Monthly letter December 2024

Key events

December is a month devoted to assessing both what happened in the year that is coming to an end and what might happen in the new one.

What was written 12 months ago in this monthly letter in terms of geopolitics can be largely reiterated for the current one as well.

The worsening trend with regard to the armed conflicts between Russia and Ukraine and in the Middle East is confirmed. In both cases every now and then there are some signs of possible initiatives aimed at reaching a truce, but good intentions are not confirmed in the reality of the facts. No news to report for another tense situation as well, namely that concerning the relationship between U.S. and China.

The political picture, on the other hand, has definitely changed compared to 365 days ago: in Europe, two heavyweights such as France and Germany are grappling with deep political crises, while in the U.S., D. Trump’s return to the White House is preceded by an intense flow of anticipations concerning what he intends to implement.

The outlook for the world’s largest economy is one of major changes, but at the moment there are still weeks to go before the transfer of power.

“If there is one thing that we discussed in the last two days, it’s the level of uncertainty that we are facing, and whether it’s uncertainty resulting from political situations in some of the member states, whether it’s uncertainty resulting from the outcome in terms of policies of the US.”
(Christine Lagarde after ECB meeting on Dec. 11-12)

Macroeconomy offered interesting insights, a consideration confirmed by what central banks have expressed.

In the U.S., the economic growth is settling down to good levels and it is matched by a slowdown in inflation that is weaker than previously thought. Indeed, the cost of living remains above the 2 percent Fed target.

At the December meeting the central bank accompanied its decision to cut the cost of money by 25 bps (as expected by the markets) with considerations that emphasize the need to become more vigilant again on the inflation rate that rose from 2.5 percent in October to 2.7 percent in November, i.e., it broke the downward trend before even approaching that 2 percent mentioned earlier.

On the other side of the Atlantic, the situation is different to the point of reserving the greatest concerns for the dynamics of economic growth. It is true that the inflation rate is similar to that of the U.S. and that the ECB’s mandate is limited to setting the goal of having a CPI of no more than 2 percent (recall how the Fed, on the other hand, has a dual mandate: to promote employment and control inflation), but it is equally true that from the Frankfurt tower the central bank’s leaders make no secret of how the uncertainties characterizing the economic picture of the Old Continent lead to maintaining efforts focused primarily on economic promotion.

The SNB surprised financial markets by deliberating a cut in the cost of money by as much as 50bps. The directorate of our national bank said it was concerned about the uncertainties surrounding us and the influence they could have on the evolution of our currency.
In China, the government announced its intention to have an annual GDP growth of 5 percent.

Although this should be positve, financial markets are waiting for concrete signals about the implementation of the measures before giving credit to the authorities and then investing.

Prospects

The factors of interest for 2025 are immediately and undoubtedly prominent.

In terms of politics: realities of absolute weight such as those in the United States, France, and Germany are currently seen as needing greater visibility. The date of greatest importance is January 20, which is when the tenant of the White House will change.

In France, the Bayrou government took office in the last days of 2024, and it will be obliged by the law to start negotiating with all parties the 2025 budget law with the goal of targeting a 5 percent deficit-to-GDP ratio. Early elections in Germany are scheduled for late February with the political climate heating up.

Financial markets are increasingly inclined to look to central banks as entities that can implement actions to remedy delicate situations.

The Fed and ECB meetings are scheduled for the end of Januaryy (29 and 30). Any forward guidance from them will be immediately analyzed with great attention and detail. After all, what J. Powel said in December about the need to assess inflation developments more closely has made investors further sensitive.

It is with special pleasure that we renew to you and your loved ones our best wishes for a Happy New Year!