In the last month of 2023, the mood remained good in financial markets. The belief grew that rate cuts are more likely than rate hikes. Combined with continued strong corporate data and tight labor markets, this put the signals on green for investors for a while. Whether it holds up remains to be seen. The price cap on energy has ended as of January 1, 2024, which will have an upward effect on inflation. In addition, tension in the Middle East remains a concern. Following attacks by Houthi rebels on cargo ships, the route through the Suez Canal and the Red Sea is being avoided and the much longer (and therefore more expensive) route via the Cape of Good Hope is now preferred.
Last month, commodities were down nearly 5% across the board and the euro strengthened against the dollar, closing the year just above 1.10.
Shares
Like November, December was a great month for equities. The MSCI All Countries World Index (measured in euros) continued to gain 3.5%. Developed markets (+3.6%) outperformed emerging markets (+2.6%). Within developed markets, Pacific excluding Japan (+7.7%) was by far the best performing region. The remaining regions, Europe (+3.7%), North America (+3.5%) and Japan (+3.1%) did not differ much. Not all emerging markets also went higher for the month. Once again, China was the only region with a negative return for the month (-/-3.6%). Identical to November, Latin America (+7.0%) again led the way. EMEA (+3.5%) and Asia (+2.0%) were again in the mid-range. Style value stocks (+4.1%) slightly outperformed style growth stocks (+3.0%).
Bonds
Compared to November, we saw lower interest rates across markets and maturities last month. In the U.S., the 10-year rate fell 0.45% to 3.88%, which was equal to the decline in the Dutch 10-year rate (to 2.33%). The drop in German 10-year rates was almost the same (-0.42% lower to 2.02%). Risk premiums declined further in December for all categories, although some difference was noticeable. For emerging market government bonds, the premium fell 0.21% to 3.84%. For less risky corporate bonds, we saw a decline of “only” 0.09% (to 1.36%), and for more risky corporate bonds the decline was 0.39% (to 3.84%).