It is always good to end a year on a high and in global financial markets, the tide has turned, at least for the time being, with the Fed not discouraging conversations about an interest rate pivot.
Fed comments have become less hawkish (the Bank of England and ECB are, arguably, the hawks) and has ruled out the chance of a 2024 recession. Not so long ago, the Fed appeared to be flip-flopping, but now they are currently on the side of the doves.
Some 75% of traders are pricing a ‘definite’ 2024 Fed rate cut, which has given us our Santa rally into year-end.
It is extraordinary how one central bank can dominate and change position at the drop of a dime. Consequently, we maintain our sceptical view that central banks can switch so willingly but will go with it for the time being.
Monetary tightening has been working, and inflation is falling worldwide - even in the UK, which saw a big drop in consumer price growth to 3.9%.
This data carried across to global stock markets: In the US, the S&P 500 and Nasdaq closed up 4.4% and 5.5%, respectively; this was, in fact, the S&P 500’s second-best year, up almost 25%.
In Europe, the Dax closed the month up 3.3% and the FTSE 100 up 3.8%. Asia was, however, slightly different, with the Nikkei 225 marginally down 0.1% and the Shanghai Composite Index down 1.8%.
With central banks appearing to have finished raising interest rates, bond yields fell, and bond markets rallied for the second consecutive month.
In commodities, oil’s downward trajectory remains unchecked, with a further 5.3% fall for WTI and 6.9% for Brent. Turning to metals, copper was up 1.3% and iron ore up 6.7%, while lithium tumbled 16.5% on oversupply and disappointing EV demand. In precious metals, gold was up 0.8% for the month, closing the year above $2,000 at $2,062, while silver was down 4.6%, slightly down for the year.
Crypto’s success this year stands out, but it has been a volatile ride, and you must buckle up to be part of it. Bitcoin was up over 12% in December and almost 160% for the year; ether, similarly, was up almost 12% during the month and closed up nearly 100% for the year.