How Might Policy Changes Impact Alternative Investments?

Economic

Summary:

Many proposed policies could be pro-growth, but also inflationary. If this is the case, the Fed could end its easing cycle early, leaving the federal funds rate at a higher terminal rate.

The alternative investment landscape often evolves gradually. Assets may be priced infrequently and therefore are less sensitive to day-to-day market moves. Time horizons are inherently lengthy. While this makes them great portfolio diversifiers, it doesn’t make them immune to broader backdrop shifts that could influence assets over the lifespan of an investment. One massive change afoot is the new administration and the potential policy changes that it may bring. These policy changes could, in turn, impact monetary policy as well, resulting in a high-for-longer rate environment.

There are myriad policy changes that could potentially occur, and many may not come to fruition at all, but below we highlight a few policy-linked opportunities and risks from our 4Q Guide to Alternatives:

Tax cuts boost exits and capex – The combination of a corporate tax cut, deregulation, and reduced political uncertainty could rouse a drowsy exit market in private equity, reigniting IPO and M&A activity. Tax cuts could also support earnings and revenue of private equity target companies . A corporate tax cut aimed at domestic production could spur more industrial activity, increasing the demand for infrastructure.

Public to private infrastructure – Mounting debt and deficits could limit further infrastructure investment from the government, increasing demand for private infrastructure projects.

Deregulation rebalances lending – Regulation has made lending costly and more stringent for traditional lenders, tilting market share toward non-bank lenders. Deregulation could reduce some of that regulatory burden, supporting bank lending. However, less regulation for banks would also likely mean less regulation for private credit, alleviating a future pain point.

Tariffs transform transport – Aggressive tariff proposals could reshape global trade. However, transport assets could benefit from longer shipping routes as supply chains reorder. However, a protracted trade war could lower global trade volumes, as we saw in 2019, which could be a long-term headwind.

Hedge funds navigate uptick in volatility – FX and interest rate volatility could persist if confronted with tariffs and policies perceived to be inflationary. This could benefit macro hedge fund performance, which has historically tracked volatility.

Early end to easing – Many proposed policies could be pro-growth, but also inflationary. If this is the case, the Fed could end its easing cycle early, leaving the federal funds rate at a higher terminal rate. This may keep financing more expensive and challenge commercial real estate mortgages or private credit loans that were amended or extended in anticipation of a more favorable rate environment.

It is too early to speculate on exactly what government policies may change and how that may alter the Fed’s calculus, but investors ought to be mindful of potential impacts to alternative assets. Still, regardless of how the policy landscape shifts, investors will continue to seek alpha, income, and diversification, which alternatives can provide.

Policy changes could perk up M&A and IPO activity

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ING

Economic

The negative aftermath of Covid is over, upside comes from the consumer side now

The road transport sector has faced significant challenges over the last few years. In 2023, consumers shifted back to spending on services, leading to reduced demand for goods. To adjust, shippers reduced excess stock, and that caused a further decline in transport. These pandemic-related corrections and supply chain issues have now subsided, and inventory levels have largely normalised.

For instance, a European survey conducted before the summer* revealed that 90% of consumer goods shippers reported their stock levels were either at the desired level or too low. This normalisation has resulted in higher container throughput in major European ports, with Rotterdam seeing a 3% year-on-year increase and Antwerp-Bruges experiencing a 9% rise in the first three quarters of 2024. This is good news for road transport, which still handles nearly 60% of seaborne containers to the hinterland.

Consumers are beginning to see their purchasing power improve as inflation decreases and wage increases outpace inflation, while the labour market remains strong. This is a positive for both consumption and transport demand. However, demand from the construction sector is still bottoming out in the run up to 2025, and the manufacturing industry continues to struggle with high energy costs and difficulty remaining competitive.

*Source: Drewry

European road transport volume sluggish, but slightly recovering

Evolvement of European road transport volume in million ton/km

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_1

Source: Eurostat, ING Research *forecast

Struggling industry continues to weigh on European transport

The sluggish European transport demand is reflected in German truck mileage volume, which fell 3% in 2023 and contracted by 0.7% up to October 2024. As the largest economy and a key transit country in Europe, Germany typically provides a good indicator of European road transport activity. However, in 2024, trucking companies reported attempts to avoid Germany due to steep MAUT (toll) increases. Combined with the manufacturing industry's relatively poor performance, this has led to a negative deviation compared to Europe as a whole.

