Markets: Quarterly review Q4-2024:

Of significance in Q4-24 was Donald Trump’s victory and GOP’s ‘Red Sweep’ in the November US elections.
Consequently, we watched US equities advance while other regional markets came under pressure as
worries over trade wars and tariffs came to the forefront. Further, we witnessed the USD gain 5-11% against
most global currencies over the quarter on the back of inflation trending higher, pared-back Fed rate
expectations, and de-regulation rhetoric.

US equity markets gained through Q4-24 albeit through a volatile environment that saw the US primary
indices deliver a strong year overall, buoyed by Trumps’ victory and market expectations that his policies
will reduce regulation, add growth, and reduce taxes. The Fed lowered interest rates by 0.25% in both
November and December, and indicated that expectations for cuts in 2025 may be scaled back considerably
on the back of ‘stickier’ inflation as core PCE rose to 2.8% YoY in November. This shift of tone was
unexpected and triggered a brief sell-off across US markets and a rally for USD against most major
currencies. GDP for Q3-24 was 3.1%, reinforcing economic strength perceptions despite labour force
variations through the quarter as strikes and hurricanes impacted productivity. We saw some positive
performance from the Mag7 and other tech sectors through Q4-24 along with consumer discretionary and
communication sectors. Materials and commodities underperformed.

Eurozone markets saw a decline as recessionary fears weighed on sentiment, as political instability came to
the fore in both France and Germany, and worries over the threat of a US/EU trade war after Trump’s
election victory. In Germany, the three-party coalition collapsed in December, and fresh elections will be
held in February. Whereas France cannot hold further elections until at least July as France’s PM was ousted
after a no-confidence vote in Parliament, and their national budget remained in limbo. We saw PMI data in
December indicate that some Eurozone sectors were in contraction whereas some service sectors were
recovering or had returned to growth. The ECB lowered rates by 0.25% in both October and December and
indicated that markets should expect further cuts through 2025 as it contends with tepid growth. The Euro
fell by 7% over the quarter against the USD. Industrials outperformed whereas consumer staples, real estate,
and materials underperformed.

We saw UK equities fall over the quarter as sentiment declined on concerns over the domestic economy;
rising debt and bond yields; upward revisions to inflationary expectations; and rising concerns over fiscal
policies unveiled in the new Governments’ Autumn Budget. Of significance for Corporates from that budget
were increases to National Insurance and the Minimum Wage effective April 2025, which are expected to
impact operating costs, margins, and the jobs market. Internationally diversified corporates also
underperformed as they faced a softening environment for global industrial activity through the quarter.
Preliminary economic data for October indicated the UK economy marginally shrank again after
September’s decline; and further economic data revisions for Q3-24 subsequently indicate that the UK
economy is on the cusp of recession.

Japanese equity markets saw solid gains of +5% through Q4-24. However, this was more than offset by the
USD strengthening by +9% over the Yen, bolstering Japan exporters and US investors into Japanese equities.
While the semi-annual earnings reports by Japanese companies were somewhat mixed, investor sentiment
was buoyed by ongoing corporate governance reforms; accelerating share buy-backs; and news that Nissan
and Honda were planning to merge. The BoJ Ueda maintained rates in December, indicating a less hawkish
posture compared to July, as domestic demand remained neutral but trending improvements have begun
to show in the broader economic data. Financials outperformed on the back of accelerating domestic
consumption expectations once the Spring wage negotiations are completed in March 2025, and growing
expectations that we may see the BoJ increase rates in Q1-25 which in turn would help stabilise and
strengthen the Yen.

Emerging markets struggled for direction through Q4-24 on the back of the stronger USD and expanding
concerns over Trump’s tariff threats which consequently accelerated in December. Brazil markets fell as the
Real fell +13% against the USD over concerns for its fiscal outlook. We saw South Korean markets fall on
political instability as both the President and Acting President were impeached in December. India, Saudi
Arabia, and South Africa underperformed on the back of economic headwinds. Declining sentiment pushed
Chinese markets marginally down for Q4-24 on the back of some confusion over the September stimulus
measures together with concerns growing for China exports from Trump’s proposed tariffs policy; and titfor-
tat actions related to technology, trade, and commodities. Taiwan, UAE, The Czech Republic and Qatar
modestly outperformed in USD terms.

Asian markets (excl Japan) declined as sentiment progressively suffered through Q4-24 in the run-up to the
US election over potential trade tariffs being imposed, and most Asian currencies declined noticeably against
the USD. Singapore outperformed on the back of its political stability and as a neutral hedge should the
trade war between the US and China expand. Indonesia and The Philippines underperformed as regional
sentiment rebalanced and diversified risks.

We saw considerable volatility and declines in Bond markets throughout Q4-24 on the back of geopolitical
tensions; political instability in countries such as Fance, Germany, and south Korea; accelerating debt loads
as Central Banks continued trying to manage prevailing inflationary risks. US Treasuries sold off in October
as the Fed narrative began to indicate fewer rate cuts in 2025 on the back of higher-trending inflationary
pressures plus the consequential risks from inflationary policies should Trump be elected and GOP achieved
a ‘red-sweep’. Despite three rate cuts from the Fed in H2-24, 10Y Treasury yields rose steeply from 3.79%
to 4.57% by year-end (a 20.5% decline), emphasising the impact uncertainty and concerns for H1-25 should
Trump’s tariff and economic policies be implemented. While the ECB dropped rates to 3.0%, political
instability in France and Germany added significant volatility across Eurobond markets where we saw French
bond yields briefly higher than Greek yields, and the 10Y Bund yield jumped to 2.37% while the Euro
weakened significantly against the USD by 7%, adding further uncertainty to global fixed income markets.
For the UK we saw a turbulent bond market after the Chancellor announced in her Autumn budget a £40
billion tax increase amid uptrend borrowing, pushing yields higher despite the BoE dropped rates to 4.75%.
China announced a wide range of support and stimulus measures and policies to progressively bolster its
economy, and where a portion of those measures are yet to be implemented. High-yield bonds
outperformed investment grade, particularly in the US as investor risk-sentiment rose on the expectations
of pro-business policies by Trump. Convertible bonds performed positively on similar sentiment.

Commodities had a mixed quarter with agriculture and energy outperforming whereas industrial and
precious metals declined. We saw coffee and cocoa prices jump higher on the back of climate impact to
harvest expectations. Nickel and copper prices fell as softer industrial activity weighed on market
expectations.

Digital assets performed well through Q4-24 on the back of Trump’s victory and expectations that his
policies may introduce a more constructive framework in the US in this asset space going forward. Bitcoin
reached a record high of $108k early December, before consolidating down to $95k at quarter end.

Andy Blandford