Global sharemarkets paused in December, with US, European and Australian equities declining by 1-3%. In contrast, markets in Japan, China, and Hong Kong saw modest gains of 3-4%. These movements capped off a strong 2024, with the S&P 500 in the US gaining 25.0%, the STOXX Europe 600 rising 9.5% and the ASX 200 in Australia up 11.4%. Elsewhere, the Nikkei 225 in Japan finished 19.2% higher, the Shanghai Composite in China climbed 12.7% and the Hang Seng in Hong Kong increased by 22.9% over the year.
The re-election of Donald Trump and his economic policies, including tariffs, tax cuts, and deregulation, sparked market uncertainty, leading to increased volatility. The CBOE Volatility Index (VIX) rose by 18% during December. Meanwhile, the US Dollar strengthened against most major currencies, including the Australian Dollar, with the AUD/USD exchange rate dropping from $0.65 in November to $0.62, boosting returns for Australian investors holding international assets.
The US Federal Reserve cut interest rates by 0.25% in December but adopted a more hawkish tone than expected, signalling caution about further adjustments. Current rates are at 4.25-4.50%, and markets anticipate rates will hold steady through the first half of 2025, with a potential 0.25% cut in June. Bond yields responded, with the 2-Year Government Bond yield increasing by 0.09% to 4.25% and the 10-Year yield rising by 0.40% to 4.57%.
In Australia, the Reserve Bank kept the cash rate unchanged at 4.35% and issued a more dovish statement, indicating growing confidence that inflation is returning to the 2-3% target range. This follows softer-than-expected economic data in November, including reduced wage pressures. Markets now expect the RBA to cut rates by 0.25% in April 2025.
Looking ahead, we remain cautiously optimistic for 2025. Inflation has stabilised at more acceptable levels, and central banks are broadly expected to maintain or ease monetary policy. This environment is expected to support global economic growth and corporate earnings, providing favourable conditions for global markets in the year ahead.