Continued slow (and bumpy) recovery expected for road transport into 2025

A continued slow (and bumpy) recovery is expected for road transport into 2025

As we approach 2025, the European Purchasing Managers’ Index (PMI) for manufacturing still signals contraction. The German industry – particularly its energy-intensive sectors as well as its automotive sector – has struggled to gain sustainable ground after the setbacks it has faced.

In contrast, economies in some other European countries, such as Spain and Poland, are performing better. Overall, improvements in consumer demand and a notable return of driver shortages signal improvements for the market. We expect the road transport volume to recover slightly by 0.5%, with growth expected to increase to 1% in 2025. Nevertheless, the recovery will continue to lag behind long-term average growth rates.

Road transport across Germany leaves worst behind, but recovery still about to materialize

Total truck mileages on German motorways (MAUT) YoY (adj. for work days)

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_2

Source: BAG, ING Research

Truck driver shortage relief proves short lived

Truck driver shortages in road transport have become a serious supply constraint over the last few years. The setback in demand brought short-term relief in 2023 but, as we predicted, these shortages return when markets start to recover. The EU now reportedly faces a shortage of 500,000 drivers. This is why forward-looking (larger) companies are permanently hiring drivers through the economic cycle.

Here are a few key reasons that we believe shortages are here to stay:

Workers from Western Europe are now less inclined to drive international trucks because they can earn similar wages in other jobs. New-generation truck drivers also prefer shorter working hours and weeks; many are reluctant to spend weeks on the road and away from family.

The availability of potential workers in EU (and Central and Eastern European) countries is increasingly limited for demographic reasons, and workers have alternative options to earn similar wages.

The labour force ages, which pushes up outflow. European truck drivers are currently aged 44, with 21% of them older than 55.

The relatively low representation of women is also an ongoing constraint within the sector. To attract drivers, larger transport companies already turned to regions outside of Europe, such as Asia. Many forward-looking larger companies continue to hire and educate a continuous flow of truck drivers through the cycle.

Freight rates in European trucking still fragile amid higher cost environment

Development of freight rates European road haulage (01/01/17 =100

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_3

Source: Upply/IRU, ING Research

Contract freight rates are stable, spot rates still reveal ongoing volatility

Europe's road transport market is dominated by fixed transport contracts, with shippers covering most of the traffic. Spot rates – covering perhaps 20% of the market – provide short-term market guidance though. These day-to-day rates slipped below contract rates in early 2023, revealing market weakness and excess capacity.

However, signs of a market recovery appeared in 2024 as several large fleet owners reduced their (idled) fleet capacity. The newest setback seen in the third quarter is likely linked to significantly lower diesel prices. Freight rates remain fragile in the current environment, and given ongoing wage cost pressures, haulage companies are still challenged to pass on higher costs in 2025.

Diesel prices in 2024 lower than in 2023 despite geopolitical tensions

Diesel spot market prices (MT) in EUR per day

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_4

Source: Refinitiv, ING Research, last datapoint 11/29/24

Growth potential in (European) road transport

Why has the growth potential in European road transport been dampened?

Consumers are gradually spending a larger share of their additional income on services that involve little freight transport – digital services and holidays, for example.

Europe's population growth is stagnating and immigrants, in particular, are driving growth.

Europe's global competitiveness is under pressure, and this has a notable impact on energy-intensive industries. Trade tensions and import tariff increases could also affect export and import flows negatively.

Are there any signs of new opportunities?

Nearshoring may offer new opportunities for continental road transportation in the coming years. As a result of increased supply risks and geopolitical tensions across the globe, a growing number of companies are considering diversification and possibilities to source closer to the end market, potentially supporting production in countries such as Poland, Romania or Turkey in the medium term.

More consolidation is needed to remain competitive and meet requirements

The European road haulage sector includes several large international trucking companies such as Girteka, Warberer’s, Primafrio, Raben and Vos Logistics, but the far majority are still small and medium-sized companies. Larger trucking companies are generally getting bigger, and more drivers are also starting their own companies. In 2024, we've seen an increased number of bankruptcies amid continued cost pressure alongside disappointing demand in some segments.

However, several companies still lean on their strengthened financial positions from the years before 2023. Given lower borrowing rates, we may see a bolstered flow of acquisitions. Scale is also becoming increasingly important for effectively keeping up with and progressing in digitalisation and sustainability (fleet and reporting).

