Portfolio Update – December 2024

General news

• On 01/12/2024, Federal Reserve Governor Christopher Waller signaled support for a potential interest rate cut in December, provided inflation continues its downward trajectory toward the 2% target. However, he expressed concern about recent data showing signs of stalling progress, with October’s Personal Consumption Expenditures (PCE) price index revealing a rise in headline inflation to 2.3% and core inflation to 2.8%. While these figures align with expectations, they highlight persistent challenges in fully controlling inflation. Waller likened the struggle to an MMA fight, where inflation repeatedly slips from control, but he remains confident in eventual success. His final decision will hinge on upcoming data, with any unexpected inflation increases potentially altering his stance.
• On 04/12/2024, The Bank of Korea (BOK) announced measures to boost short-term liquidity and stabilize the foreign exchange market following South Korean President Yoon Suk Yeol’s unexpected declaration of martial law, which was overturned by the National Assembly hours later. After an emergency board meeting, the BOK pledged to provide sufficient liquidity and, if necessary, offer special loans to inject funds into the market. Finance Minister Choi Sang-mok echoed this commitment, while the financial regulator stated readiness to allocate 10 trillion won ($7.07 billion) to a stock market stabilization fund. The martial law, declared late Tuesday, was lifted early Wednesday after the Assembly’s intervention, with military units promptly withdrawn.
• Australia’s economy grew by 0.3% in the third quarter, slightly above the previous quarter’s 0.2% but below the 0.4% forecast, reflecting ongoing pressure from high borrowing costs and persistent inflation. Annual growth reached 0.8%, missing the expected 1.1%. While consumption is expected to gradually improve, growth will likely remain subdued in the near term, according to Oxford Economics’ Sean Langcake. The Reserve Bank of Australia (RBA) has maintained its interest rate at a 13-year high of 4.35% after aggressive hikes totaling 425 basis points since May 2022. Despite headline inflation easing to 2.8% due to energy rebates, core inflation remains elevated at 3.5%, above the RBA’s 2-3% target range. RBA Governor Michele Bullock reiterated that restrictive monetary policy will persist until inflation aligns more closely with the target.
• On 09/12/2024, China’s consumer inflation in November fell to a five-month low, rising just 0.2% year-on-year, below the 0.5% expected and down from 0.3% in October, as sluggish domestic demand persists. Core inflation, excluding food and fuel, edged up slightly to 0.3%. While pork and fresh vegetable prices rose 13.7% and 10%, respectively, producer price index (PPI) deflation continued for the 26th month, declining by 2.5%—less than the forecast 2.8%. Key industrial inputs like ferrous metals and fuel saw sharp price drops, reflecting a supply-demand mismatch fueled by growing inventories. Despite Beijing’s stimulus measures since September, including rate cuts and market support, deflationary pressures remain entrenched. Experts suggest this trend could persist, with weak domestic demand and trade war effects continuing to weigh on China’s economy.
• On 11/12/2024, The Reserve Bank of Australia (RBA) held its cash rate steady at 4.35% for the ninth consecutive meeting in December but signaled the possibility of a rate cut as early as February. Despite Australia’s economy recording its slowest annual growth rate in decades outside of the pandemic and inflation hitting a three-year low, the RBA emphasized the need for further easing of underlying inflation, which remains elevated. The bank’s post-meeting statement reflected a shift in tone, expressing growing confidence that inflation is sustainably moving toward target, a departure from the cautious language of November. RBA Governor Michele Bullock highlighted the deliberate change, noting the board’s recognition of softer-than-expected economic data.
• On 19/12/2024, The Federal Reserve lowered its key interest rate by 0.25 percentage points on Wednesday, marking the third consecutive cut and signaling a cautious approach to future reductions. The new target range of 4.25%-4.5% returns rates to December 2022 levels. Despite steady inflation above target and solid economic growth—conditions typically not aligned with easing—the Fed’s updated projections suggest only two additional cuts in 2025, a sharp reduction from prior expectations. Chair Jerome Powell emphasized the shift to a “significantly less restrictive” policy stance, allowing for a more cautious evaluation of further adjustments. Over the longer term, the neutral rate is projected at 3%, slightly higher than previous forecasts.
• On 24/12/2024, China plans to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2025, up from 1 trillion yuan this year, as part of a fiscal stimulus strategy to bolster its slowing economy, according to sources familiar with the discussions. The funds will target consumption subsidies, business equipment upgrades, and investments in advanced sectors. Approximately 1.3 trillion yuan will finance “two major” initiatives—railways, airports, farmland, and security capacity projects—and “two new” programs, including subsidies for trading old cars or appliances for new ones and supporting large-scale business equipment upgrades. This marks Beijing’s largest special treasury bond issuance, signaling its commitment to counteract deflationary pressures and potential external economic challenges.
• On 26/12/2024, Japan’s government plans a record $735 billion budget for the fiscal year starting April, driven by rising social security and debt-servicing costs, despite already holding the highest debt burden among industrialized nations. The 115.5 trillion yen draft budget reflects efforts to reduce new bond issuance to 28.6 trillion yen, the lowest in 17 years, supported by a projected 8.8 trillion yen rise in tax revenue from corporate profit recovery. This comes as the Bank of Japan ends its decade-long stimulus and raises interest rates, increasing fiscal pressures. The draft, expected to be approved soon, aims for a near-balanced primary budget, keeping hopes alive for a surplus in the next fiscal year.