Market Report.
🇺🇸 Trump has nominated Scott Bessent as the next U.S. Treasury Secretary, a 62-year-old investor who supports tax reform and deregulation. Bessent’s appointment is seen as a relief for Wall Street, as he understands markets and could reduce tariffs. He will face challenges like managing federal deficits and potentially differing from Yellen on climate change.
📉 Benessen has proposed cutting the US budget deficit to 3% of GDP and addressing the debt by reducing spending and boosting economic growth. Critics argue that the deficit has grown due to strong growth of the US economy, and the discretionary spending to cut is trivial compared to essential spending. Benessen also supports gradual tariffs, suggesting that the levels of tariffs should be reduced. He also supports a strong dollar, contrasting with Trump’s previous stance on devaluation.
⚡ Europe is facing a fresh energy crisis due to depleting gas reserves and looming supply cuts from Russia. Ukraine tensions have led to a 45% surge in gas prices this year, while Europe’s gas storage levels are declining. The loss of Russian gas flows through Ukraine, potentially accelerated by US sanctions, could further tighten the market. The crisis also poses political risks, with voter frustration over high costs potentially intensifying ahead of elections.
🌍 COP29’s deals on climate finance and carbon markets could generate billions of dollars for businesses. However, many developing countries view the $300 billion annual pledge as insufficient. The return of Donald Trump to the U.S. presidency raises uncertainty about climate finance contributions. New revenue streams like global taxes are a priority, but attracting profit-focused investors remains a challenge. The failure to offer concrete steps to shift away from fossil fuels remains an obstacle.
🇩🇪 Germany’s economy is predicted to see only 0.1% growth in 2024 and 0.4% in 2025, down from a previous forecast of 0.9%. The experts attribute this to cyclical weaknesses and structural problems, including high energy and labor costs in the manufacturing sector, stagnant consumer spending, and ongoing uncertainty. The debate over fiscal rules led to the collapse of Scholz’s coalition government and is expected to be a key issue in the upcoming snap elections.
📈 On Wednesday we will see PCE core inflation data in the US and on Friday CPI inflation data in Europe. US core PCE inflation is expected to rise by 2.8% due to higher costs for financial management, while EU inflation is expected to rise due to base effects. No Fed speakers scheduled this week, but ECB and BoE officials are expected to attend.
Market View:
📊 PMI data released on Friday in the US was not too positive. The services PMI was better than expected, coming in above expectations. However, the manufacturing PMI and composite PMI reflected weakness and economic contraction at below 50. Perhaps this is one of the reasons why markets have responded positively, as further economic weakness could imply more significant monetary stimulus.
📈 The S&P 500 has regained the 6,000 point mark with futures opening this week marked by considerable optimism. The Nasdaq 100 has also advanced to within touching distance of 21,000 points, currently trading at 20,960 points.
💵 The dollar index touched 108 points on Friday, but has since retreated towards 107 points, possibly influenced by the PMI data. The euro/dollar suffered a sharp correction on Friday, falling below 1.0350; however, it has managed to regain ground and is now at 1.0475.
📊 European markets have also been infected by the optimism. The DAX 40 has once again managed to avoid the loss of the 19,000 level, currently approaching the 19,500 level with an extremely optimistic opening. The EuroStoxx 50 also opened strongly, close to 4,850 points, although it is now down about 30 points.
🛢️ On Friday, Brent crude oil managed to break above 75 dollars, but has now fallen back slightly to 74.50 dollars. As for gold, it had a spectacular close to the week, topping $2,700 per ounce, although it has since fallen back and is currently trading at $2,670.
💰 Finally, bitcoin has fallen just $200 short of the historic $100,000 milestone. It is very likely that this week will see it reach those levels.
Geopolitics:
🇷🇴 A patriotic leader storms Romania’s elections, and once again, the media is labelling this as a Putin-sympathising leader. The media seem to associate Putin’s figure with nationalist parties that advocate greater national sovereignty for their states. With over 80% of the votes recorded, Calin Georgescu received 22% of the vote, leading Prime Minister Marcel Ciolacu by 20% at the end of Sunday. On December 8, the top two vote-getters move on to the runoff.
🤝 NATO Secretary General Mark Rutte met with President-elect Donald Trump in Florida, as Europe waits to see how the next U.S. administration will approach the war in Ukraine. The meeting was brief, with NATO only issuing a 3-sentence readout stating the two discussed “the range of global security issues. During his campaign, Trump expressed deep skepticism about U.S. support for Ukraine and said he could end the war quickly.
🤔 President-elect Donald Trump’s pick to lead the US intelligence community, Tulsi Gabbard, is likely to face tough questions during her confirmation hearings over her 2017 meeting with Syrian President Bashar al-Assad and her past comments questioning whether Assad used chemical weapons. Representative Mike Waltz, Trump’s national security adviser, expressed concern over Ukraine’s violence and urged for deterrence. Waltz warned US adversaries against exploiting the presidential transition, stating the Biden and Trump teams are “hand in glove” during this period.
⚖️ Brazil’s top public prosecutor, Paulo Gonet, plans to merge three federal police investigations into a single global indictment against former President Jair Bolsonaro. Gonet is analyzing an 884-page police report accusing Bolsonaro and 36 others of crimes like attempted coup d’état and criminal organization. Despite the substantial evidence, Bolsonaro remains a central figure in Brazil’s right-wing political movement.
💥 Last week’s hypersonic ballistic missile attack on Ukraine destroyed the Yuzhmash factory, a major facility for manufacturing missiles from Western components. The attack caused buildings to shook and damage, and destroyed all pipes for the city’s water supply. The plant, which was once a major industrial giant during the USSR, no longer exists. Residents reported feeling like an earthquake as a result of the attack.