Investors in trucks and trailers are awaiting the right time to catch up

The investment climate in road transportation has cooled after overheating, and 2024 was mainly a year of 'wait and see'.

For 2025, we see more of a mixed bag:

Downside risks

Slightly improving, but still sluggish international transport demand.

Available capacity exceeding demand.

Remaining uncertainty about how difficult the sustainability path will be in Europe and several countries, also looking at the infrastructure. Together with much higher purchase prices, this may still make companies decide to wait.

Areas of uncertainty

Prices of new equipment have come down, but fleet owners seem to await further improvements in their negotiating positions.

Slowing investments following a sharp increase in interest rates (Euribor) from -0.5% to almost 4% in the autumn of 2023. Rates are, however, on a downward trajectory and there should be more to follow through 2025. This could support investment activity again.

Upside risks

Efficiency improvement is an incentive for carriers to invest. New generation models of trucks, such as DAF XF/XG, are typically 10-15% more fuel efficient than the previous generation.

On balance, there is still deferred replacement demand (even though some companies have renewed a significant portion of their fleets). In turn, there still remains a catch-up effect in the pipeline, which is positive for the longer term.

CO2-linked mileage charging in several countries including Germany*, as well as increasing policy pressure on clients (CSRD) and manufacturers (CO2-targets) to become more sustainable supports demand for new equipment.

*As the first country in Europe Germany introduced a price on emissions for road transportation in 2024 by including a CO2-differential in the road mileage charging (MAUT). This pushed up transport rates for EURO VI for conventional heavy-duty 5-axle truck and trailer combinations with almost 16 cents per kilometre to just under 35 cents per km, resulting in an increase of over 80%. Other countries including Austria, Denmark, Czech Republic and Hungary have introduced similar systems (replacing the Eurovignet) or are just about to do so.

Multiple regulatory focus points for road haulage by 2030

On the road to 2030, a range of new regulations will be enforced and will sharpen the focus on sustainability for investments in transport equipment. CO2 pricing will be introduced for the first time, CO2 reporting will be required from large corporates, and manufacturers will be pushed to produce zero-emission vehicles:

Multiple new sustainability linked European regulations upcoming for truck manufacturers, hauliers and shippers

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_5

Source: ING Research

Europe's Mobility Package storm has calmed

The European Mobility Package and the 'return home' rule for vehicles – that which requires trucks used for international transport to return to their home country at least once every eight weeks – have caused much discussion and raised many questions about efficiency. That’s largely over now. The return home vehicle requirement has been cancelled by the European Court of Justice (CJEU), saving many inefficient (empty) miles and unnecessary emissions. The repeal offers trucking companies more flexibility to optimise the deployment of internationally operated trucks (often registered in Central and Eastern European countries), which in turn results in some efficiency gains.

Cabotage rules are also more restrictive under the Mobility Package, and this does show up in transport activity. The cooling off period of four days (max. three domestic rides in a seven-day time frame following an international ride) makes cabotage less attractive. As a result, total cabotage in the EU fell to 4.5% in 2023 from 4.9% in 2022. The new rules are particularly relevant for Germany and Belgium, where cabotage levels are double Europe’s average.

Centre of gravity for international transport shifts east

Since the extension of EU membership by 10 countries to the East in 2004, there has been a major shift towards international transport from countries such as Poland, Lithuania, Hungary and Romania, in order to achieve lower labour costs. This has structurally reduced road transport from the Netherlands and Belgium, but also from Germany and France.

Since then, the share of international kilometres from the Dutch fleet, for instance, fell from 60% to just over a third. The lower mileage among tractors registered in the Netherlands shows that the trend is still in place. Not all Western companies have suffered from this since many have set up subsidiaries.

While international trucks are often registered with Eastern European license plates and Poland has been the European market leader for several years now, much of the transport activity still takes place in Western Europe. The enlargement of the internal market has stimulated competition and reduced the cost of international transport for shippers – and eventually for consumers.

With the cancellation of the 'return home vehicle' regulation, one of the main drivers for a reversal in this trend has been removed. A 'return home driver' requirement once every four weeks remains in place – but drivers can opt to refuse. As the wage gap is still large enough, we believe the trend can continue, though countries other than Poland (such as Romania and the Baltics) are now growing in popularity.

