Global equity markets retreated this week as US inflation ticked higher, the European Central Bank cut interest rates, and the UK economy showed signs of strain with a second consecutive monthly contraction.
Investors navigated shifting central bank policies, economic slowdowns, and cautious market sentiment as 2025 approaches.
What You Will Learn
- US inflation trends and Fed policy expectations.
- The ECB’s rate cut and future outlook.
- UK economic contraction and BoE implications.
- US equities’ mixed performance, led by tech.
- Key global market moves, including Japan and China.
US Inflation Ticks Higher
The release of November’s US Consumer Price Index (CPI) marked the final major economic indicator ahead of this week’s Federal Reserve meeting. Anticipation of an upside surprise had markets on edge, but the figures largely aligned with expectations.
While the pace of disinflation has slowed, there’s little evidence to suggest a reversal is imminent. Core inflation, excluding volatile food and energy prices, rose by 0.3% month-on-month, holding the annual rate steady at 3.3% for the third consecutive month.
Headline CPI ticked up to 2.7% year-on-year, marking its second consecutive increase—something not seen in the last eight months. Higher food and fuel prices partly drove this uptick.
Beyond these categories, rising costs for cars, furniture, hotels, and airfares reflect robust consumer demand, which shows little sign of abating.
ECB Cuts Rates and Adjusts Outlook
Across the Atlantic, the European Central Bank (ECB) cut its key deposit rate by 0.25 percentage points to 3.0%, its fourth reduction this year.
In a notable shift, the ECB dropped its previous pledge to keep rates “sufficiently restrictive for as long as necessary,” potentially paving the way for further monetary easing.
The central bank remains noncommittal, maintaining a meeting-by-meeting approach to policy decisions. Meanwhile, the ECB downgraded its forecasts for growth and inflation, acknowledging growing economic headwinds across the eurozone.
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UK Economy Contracts Again
Over in the UK, the economy shows signs of strain after a strong start to the year. Real GDP contracted by 0.1% in October, following a similar decline in September, as production output faltered.
By far the largest contributor to the economy, the services sector remained stagnant in both months. Yet, the three months to October still managed modest growth of 0.1%, thanks to resilience in services and construction.
With inflation in the services sector still stubbornly high, the Bank of England is expected to hold interest rates steady at its upcoming policy meeting. Policymakers will likely tread carefully next year, balancing the need to tame inflation against the mounting pressure on economic activity.
Mixed Performance in Global Markets
Over the week, US equity markets fell over 0.5%, although growth outperformed value, with US technology etching out a 0.5% gain. European equities fell 1.5% following the ECB’s quarter-point rate cut announcement, while UK equities were down over 1%.
In Japan, equity markets rose almost 1%, whilst Chinese equities slid over 1% despite the government’s announcement of a more proactive fiscal policy going into 2025.
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