By Naomi Rovnick, Dhara Ranasinghe and Rodrigo Campos
LONDON (Reuters) – Markets that started the yr with buyers anticipating a world inventory rally to fizzle, swift U.S. rate of interest cuts to spice up Treasuries and soften the greenback and rising market currencies to strengthen have firmly defied that consensus.
World shares are set for a second consecutive annual acquire of 16%, unfazed by wars within the Center East and Ukraine, Germany’s financial contraction and authorities collapse, French finances chaos and China’s slowdown.
That comes principally due to a second yr of big positive factors for Wall Avenue shares as synthetic intelligence fever and sturdy financial progress sucked extra world capital into U.S. property and took the greenback up 6.6% in opposition to friends in 2024.
U.S. exuberance rose after Donald Trump’s Nov. 5 election win, as merchants centered on the President-elect’s plans for tax cuts and deregulation, with the surge in animal spirits propelling cryptocurrency bitcoin to a 122% annual acquire.
World markets enter 2025 more and more uncovered to U.S. tendencies – a threat issue that burst into life after the Federal Reserve roiled markets this month by pointing to fewer price cuts within the yr forward.
That got here after weak U.S. jobs knowledge and a shock midyear Japanese price hike that pressured dollar-denominated property and despatched a volatility wrecking ball swinging by world markets and sparked a short-lived rout in August.
Debt buyers, in the meantime, are rising anxious about Trump’s proposed commerce tariffs refueling inflation and concern extreme White Home borrowing that would roil the $28 trillion Treasury market and spark wider authorities bond disruption.
“It’ll be tough, within the occasion of a (U.S.) pullback, to search out wherever to cover,” Barclays non-public financial institution chief market strategist Julien Lafargue stated.
WALL STREET JUGGERNAUTS
Wall Avenue’s S&P 500 share index is 24% larger this yr after an analogous bounce final yr, in its strongest two-year streak since 1998.
Shares in synthetic intelligence chipmaker Nvidia rose 178% in 2024, Elon Musk’s carmaker Tesla gained 68% whereas buyers’ publicity to U.S. shares hit document ranges in December.
The mixed worth of the so-called Magnificent Seven U.S. tech shares accounts for round a fifth of MSCI’s world share index, in keeping with Schroders, elevating market risk ranges if their earnings or AI expertise disappoint.
EUROPE’S STRUGGLES
The euro slid round 5.7% in opposition to the greenback this yr whereas European shares carried out worse relative to their U.S. friends than they’ve in no less than 25 years.
After 4 European Central Financial institution price cuts, the euro zone economic system is declining extra slowly and a few forecasters are tipping Europe for a 2025 rebound.
The possibilities of any worldwide market rallying if the U.S. falters are often slim. Gold gained 26% in 2024 as buyers struggled to search out different diversification trades.
MIGHTY DOLLAR
U.S. tariff fears and greenback power have hit rising market currencies significantly onerous, exacerbating losses for struggling nations.
Currencies in Egypt and Nigeria fell round 70% in opposition to the greenback following devaluations, and Brazil’s actual weakened greater than 27% as worries about authorities debt and spending intensified.
A sparse set of delicate annual positive factors included a 2.8% rise for Malaysia’s ringgit. Among the many prime performers South Africa’s rand and the Hong Kong greenback rose 2% and 0.5%, respectively, whereas Israel’s shekel was set for a 1.5% decline for the yr.
“We proceed to be cautious on rising market currencies, and the principle purpose behind that’s the Trump commerce struggle,” stated Arif Joshi, co-head of rising market debt at Lazard Asset Administration.
CHINA ROLLERCOASTER
Chinese language shares had a wild yr, surging nearly 16% in a single week in September after Beijing signaled its readiness to stimulate the weakening economic system, with numerous deep weekly falls since.
Traders who held on to China in 2024 had been rewarded with an 16.5% annual acquire however many count on the short-term increase and bust cycle to proceed, disrupting markets in Europe and Asia, till Beijing takes direct motion.
BOND BULLS BRUISED
Rates of interest fell throughout massive economies this yr however bond buyers suffered annual losses after spending a lot of 2024 pricing in additional financial easing than central banks finally delivered as inflation stayed stickier than anticipated.
U.S. 10-year Treasury yields rose practically 70 foundation factors in 2024, Britain’s 10-year gilt yield jumped 107 bps and 10-year German yields rose 33 bps.
In Japan, the place rates of interest rose twice this yr as inflation accelerated, the 10-year bond yield added 47 bps in its greatest yearly bounce since 2003.
Subsequent yr appears to be like difficult for bond markets unsure about how Trump’s insurance policies will sway the U.S. Federal Reserve. French debt turmoil final month additionally signaled the so-called bond vigilantes stand able to punish governments for extreme borrowing.
SURPRISE WINNERS
Bond buyers’ 2024 wins got here from among the riskiest markets.
Lebanon’s defaulted greenback bonds returned round 100% over the yr as buyers anticipated Center East battle weakening armed group Hezbollah.
An bold reform programme and the prospect of Trump’s White Home return powered a 100% return for greenback bonds issued by Argentina, whose chief Javier Milei has shut ties with the U.S. president-elect. Boosted by bets that Trump might finish Russia’s Ukraine invasion, Ukrainian bonds returned over 60%.
(Reporting by Naomi Rovnick and Dhara Ranasinghe in London and Rodrigo Campos in New York, further reporting by Libby George; Modifying by Hugh Lawson)