EU's major extension to the East has been a success story for Poland in the past two decades

Development of vehicle km's in mn. per country, per year

Why Europe’s Road Haulage Recovery Is Stuck In The Slow Lane_6

Source: Eurostat, ING Research

Source: ING

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Risk Warnings and Disclaimers

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Goldman Sachs

Economic

India’s GDP will keep growing strongly in the long term — but with a speed bump next year as government spending and credit growth slow, according to our economists’ forecast.

“The structural long-term growth story for India remains intact driven by favorable demographics and stable governance,” Santanu Sengupta, chief India economist at Goldman Sachs Research, writes in his team’s report.

Our economists expect India’s economy to grow at an average of 6.5% between 2025 and 2030. Their 6.3% forecast for 2025 is 40 basis points below a consensus of economists surveyed by Bloomberg.

The decelerated growth rate is, in part, because public capital expenditure growth is declining. The Indian central government’s capex growth declined from 30% year-on-year CAGR between 2021 and 2024 to mid-single digits growth in nominal terms in 2025, according to budget estimates.

India’s Economy is Likely to Stand Firm in an Uncertain World_1

Credit is also tightening. Total private sector credit growth in India peaked in the first quarter of the 2024 calendar year and decelerated over the last two quarters. The slowdown was mainly driven by bank credit growth declining to around 12.8% as of October, from over 16% in the first quarter of this calendar year. In particular, there was a slowdown in household credit growth in unsecured personal loans, following a tightening of retail loans by the Reserve Bank of India in November 2023.

What is the outlook for Indian inflation?

Headline inflation in India is expected to average 4.2% year-on-year in the 2025 calendar year, with food inflation at 4.6% — much lower than our analysts’ estimate of 7%-plus for 2024, thanks to adequate rainfall, and good sowing of the summer crop. Food supply shocks due to weather-related disruptions remain the key risk to this forecast. Thus far, elevated and volatile food inflation, mainly driven by vegetable prices due to weather shocks, has kept the RBI from easing monetary policy.

India’s Economy is Likely to Stand Firm in an Uncertain World_2

Core inflation should be around the RBI’s target of 4% year-on-year in 2025, with some possibility that inflation will decline if US tariffs compel Chinese manufacturers to reallocate their products to regional markets.

“The easing cycle from the RBI is likely to be cautious, given uncertainties on global trade policies and their impact on financial markets,” Sengupta writes. His team estimates the nominal neutral rate at 6% for India, so the RBI’s rate cuts are likely to be shallow. Goldman Sachs Research expects the RBI to cut rates by 25 basis points in February, and then again 25 basis points in April.

“The overall preference of Indian policymakers in recent years has been macro-economic resilience over chasing short-term spurts of growth,” Sengupta writes, adding that strengthening public and private balance sheets will continue to be a priority. “The key risks to the India growth story are from exogenous shocks — while most observers do not expect India to be a direct target of Trump’s tariff policies, a rising bilateral trade surplus with the US could bring some unwanted attention.”

How will Indian stock markets fare in 2025?

India’s equities are likely to perform strongly in the medium term, according to a separate report from Goldman Sachs Research. In the near term, though, slowing economic growth, high starting valuations, and weak earnings-per-share revisions could keep markets rangebound.

Our equity strategists expect the benchmark NIFTY index to reach 27,000 by the end of 2025. They also forecast MSCI India earnings growth at 12% and 13% respectively for the calendar years 2024 and 2025 — lower than consensus expectations of 13% and 16%.

India’s Economy is Likely to Stand Firm in an Uncertain World_3

The MSCI India index of stocks is trading at a 23x forward P/E multiple, which is significantly above the 10-year mean and above our strategists’ top-down fair value estimate of 21x, suggesting further de-rating risk.

“History suggests muted near-term returns when starting valuations are high and earnings are seeing downgrades,” Sunil Koul, Goldman Sachs Research’s emerging markets equity strategist, writes in his team’s report. “We expect the market to remain range-bound over the next three months.” His team forecasts a three-month NIFTY target of 24000, but expects a back-loaded recovery to their 12-month target of 27,000, driven by underlying earnings growth.

Koul’s team remains neutral on India stocks in the near term but sees opportunities in some domestic sectors like autos, telcos, insurance, real estate, and e-commerce, which may have a clearer path to stronger earnings, he says.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ACY

Economic

EUR - A Currency Under Strain

The EUR, one of the most traded currencies globally, has hit a rough patch EUR is now facing its largest short position in five years, a clear sign that investor sentiment is wavering. But why is this happening?

