Global Markets Surge Amid Rate Cuts
In 2024, major central banks worldwide entered a rate-cutting cycle, causing significant volatility in the stock, bond, and currency markets. The economic stimulus effect of rate cuts intertwined with global economic uncertainties, becoming the main reason for market fluctuations. The monetary policies of institutions like the Federal Reserve and the European Central Bank have a particularly notable impact on major markets.
Major Stock Markets Rebound Strongly
In the first half of the year, the rebound of tech stocks and the trend of receding inflation drove global stock markets higher. The expectation of rate cuts by the Federal Reserve and the European Central Bank, combined with improved economic prospects, led to a notable stock market surge. However, in early August, intensified concerns about the U.S. economic slowdown caused significant market volatility. On August 5th, "Black Monday" triggered a sharp correction in tech stocks, resulting in a deep decline in major global indices.
Subsequently, major stock markets gradually resumed their upward trend. By December 24th, the Nasdaq in the United States had risen by 33%, and the S&P 500 had increased by 27%; Japan's Nikkei index was up 17%, reaching multi-year highs. In contrast, the European market lagged behind North America and Asia due to geopolitical risks. The French CAC40 index fell by 4% over the year, while the German DAX index recorded a 19% gain.
Experts predict that despite ongoing economic uncertainties, the possibility of continued rate cuts by the central banks of the U.S. and Europe in 2025 will support global stock markets. Anticipated profit growth from S&P 500 constituent companies will also be a significant driver of stock market gains next year.
Bond Yields Reflect Interest Rate Outlook Discrepancies
In the bond market, signals of the Federal Reserve slowing its rate-cutting pace pushed the yield on the U.S. 10-year Treasury to a high of 4.59%. In Europe, economic weakness led the German 10-year bond yield to touch 2.32%. The widening yield gap between the two regions reflects the divergence in interest rate outlooks in the U.S. and Europe.
This month, the Federal Reserve lowered the target range for the federal funds rate to 4.25%-4.5% and expects to maintain a 3.9% rate level in 2025. Meanwhile, the European Central Bank faces more significant recessionary pressures, with the German economy expected to contract for the second consecutive year, forcing further rate cuts to stimulate growth.
Analysts believe the Federal Reserve's decisions have profound impacts on the global bond market, particularly pressuring borrowing costs in emerging markets. Additionally, trade policies from the Trump administration may also impact bond market performance.
Dollar Stays Strong, Yen Under Pressure
In the foreign exchange market, the expectation of the Federal Reserve slowing rate cuts bolstered the dollar. In 2024, the dollar index rose by 7% for the year, while the euro and pound fell by 6% and 2% against the dollar, respectively. The yen underperformed, depreciating by 11% throughout the year. Even though the Bank of Japan removed negative interest rates, it could not reverse the yen's depreciation trend.
Looking ahead to 2025, analysts expect the dollar to continue strengthening in the first half of the year. However, as the impact of the presidential election fades and the Federal Reserve eases its policies, the dollar may face downward pressure in the second half. The yen's trajectory will depend on the Bank of Japan's rate hike pace and U.S. economic data. If Trump pursues higher tariff policies, it may further pressure the yen.
Focus Remains on Rates and Policies
In 2025, the divergence in central bank policies across nations will continue to dominate market trends. Global economic uncertainties, inflation risks, and geopolitical factors will pose more challenges to markets. In the stock market, the interplay between profit growth and monetary policies will determine the direction; in the bond market, investor expectations for future interest rates and economic prospects will be reflected; currency market fluctuations will still focus on the strong performance of the dollar versus the weakness of other major currencies.
