Reuters Econ World: Wall Street's festive season
2024-12-12
Category: economic

    Greetings from New York.
I’m back in my favourite city for this year’s Reuters NEXT summit and the holiday vibe on Wall Street is, well, festive. Markets are buzzing with the S&P 500 returning nearly 30% so far this year and the Nasdaq hitting 20,000, as bets on another Fed rate cut, AI hopes and expectations for President-elect Donald Trump’s next term turbo-charge animal spirits.
Bankers have cheered the prospect of business-friendly regulations and are anticipating a burst of deals next year. Goldman Sachs CEO David Solomon told the NEXT conference that M&A volumes could exceed 10-year averages next year.
Sky-high U.S. equity valuations have some investors worried about a correction but European investors betting this will encourage a move into cheaper markets across the pond shouldn’t hold their breath. Joachim Klement, an investment strategist at Panmure Liberum, writes that when U.S. equities experience a major drawdown, American investors typically reduce their exposure to foreign equities as well.
Over the last 40 years, when U.S. stocks have dropped, U.S. withdrawals from European equities have risen by roughly 25% on average, compared to the 12 months leading up to these events.
So what about the potential inflationary hit from U.S. tariffs? The view from Wall Street is that Trump is heavy on the trade rhetoric but actual policy will be more measured.
Manufacturers aren’t taking any chances. They’re getting stock in from overseas ahead of Trump’s inauguration. The National Retail Federation said this week that inbound cargo traffic would notch records in November and December, due to the prospect of a dockworker strike on U.S. East Coast ports in January and the trade risk.
The cocoa needed for this year’s chocolate season is already here and the price has been on a tear. On this week’s Reuters Econ World podcast, my colleague Christopher Walljasper looks at the reason why and what it means for the West African nations that produce it. Listen here.
In Beijing, China's top leaders and policymakers are considering allowing the yuan to weaken next year as they brace for higher U.S. tariffs, Reuters exclusively reported this week.
China is also pledging to increase the budget deficit, issue more debt and loosen monetary policy. We don’t know the actual size of the stimulus, but analysts expect that to emerge after Trump announces his tariffs.
This dovish shift in messaging shows China is willing to go even deeper into debt, prioritising, at least in the near term, growth over financial risks, analysts say.
And what about Europe?  The risk of a trade war couldn’t come at a worse time for the region. Growth is anaemic, productivity low and its two major players – France and Germany – are preoccupied with their own political crises.
No wonder the European Central Bank cut rates for the fourth time this year and kept the door open to further easing. The Swiss National Bank went one step further, cutting its interest rates by 50 basis points on Thursday, its biggest reduction in almost 10 years.
The Bank of England is expected to keep interest rates on hold next week with Governor Andrew Bailey warning there is still “a distance to travel” with inflation.
In contrast to the widespread fears about tariffs in the European Union, the UK is expected to mostly avoid such trouble, according to a recent Reuters poll. A strong majority of economists expect Trump to impose a tariff of less than 10% on UK imports next year, or none at all, which will have an insignificant effect on the British economy.
As always, I'd love to hear from you. Find me on LinkedIn. 
    The headlines  
Trump crypto venture partners with platform linked to Middle East militants 
Luigi Mangione was charged with murder - then donations started pouring in 
US weekly jobless claims unexpectedly rise 
Exclusive: UK regulator's Shein IPO decision slowed by challenge from Uyghur group 
    The podcast      
          “It may be the end of the era for West African cocoa dominance.” - Joe Bavier, Africa business correspondent on this week's Reuters Econ World pod 
    On this week's show, we go deep on "Cocoa markets," looking at the factors behind the surging price of cocoa and what it means for the West African nations that produce it. Listen here 
    The real world  
El Alto: Life on the edge in Bolivia's gravity-defying 'suicide homes'
Seattle: Inside Boeing’s struggle to make its best-selling plane again
Damascus:         How Assad's army collapsed in Syria: demoralised conscripts, absent allies
    The week ahead  
Dec. 18: Fed meets
Dec. 19: Bank of Japan meets
Dec. 19: Bank of England meets