A combination of factors is at play. On the one hand, hedge funds and institutional investors are pulling back, driving outflows. On the other, recent political developments in Europe, particularly France, are adding to the uncertainty. Moody’s recent downgrade of France’s sovereign credit rating is a stark reminder of the fiscal challenges facing the Eurozone. The rating agency pointed to concerns over political fragmentation, which could hinder meaningful reforms and exacerbate debt pressures.

For the Eurozone, these challenges extend beyond financial markets. A weaker Euro can make European exports more competitive globally, but it also raises the cost of imports, potentially fuelling inflation—a delicate balance for policymakers.

Global Currency Trends: What They Reveal About the World Economy_1

The US Dollar: Strength Amid Uncertainty

The USD continues to demonstrate its resilience, holding its position as the most sought-after currency in the FX market. Several factors are working in its favour.

One major driver is the widening yield spread between US and Chinese bonds. While Chinese yields have plunged to new lows, reflecting economic weakness, US Treasury yields have rebounded. This divergence has made the USD more attractive to investors, particularly as speculation grows that the Federal Reserve might take a more cautious approach to future rate cuts.

The upcoming Federal Open Market Committee (FOMC) meeting will be pivotal. Investors are keenly awaiting updated guidance from the Fed, especially after recent inflation data pointed to cooling price pressures. However, with Fed Chair Jerome Powell signalling caution, markets may need to temper expectations for aggressive rate cuts in 2024.

Global Currency Trends: What They Reveal About the World Economy_2

The British Pound Caught in Crosswinds

The British Pound (GBP) is navigating turbulent waters, caught between domestic economic challenges and broader global trends. Last week, the Pound experienced a sharp drop against both the USD and the EUR. This came on the heels of disappointing UK GDP data, which showed the economy contracting for the second consecutive month in October.

This downturn has added to concerns about a sharper-than-expected slowdown in the second half of the year. The Bank of England (BoE) has maintained a gradual approach to monetary easing, but weaker inflation and labour market data could push it toward more aggressive rate cuts in the coming months.

For businesses and consumers in the UK, a weaker Pound has mixed implications. While it can make UK exports more competitive, it also raises the cost of imports, potentially squeezing household budgets further.

Commodity Currencies: Diverging Paths

Commodity-linked currencies like the Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD) are often influenced by global growth prospects and risk sentiment. Recently, these currencies have shown varied performance, reflecting their unique economic contexts.

The AUD has seen renewed buying interest, signalling optimism about Australia’s economic outlook. In contrast, the CAD remains the most shorted currency among the G10 group, despite some recent inflows. Meanwhile, the NZD is deeply oversold, creating the potential for a rebound if global market conditions improve.

These movements highlight the interconnectedness of global economies. For instance, shifts in commodity prices, trade flows, and investor sentiment can have ripple effects across multiple currencies, shaping the fortunes of nations reliant on exports of raw materials.

Global Currency Trends: What They Reveal About the World Economy_3

Asia’s Currency Landscape: Challenges and Opportunities

China, the world’s second-largest economy, continues to face significant economic headwinds. Recent data revealed a slowdown in retail sales growth and a fragile recovery in the housing market. This has pressured the Chinese Yuan (CNY), with the currency weakening further against the USD.

The People’s Bank of China (PBoC) is under growing pressure to implement additional monetary easing measures, such as cutting reserve requirements for banks. However, the broader question remains: Can China’s policymakers revive growth in the face of structural challenges and slowing global demand?

These developments in China are closely watched by its regional neighbours, as the country’s economic health has a direct impact on trade and investment flows across Asia.

Why It All Matters

For investors, these currency trends are more than just numbers on a screen. They reflect deeper economic narratives that can influence everything from stock markets to commodity prices. A strong USD, for example, can make imports cheaper for American consumers but might weigh on emerging markets with dollar-denominated debt.

For businesses, currency volatility presents both challenges and opportunities. Companies with international operations or trade exposure must stay agile, using tools like hedging to mitigate risks and capitalize on favourable exchange rate movements.

Finally, for policymakers, these trends underscore the need for coordinated action to address global economic imbalances. Whether it’s tackling inflation, supporting growth, or stabilizing financial markets, the stakes are high.

