Thursday's Markets Update (December 12, 2024)

13 Dec 2024 by rate3

On Thursday, equities fell following a hotter-than-expected inflation report, and despite the Department of Labor reporting a three-month high spike in jobless claims. Adobe dropped the most, plunging almost 14% after providing a disappointing outlook. The euro fell as the ECB cut its rate by 25 basis points, while the Indian rupee depreciated to its record low. BTC and ETH, both just under their ATHs, moved sideways as traders took a pause amid the stock tumble.

Details

Initial jobless claims surged to a three-month high of 242K in the first week of December, indicating a potential weakening in the labor market. This unexpected rise could impact the Fed's monetary policy decisions. 1Y trend: "Up" (DOL)
Producer prices increased unexpectedly by 0.4% MoM in November, driven by higher food and energy costs. The annual producer price inflation rate also accelerated. While core inflation remained steady, it remains elevated. 1Y trend: "Up" (BLS)

Crypto

BlackRock suggests that a 1-2% BTC allocation in a diversified portfolio can offer similar risk to holding major tech stocks. The asset manager highlights BTC's potential for diversification and its relatively low correlation with other assets, despite its volatility. (source)

World Markets

India's annual inflation rate eased to 5.48% in November, remaining within the central bank's target range. While food prices moderated, overall inflation remains elevated, potentially delaying the start of a rate-cutting cycle. 1Y trend: "Up" (Mospi)
The European Central Bank cut its key interest rate by 25 basis points in December, as expected. While inflation is expected to gradually decline, the ECB remains cautious and will adjust its policy stance based on incoming data. Economic growth is projected to be slower than previously anticipated. 1Y trend: "Side" (ECB)

Currencies

The Indian rupee hit a record low of 84.9 against the US dollar due to capital outflows and expectations of a rate cut by the RBI. India's slower-than-expected economic growth and China's stimulus package also contributed to the rupee's weakness. 1Y trend: "Up, Depreciating"

Commodities

Comment: What's Up With Germany? (2)

The DAX continues to perform well, closing at a record high of 20,429. Major manufacturers like BMW (+2%) and Rheinmetall (+1%) have buoyed market sentiment, signaling optimism for stockholders. However, GDP contracted 0.3% year-on-year in Q3 2024, marking five consecutive quarters of minor decline. Compared to historical contractions, such as -7% in 2008 and -11% post-WWII, this stagnation seems minor.

Inflation sits at 2.2% (November 2024), far below peaks like 8% in 2022 and 11% in 1951, while unemployment remains steady at 6.1%, historically moderate compared to 12% during 1997 or 2007 crises. Despite these manageable figures, Germany’s business climate has sharply deteriorated.

The Ifo Business Climate Indicator fell to 85.7, levels reminiscent of 2008’s financial crisis. SMEs face significant regulatory hurdles, with bureaucratic priorities focused on social spending over economic productivity. Government budget deficits, now at 2.5% of GDP, reflect unproductive expenditures that fail to bolster entrepreneurial activity.

Consumer confidence mirrors this decline. The GfK Consumer Climate Indicator dropped to -23.3, with income expectations at a nine-month low. Rising insolvencies and a lack of support for SMEs have left consumers pessimistic about the future.

Germany’s current political troubles stem not from severe economic contraction but from a rigid bureaucratic system unwilling to adapt. By neglecting SMEs and entrepreneurial freedom, Germany's administration has prioritized short-term stability over long-term growth, exacerbating discontent among businesses and consumers alike. Unlike historical downturns, today's issues are driven by systemic stagnation, not insurmountable economic hardships