A short but volatile week. The TPP weekend wrap

A Short but Volatile Week for Big Tech.

Markets in London were mostly quiet this week closing on a mixed note Friday. Unlike in the US, the ongoing holiday period kept activity light with little news to influence sentiment. The FTSE 100 index rose 0.16% to end at 8,149.78 points, while the FTSE 250 index slipped 0.4% to 20,488.65 leaving both down on the week a little over -0.5%.

In local economic news, the number of UK retailers in “critical financial distress” surged by over 25% in the final quarter of the year, according to a fresh report on Friday.

Restructuring firm Begbies Traynor reported 2,124 struggling retailers between October and mid-December, up from 1,696 in the preceding quarter. The rise was attributed to weak consumer confidence and escalating costs, although the figure was slightly below the 2,142 reported at the close of 2023.

“This year has highlighted the resilience and adaptability of some UK retailers, but the sector remains under significant strain,” said Julie Palmer, a partner at Begbies Traynor. We expect the recently announced rise in employers' National Insurance to compound the problems and increase unemployment during 2025. It was not a budget that will regain economic confidence nor will it aid growth – it has proven unpopular, and somewhat confusing so far given the promises of economic growth leading up to the election. Hopefully Labour will have a better 2025 after a rocky start.

There was more disappointing economic news on Monday from the UK’s Office for National Statistics, which lowered its final estimate for third-quarter UK economic growth to 0.0% from 0.1%. It also revised its estimate of second-quarter growth to 0.4% from 0.5%. The downside surprises added to worries that the economy had stalled, even before the Labour government’s planned tax increases to address budgetary concerns.

Europe

The political environment in Europe was active this week, with French President Emmanuel Macron appointing a new cabinet under Prime Minister Francois Bayrou on Monday, following the collapse of the previous government early in the month. Bayrou is the fourth prime minister appointed over the previous year as the government continues to struggle with addressing its yawning fiscal deficit.

Also on Monday, U.S. President-elect Donald Trump posted on his social media site that the European Union should “make up their tremendous deficit with the United States by the large scale [sic] purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!” Many analysts believe that the EU is likely to increase its purchases of US energy exports as it seeks to wean itself off Russian supplies.

Nevertheless, the prospect of renewed trade tensions with the U.S.—and the consequent growth and inflation implications—has raised questions about the future path of eurozone monetary policy. On Monday, the Financial Times released an interview with European Central Bank (ECB) President Christine Lagarde, in which she remarked that “we’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%” but added, “I’m saying that with a little reservation because I still believe that we should be very vigilant about services.”

The US

Major stock indexes produced moderate gains in the final full week of the year. The relatively quiet week started with a continuation of the previous Friday’s move in a rally largely driven by large-cap growth stocks, with the technology-heavy Nasdaq Composite leading the way and the Russell 1000 Growth Index outpacing its value counterpart through Tuesday.

However, this trend reversed following Wednesday’s market closure for Christmas as most indexes declined in the second half of the week, giving back some of their earlier gains. On Friday the Nasdaq 100 fell over 2% before making a slight recovery to end the day down 295 points (-1.36%).

Most of the largest stocks fell 3% before rebounding a touch. Tesla remained down -5.14% while Nvidia dropped -2.04%. Nvidia is now worth $3.31 trillion meaning such a fall equates to a market cap loss of around $67 billion in one day. Tesla’s losses were roughly the same but this isn’t rare for one of the most volatile stocks in the S&P.

On Monday, The Conference Board reported that its index of U.S. consumer confidence fell in December to 104.7 from 112.8 in November. “The recent rebound in consumer confidence was not sustained in December as the Index dropped back to the middle of the range that has prevailed over the past two years,” said Dana M. Peterson, chief economist at The Conference Board.

The report also noted that consumer assessments of the present situation and expectations both contributed to the overall decline but that the expectations component of the index—which measures consumers’ short-term outlook for income, business, and labour market conditions—saw the sharpest drop, falling 12.6 points to 81.1. A reading below 80 can serve as a signal for an upcoming recession.

Durable goods orders for the month of November also came in low. For the fourth time in the past six months, new orders for durable goods declined, falling 1.1% versus consensus expectations for a 0.2% rise.

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 4.08% and the broader TOPIX Index up 3.69%, according to FactSet. The weakness of the yen supported the profit outlooks for Japan’s export-heavy industries, which remained near five-month lows amid a cautious tone from the Bank of Japan (BoJ). The yen weakened to around JPY 157 against the U.S. dollar, from about JPY 156 at the end of the prior week. The yield on the 10-year Japanese government bond increased to 1.1%, the highest level in five weeks.

BoJ Governor Kazuo Ueda stated that the central bank will need to hike interest rates again if economic conditions continue to improve as expected. However, the timing and pace of adjusting monetary policy will depend on developments in economic activity and prices as well as financial conditions going forward. Governor Ueda urged the need to strike the right balance to keep policy accommodative and to ensure that inflation does not accelerate beyond the central bank’s target of 2%.

Chinese stocks rose amid hopes that the government will announce further stimulus measures to support growth. The Shanghai Composite Index added 0.95%, while the blue-chip CSI 300 gained 1.36%. Hong Kong’s benchmark Hang Seng Index added 1.87% during the holiday-shortened week, according to FactSet. Markets were closed for Christmas and Boxing Day on Wednesday and Thursday.

Chinese officials plan to sell a record RMB 3 trillion in special Treasury bonds next year as Beijing ramps up efforts to bolster the economy, Reuters reported, citing unnamed sources. The reported bond issue is a sharp increase from the RMB 1 trillion sovereign debt issuance in 2024, and proceeds will be used for boosting consumption via subsidy programs, equipment upgrades, and investment in innovation-driven sectors as China braces for a potential second trade war with the U.S.

The People’s Bank of China injected RMB 300 billion into the banking system via its medium-term lending facility and left the lending rate unchanged at 2%, as expected. With RMB 1.45 trillion in loans due to expire in December, the operation resulted in a net withdrawal of RMB 1.15 trillion from the banking system, the largest liquidity drain via the one-year lending facility since 2014, Bloomberg reported.

The Week Ahead

It will be another shortened week next week with most markets being closed on Tuesday and Wednesday. There are a few things to look out for around the New Year though as we see Spanish inflation and US home sales on Monday.

Thursday is UK Nationwide House prices which are expected to come out fairly flat month over month with only a 0.1% rise. This would put the annualized performance at 3.8% which seems fairly positive given that interest rates have remained high for longer than originally anticipated and many expected a market collapse this time last year.

Thursday we’ll also see US jobless numbers and Global Manufacturing PMI. Finally, Friday will bring Spanish and German unemployment. In Germany, the latest readings show a persistent upward trend, raising alerts for the labour market at a time of economic slowdown. This could end up putting more pressure on the ECB to cut interest rates in the future to boost the economy. The problem with that approach is that economic growth usually comes with a price: inflation. This means that there is always a trade-off between inflation and unemployment.

In the US, the ISM Manufacturing PMI will also be released on Friday. With previous readings around 47, the sector faces significant challenges. This data will be closely watched as it can hint at the next steps that the new administration will have to take to keep the economy on track.

That’s it from us now for 2024. We’re expecting great things from TPP portfolios in 2025 as equity markets will no doubt remain volatile. Our trading strategies will look to capitalize in an uncertain climate where standard portfolios struggle. Please do not hesitate to get in touch if you would like to find out more.

Contact us @ TPP Global

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