By understanding the forces driving currency movements, we gain valuable insights into broader economic dynamics. Whether you’re an investor, a business leader, or simply an observer of global affairs, staying informed about these trends is essential in navigating today’s interconnected world.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Cryptocurrency

Bitcoin price has declined by more than 11% over the last four days after rallying to all-time highs above $108,360 on Dec. 17. How Low Can the Bitcoin Price Go?_1

BTC/USD daily price chart. Source: TradingView

This drop has led to questions on whether this level is the local top for BTC price and, if so, how low can Bitcoin go over the next few days.

December 2023 Bitcoin fractal hints at $88,000

Between December 2023 and January 2024, the BTC/USD trading pair exhibited a rounded accumulation pattern, consolidating within a rectangular range ($39,000–$46,000).

After a brief correction following a local high, Bitcoin broke out of the range and rallied sharply to $66,000 by March 2024. How Low Can the Bitcoin Price Go?_2

Bitcoin December 2023 vs. December 2024 market trend. Source: Follis

The current pattern demonstrates similar price action, with Bitcoin consolidating between $88,000 and $102,000. As of Dec. 20, BTC price could be undergoing a correction toward the channel’s lower boundary zone defined by the $88,000–$90,000 range.

If history repeats, Bitcoin may initially dip toward $88,000 in December, only to rebound toward the $102,000 resistance and beyond thereafter.

Popular trader Follis says $120,000 is the breakout target if this happens. How Low Can the Bitcoin Price Go?_3

Source: Don Alt

Will Bitcoin copy the 30% crash in November ’21?

However, a Bitcoin fractal on a weekly timeframe indicates that a broader price correction could be in play. BTC’s price now exhibits signs of bearish divergence, reminiscent of its 2021 market top.

The divergence is highlighted by the relative strength index (RSI) forming lower highs despite BTC/USD reaching higher highs, signaling weakening bullish momentum and a potential price correction ahead. How Low Can the Bitcoin Price Go?_4

BTC/USD weekly price chart. Source: TradingView

The 2021 bearish divergence preceded a significant drop from Bitcoin’s then-all-time high near $69,000, with the price eventually bottoming near $15,000 in late 2022.

A similar divergence appears now as BTC failed to maintain its position above $100,000.

Thus, on longer time frames, the key support to watch lies at the 50-week EMA, which will be around $66,600 by January 2025. If that fails to hold, the next support is at $57,000, which is the 0.786 Fibonacci retracement level.

BTC price eye local bottom around $97K

If Bitcoin successfully breaks out from the ascending triangle support near $97,000 visible in the chart, it could mean the cryptocurrency is already bottoming out.

The triangle’s horizontal resistance near $102,000 and ascending trendline support around $97,000 indicate buyers are maintaining higher lows, a sign of underlying strength. If BTC bounces from this support, it could set the stage for a breakout above $102,000. How Low Can the Bitcoin Price Go?_5

BTC/USD daily price chart. Source: TradingView

A confirmed breakout from the triangle projects an upside target near $114,650, measured by adding the triangle’s height (~$12,000) to the breakout level. Such a move would invalidate the immediate bearish divergence narrative and reassert bullish momentum.

However, failure to hold support would reinforce the bearish divergences and open the door for a deeper correction below $90,000 toward the aforementioned levels.

Source: Cointelegraph

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Warren Takunda

Stocks

December S&P 500 E-Mini futures are trending down -0.80% this morning as risk sentiment took a hit on worries about a possible U.S. government shutdown, while investors awaited the Federal Reserve’s first-line inflation gauge for fresh clues on its policy outlook.

The United States faced renewed political uncertainty on Thursday evening after the Republican-led House rejected a temporary funding plan supported by President-elect Donald Trump. Dozens of Republican lawmakers opposed the deal to fund the government for three months and suspend the U.S. debt ceiling for two years, with less than 24 hours remaining before a U.S. government shutdown.

In yesterday’s trading session, Wall Street’s major indices ended mixed. Lamb Weston Holdings tumbled over -20% and was the top percentage loser on the S&P 500 after the company posted downbeat FQ2 results and cut its annual adjusted EPS guidance. Also, Micron Technology plunged more than -16% and was the top percentage loser on the Nasdaq 100 after the memory maker issued below-consensus FQ2 guidance.

In addition, Lennar slid over -5% after the homebuilder reported weaker-than-expected FQ4 results and offered a soft FQ1 new orders forecast. On the bullish side, Darden Restaurants surged more than +14% and was the top percentage gainer on the S&P 500 after posting upbeat FQ2 results and boosting its 2025 sales guidance.

