while the Nasdaq Composite soared nearly 30%, marking one of the strongest annual performances on record.

The U.S. economy expanded at an annualized rate of 3.1% in Q3, surpassing the 2.8% consensus forecast and accelerating from 3.0% in Q2. While growth remained robust, inflation edged higher—annual CPI rose to 2.7% in November from 2.6% in October, highlighting persistent price pressures amid strong consumer demand.

The Federal Reserve delivered its third consecutive rate cut in December, trimming the benchmark rate by 25bps to a target range of 4.25%-4.50%, bringing total easing this cycle to 100bps. However, policymakers struck a more measured tone on future rate reductions, now projecting only two cuts in 2025—down from the four anticipated in September. In response to the Fed’s hawkish tilt, the 10-year U.S. Treasury yield climbed to 4.57%, its highest level since May. Meanwhile, the U.S. dollar extended its Q4 rally, advancing 2.6% in December to close the year at a DXY index high of 108.49 (+7.06% y/y). With the U.S. economy outperforming global peers and the Fed maintaining a higher-for-longer stance, the dollar remains well-positioned for sustained strength into 2025.

Across the Atlantic, the European Central Bank (ECB) delivered its fourth rate cut of the year, reducing the deposit rate by 25bps to 3.00% as inflation nears its target and economic weakness persists. The ECB’s dovish stance is set against the backdrop of ongoing political instability in the eurozone and mounting concerns over a potential U.S. trade war. Eurozone inflation eased to 2.2% in November, falling short of expectations, while weak economic activity prompted the ECB to revise its 2025 GDP growth forecast down to 1.1% from 1.3%, underscoring the region’s fragile recovery. The euro fell 2.11% in December to 1.0354, extending its yearly decline to 6.45%.

In the UK, inflation accelerated to 2.6% year-on-year in November, the highest level since March 2024. The Bank of England (BoE) kept its benchmark rate unchanged at 4.75%, maintaining a more cautious approach compared to both the Fed and the ECB. Having reduced rates by just 50bps in 2024, the BoE remains focused on reining in inflationary pressures to ensure a sustainable return to its 2% target. The British pound weakened 1.72% in December to 1.2516, marking a 1.71% decline for the year.

The Australian and New Zealand dollars extended their declines against the strengthening U.S. dollar, weighed down by diverging economic conditions. The Reserve Bank of Australia (RBA) held rates steady at 4.35% for the ninth consecutive meeting in December, despite weaker-than-expected GDP growth. However, the labor market proved more resilient than anticipated, with the unemployment rate falling to 3.9%, beating expectations of 4.2% and marking the lowest level since April 2024. The stronger labor market led traders to scale back bets for an early rate cut in February. The Australian dollar fell 4.98% in December to 0.6188, bringing its total decline for the year to 9.35%.

Meanwhile, New Zealand’s economy slid deeper into recession, with Q3 GDP contracting by 1.0%, far more than the 0.2% contraction expected, reinforcing the case for further monetary easing. The Reserve Bank of New Zealand (RBNZ) has already cut rates by 125bps this year to 4.25%. The Kiwi plummeted 5.44% in December to 0.5594, marking a two-year low and cementing its status as the worst-performing G7 currency in 2024, with an annual decline of 11.70%.

Gold prices softened in December, falling 2.11% to $2,624.5 as holiday-season trading volumes thinned. Despite the short-term pullback, gold has enjoyed a remarkable 2024, surging 27.22% and reaching multiple record highs. With heightened market uncertainty and anticipated volatility under Trump’s presidency, gold remains well-positioned for further upside as we enter 2025.