By Bas Kooijman, CEO and Asset Manager, DHF Capital S.A
Markets Position for Key Central Bank Decisions
United States: Optimism Builds Ahead of the Federal Reserve
U.S. equity markets ended the first week of December higher as investors looked ahead to the Federal Reserve’s final policy meeting of the year. Expectations that interest rate cuts may be on the horizon supported market sentiment, even as economic data remained mixed. Technology stocks led gains, helping push the Nasdaq Composite higher, while small-capitalization stocks also performed well. Overall trading activity, however, was relatively quiet, suggesting investors are positioning cautiously rather than making aggressive moves.
Economic indicators painted a picture of a slowing but still resilient economy. Manufacturing activity continued to decline for the ninth straight month, reflecting weaker demand, softer new orders, and reduced hiring. At the same time, prices within manufacturing have remained elevated, highlighting that inflation pressures have not fully disappeared. In contrast, the U.S. services sector showed strength, expanding at its fastest pace since February. Slower price increases in services also offered some reassurance on the inflation front.
The labor market delivered mixed signals. Private payrolls unexpectedly fell, driven largely by reduced hiring among small businesses, and job cut announcements rose sharply. However, initial unemployment claims dropped to their lowest level in over a year, suggesting layoffs have not yet accelerated meaningfully. Inflation, measured by the Fed’s preferred gauge, remained steady, while consumer sentiment improved modestly as inflation expectations declined.
Bond markets were more cautious, with long-term interest rates rising and pushing Treasury prices lower. Riskier bond segments, such as high-yield debt, performed better as investors showed confidence that economic conditions remain stable.
Europe: Growth Improves Slightly While Inflation Remains in Focus
European markets finished modestly higher overall, supported by global hopes that major central banks may soon begin easing monetary policy. Performance across the region was mixed, with Germany and Italy posting gains, while French and UK markets lagged. Investor attention centered on inflation trends and updated economic growth figures.
Inflation in the eurozone edged higher in November, driven mainly by rising services costs, though the overall rate remains close to the European Central Bank’s target. Core inflation held steady, reinforcing the view that price pressures are easing gradually rather
than declining rapidly. This balance keeps policymakers cautious but does not rule out potential rate cuts in 2025.
Economic growth data surprised slightly to the upside. Eurozone GDP expanded more than initially estimated in the third quarter, helped by a recovery in investment. France and Spain contributed positively, while Germany’s economy remained stagnant. The labor market continues to be a point of strength, with unemployment holding near historic lows, supporting household income and spending.
Germany provided a rare bright spot in manufacturing data, reporting stronger-than-expected factory orders due to large contracts in industrial and defense-related sectors. In the UK, the housing market proved resilient despite concerns around budget changes, higher home prices, and stamp duty adjustments. Stable house prices and steady mortgage demand suggest consumers remain cautious but not overly stressed.
Overall, Europe continues to navigate slow growth and lingering inflation, but recent data suggests the region is avoiding a deeper economic downturn for now.
Asia: Japan Eyes Policy Shift as China Faces Ongoing Growth Challenges
Asian markets showed mixed outcomes during the week, influenced largely by central bank signals and domestic economic data. In Japan, equities struggled as investors reacted to stronger indications that the Bank of Japan may raise interest rates later this month. Rising government bond yields and a strengthening yen added pressure to stocks.
Bank of Japan Governor Kazuo Ueda signaled increased confidence that inflation and economic growth are developing in line with expectations, opening the door to further policy tightening. Markets interpreted his comments as a clear step toward higher interest rates, which would mark an important shift after years of ultra-loose policy. Meanwhile, Japanese household spending fell sharply in October, the largest drop this year, reflecting persistent pressure on consumers from higher living costs.
In China, equity markets advanced despite fresh signs of economic slowdown. Investor enthusiasm around technology and artificial intelligence stocks helped offset weak data from the manufacturing and services sectors. Factory activity remained in contraction for an eighth straight month, while services activity slipped into contraction for the first time in nearly three years, largely due to ongoing weakness in the property sector.
Despite these challenges, expectations remain that China will meet its annual growth target, although concerns around consumer confidence and real estate continue to weigh on the broader economic outlook.
Looking Ahead –
Together, these developments suggest markets are entering the year-end period with cautious optimism, guided closely by monetary policy and economic fundamentals. As markets head into year-end, investor focus remains firmly on central bank decisions and economic data that will shape the pace and direction of growth in the months ahead.