The U.S. Commerce Department said Thursday that the Q3 GDP growth estimate was revised upward to 3.1% (q/q annualized) in its final print, stronger than expectations of no change at 2.8%. Also, U.S.

November existing home sales rose +4.8% m/m to an 8-month high of 4.15M, stronger than expectations of 4.09M. In addition, the Conference Board’s leading economic index for the U.S. unexpectedly rose +0.3% m/m in November, stronger than expectations of -0.1% m/m and the largest increase in 2-3/4 years.

At the same time, the U.S. Philadelphia Fed manufacturing index unexpectedly fell to a 20-month low of -16.4 in December, weaker than expectations of 2.9. Finally, the number of Americans filing for initial jobless claims in the past week fell by -22K to 220K, compared with the 229K consensus.

“This week’s data show the economy is set to end 2024 on a solid note, which is fortunate since we’ll have to contend with heightened policy uncertainty and possibly greater challenges in 2025. We think the Fed maintains an easing bias, but the bar for rate cuts just got higher,” Oren Klachkin, an economist at Nationwide, said in a note.

U.S. rate futures have priced in an 89.3% probability of no rate change and a 10.7% chance of a 25 basis point rate cut at the conclusion of the Fed’s January meeting.

Meanwhile, Wall Street is preparing for a quarterly event known as triple witching, during which derivatives contracts linked to equities, index options, and futures expire, prompting traders collectively to either roll over their current positions or initiate new ones.

About $6.5 trillion worth of options tied to individual stocks, indexes, and exchange-traded funds are set to expire today, according to an estimate from derivatives analytical firm Asym 500.

Today, all eyes are focused on the U.S. core personal consumption expenditures price index, the Fed’s preferred price gauge, which is set to be released in a couple of hours. Economists, on average, forecast that the core PCE price index will stand at +0.2% m/m and +2.9% y/y in November, compared to the previous figures of +0.3% m/m and +2.8% y/y.

U.S. Personal Spending and Personal Income data will also be closely monitored today. Economists anticipate November Personal Spending to be +0.5% m/m and Personal Income to be +0.4% m/m, compared to October’s figures of +0.4% m/m and +0.6% m/m, respectively.

The University of Michigan’s U.S. Consumer Sentiment Index will be released today as well. Economists estimate this figure to arrive at 74.1 in December, compared to 71.8 in November.

In addition, market participants will be looking toward a speech from San Francisco Fed President Mary Daly.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.547%, down -0.50%.

The Euro Stoxx 50 futures are down -1.24% this morning as U.S. President-elect Donald Trump’s tariff threat to the European Union dampened sentiment in the region. Bank and mining stocks led the declines on Friday. Data from the Office for National Statistics released Friday showed that Britain’s monthly retail sales rebounded in November, albeit at a slower-than-anticipated rate.

Separately, the Federal Statistical Office reported that Germany’s annual producer prices rose in November for the first time since June 2023. Meanwhile, U.S. President-elect Donald Trump issued a new trade warning to the EU, suggesting on social media that he might impose additional tariffs on the bloc unless it increased its purchases of oil and gas from the United States.

Investors are now awaiting the Eurozone’s consumer confidence data for December due later in the day. In corporate news, Zealand Pharma A/S slid over -10% after the U.S. Food and Drug Administration declined to approve the Danish pharmaceutical company’s drug glepaglutide for treating bowel disease.

U.K.’s Retail Sales, U.K.’s Core Retail Sales, and Germany’s PPI data were released today.

U.K. November Retail Sales arrived at +0.2% m/m and +0.5% y/y, weaker than expectations of +0.5% m/m and +0.8% y/y.

U.K. November Core Retail Sales came in at +0.3% m/m and +0.1% y/y, compared to expectations of 0.0% m/m and +0.7% y/y.

The German November PPI has been reported at +0.5% m/m and +0.1% y/y, stronger than expectations of +0.3% m/m and -0.3% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.06%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.29%.

China’s Shanghai Composite Index ended marginally lower today as investors awaited Beijing’s next steps to bolster the economy. The benchmark index suffered a weekly loss. Telecom and consumer stocks lost ground on Friday. At the same time, semiconductor stocks outperformed as signs of fresh Sino-U.S. tensions in technology spurred bets on domestic chip manufacturers.

