The big three (December 2024)

1. The Fed's delicate dance

The Federal Reserve cut rates by twenty-five basis points, which speaks volumes about the delicate economic balancing act facing the nation. Markets had been pricing in a potential reduction, but the timing suggests a nuanced response to the new political landscape in the aftermath of Donald Trump's electoral triumph. The cut signals a cautious approach to an economy showing mixed signals of potential slowdown and persistent inflationary pressures.

Trump's victory, with its promises of aggressive deregulation and infrastructure spending, creates an interesting backdrop for monetary policy. The Fed appears to be positioning itself strategically, offering some economic breathing room while maintaining flexibility. Initial reactions were positive, with the S&P 500 rallying on the day of the announcement. However, the long-term implications remain uncertain. We see this as a delicate dance between supporting economic growth and maintaining fiscal discipline in an increasingly unpredictable political environment.

2. France's government falls

The French political landscape has been thrown into sharp turmoil with the unexpected collapse of the current government, sending ripples through European financial markets. Polling suggests a deeply fractured political scene, with far-right and far-left factions gaining momentum amid the instability.

Markets have responded with a mixture of caution and speculation. The CAC 40 index saw a small rise in the initial aftermath, reflecting investors’ cautious optimism about potential policy tilts. European Central Bank officials are closely monitoring the situation, concerned about how prolonged political instability might impact broader Eurozone economic recovery efforts. We see this as more than just a French domestic issue - it represents a critical moment of potential realignment in European political and economic structures, with consequences that could extend far beyond Paris's immediate political corridors.

3. Escalation in Ukraine

The Russia-Ukraine conflict has entered a dangerous new phase, with Ukraine's deployment of US-made long-range missiles which struck deep into Russian territory, and Russia's unprecedented move of bringing North Korean troops into the battlefield. Intelligence reports suggest these North Korean forces, estimated at around 3,000 troops, are being integrated into Russian military operations in eastern Ukraine, marking a significant escalation of international involvement.

Ukraine's use of long-range missiles has dramatically changed the conflict's strategic landscape. These strikes have targeted key Russian military infrastructure, prompting immediate retaliation and heightening fears of a broader regional conflict. Financial markets have responded with increased volatility, with defence sector stocks jumping and global oil prices experiencing a spike in response to the heightened tensions. We see this as a critical moment that could fundamentally reshape the geopolitical balance of power in Eastern Europe.