It was anything but a quiet December month. In addition to ongoing political turmoil, financial markets were also quite eventful in the second half of the month. The trigger was the meeting of the U.S. central bank. The Fed (as expected) lowered the policy rate by 0.25% to a range of 4.25%-4.5%. However, the surprise was in the commentary which indicated that expected inflation was revised upward. That likely means fewer interest rate cuts in 2025. This news pushed US government bond and stock prices lower worldwide. The ECB also cut interest rates by 0.25% (to 3%), but the impact of that announcement was limited. The dollar strengthened again versus the euro and stood at 1.035 at the end of December. Commodity prices also became more expensive again (1.4% on average for the index), especially the price of gas picked up significantly (+10.4%).
Shares
The month of December left a slightly negative return for the broad index MSCI All Countries World with a return of -0.4% (measured in euros). This closed 2024 with a handsome return of +25.3%. Emerging markets (+1.9%) fared somewhat better than developed markets (-0.7%) last month. However, Latin America (-4.2%) was unable to benefit. China (+4.7%) was the biggest gainer, followed by EMEA (+2.9%) and Asia (+2.2%). Among developed markets, Pacific excluding Japan (-3.8%) was the least performing region. North America (-0.8%) and Europe (-0.5%) did not differ much. Japan even managed to put a plus on the boards (+1.6%). Style growth stocks (+2.4%) experienced much higher returns in December than style value stocks (-3.4%).
Bonds
Only interest rates on short maturities went down slightly in Europe in December. From 5-year and longer, we saw increases of about 0.2% in euro swaps. In individual countries, we saw slightly stronger increases in government bonds of the Netherlands and Germany (0.27% and 0.28% for the 10-year rate). America’s 10-year rates added to this with a 0.40% increase to a level of 4.57%.
Bonds with higher risk profiles were little changed from December. The risk premium of less risky corporate bonds decreased by 0.05% (to 0.99%). In contrast, more risky corporate bonds showed a slight increase (+0.08% to 3.07%). We also saw a decrease in emerging market government bonds (-0.11% to 3.25%).