This followed a report by The Information stating that the U.S. Department of Commerce had recently requested Nvidia to look into how its products ended up in China over the past year. Meanwhile, China kept its benchmark lending rates steady at the monthly fixing on Friday, in line with expectations.

The one-year loan prime rate was maintained at 3.1%, and the five-year rate stayed at 3.6%, according to the People’s Bank of China. Despite this, investors continue to expect more policy support in 2025, including additional rate cuts, reduced reserve requirements for banks, and stronger fiscal measures. I

n other news, local media reported that banks in several Chinese cities unexpectedly raised mortgage rates, signaling that the industry’s net interest margin might be approaching its bottom. In corporate news, Tencent rose over +2% in Hong Kong after the tech giant announced plans to roll out a gifting feature on its WeChat platform.

Japan’s Nikkei 225 Stock Index closed lower today as investors digested stronger-than-expected inflation data from the country. Bank stocks led the declines on Friday as domestic bond yields dropped across the yield curve. The benchmark index posted its steepest weekly decline since early November.

Government data released Friday showed that Japan’s core inflation accelerated for the first time in three months in November, driven by increasing food and fuel prices, boosting expectations for a rate hike. Still, the Bank of Japan decided to keep its policy rate unchanged on Thursday, citing the need to monitor wage trends and overseas uncertainties as well as gather further evidence of domestic economic recovery.

Meanwhile, the yen strengthened against the dollar on Friday following remarks from Japan’s Finance Minister Katsunobu Kato, who expressed concern over recent currency fluctuations and warned of potential intervention if speculative trading is considered excessive. In other news, S&P Global Ratings noted in a release on Thursday that potentially higher U.S. tariffs on Japanese imports could weaken earnings prospects for the nation’s corporates.

In corporate news, Kadokawa plunged about -16% after Sony Group’s plan to increase its stake dashed market hopes for a potential buyout. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -3.01% to 23.18.

The Japanese November National Core CPI stood at +2.7% y/y, stronger than expectations of +2.6% y/y.

Pre-Market U.S. Stock Movers

FedEx climbed over +7% in pre-market trading after the delivery services giant reported better-than-expected FQ2 adjusted EPS and announced plans to spin off its freight division into a separate publicly traded company.

Nike slid more than -3% in pre-market trading as cautious FQ3 revenue guidance overshadowed stronger-than-expected FQ2 results.

U.S. Steel slumped over -4% in pre-market trading after cutting its Q4 adjusted EBITDA guidance.

Source: Barchart

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Warren Takunda

Economic

New data from the ONS shows the UK consumer remains cautious and retail businesses are under pressure, providing fresh evidence the economy has entered a downturn.

Retail sales recovered from -0.7% month-on-month in October to record growth of 0.2% m/m in November; however, the figure disappointed market expectations (0.5%).

The Pound to Euro (GBP/EUR) exchange rate fell 0.60% on Thursday and is slightly softer following the retail numbers at 1.2049 on Friday. The Pound to Dollar (GBP/USD) exchange rate this morning hit its lowest level since May at 1.2474.

On an annual basis, retail sales fell from 2.0% year-on-year in October to 0.5% in November, which is less than the consensus expectation of 0.8%.

Retail sales are a major driver of the UK's service sector-based economy and signal how demand and sentiment is evolving. Therefore, the undershoot in the numbers offers yet another disappointment and confirms the economy has lost significant momentum into year-end.

In fact, the Bank of England said on Thursday it had slashed its growth forecast for the final quarter of 2024 from 0.3% to 0%.

"The pound sold off on the back of the announcement," says Dean Turner, Economist at UBS AG. "While there may be further adjustment, it is hard to see that the pound will make much ground in the short term."

Sensing a slowdown, three members of the Bank's nine-strong Monetary Policy Committee voted to cut interest rates. This surprised the Bank and suggests that it thinks it will need to cut interest rates further in the coming months to support a struggling economy.

These members can now point to the soft retail sales data as evidence of weak demand, potentially limiting fears of another spike in inflation.

"The UK consumer appears to be limping towards the finish line in 2024 - retail sales volumes came in slightly below expectations in November, with a good performance from food the only real highlight," says Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club.

"The Autumn Budget leaves UK retailers between a rock and a hard place. The significant increase to national insurance contributions and the National Living Wage means they will have little option but to put up prices, and margins across the sector are likely to come under pressure," he adds.

Source: Poundsterlinglive

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