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Investors hoping for a calm, worry-free year ahead might want to ask Santa for a more realistic gift. With so many economic and political uncertainties, a quiet year just isn't in his magic bag.
In the US - home to the world's biggest economy and stock market - investors will be keeping a close eye on policy changes from the new administration. On one hand, the president-elect has pledged to cut business regulations and taxes, which could boost economic growth and add fuel to the stock market rally. But on the other hand, his plans for steep new tariffs could trigger another spike in inflation - which could force the Federal Reserve (Fed) to pause or even reverse its recent interest rate cuts. Needless to say, higher-for-longer borrowing costs could curb household and business spending, denting economic growth in the process. Also, if trade partners retaliate in kind, levying tariffs of their own, it could upset global trade while hitting US economic output.
Meanwhile, China - the world's number two economy - faces a range of challenges, including a prolonged property crisis, elevated debt levels, and bubbling trade tensions. And its sluggish consumers really aren't helping matters. Policymakers have recently taken aggressive new steps to prop up the economy, making next year a key test of whether the country can regain its footing. The big factor to watch may be whether households start spending again. See, with trading partners threatening to slap steep tariffs on goods from the country, China may have to curb its longstanding reliance on its manufacturing sector and its reputation as "the world's factory" - and actually get its own consumers to pick up the slack.
Finally, in Europe - collectively the third-biggest economy - folks are particularly jittery about potential tariffs. The US president-elect has floated the idea of a 10% to 20% tariff on all goods coming into the US - and that'd be a huge blow to the bloc's factories. His vow to slap a 60% tariff on Chinese imports wouldn't do Europe any favors either: it would inevitably cause many products to be redirected to the European market, further squeezing manufacturers there. And while the European Union could respond by imposing its own tariffs, that kind of tit-for-tat response would risk escalating into a full-scale trade war on multiple fronts. And that's the last thing the eurozone needs: its two biggest economies - Germany and France - are already neck-deep in political turmoil, driven by their ever-expanding budget deficits.
The Fed lowered borrowing costs by a quarter of a percentage point on Wednesday, taking the federal funds rate down to a range of 4.25% to 4.5%. But it was the central bank's latest "dot plot" of interest rate forecasts that really caught the market off guard. Officials penciled in just two quarter-point cuts next year, down from the four they estimated just a few months ago. Understandable, since they also predicted a quicker pace of inflation next year.
British consumer prices climbed by 2.6% in November - the steepest annual inflation rate in eight months. Now, that rise didn't come as a shock to the market's economists, but it was higher than the Bank of England (BoE) had forecast. And, together with the country's still-sluggish growth, it highlights the central bank's challenge in addressing persistent price pressures.
BoE members voted 6-3 on Thursday to keep the central bank's benchmark interest rate steady at 4.75%. Officials also warned that recent increases in wages and consumer prices had added to the risk of "inflation persistence", dampening hopes of rapid rate cuts in 2025. Finally, the Bank lowered its economic forecast for the fourth quarter, now expecting zero growth, rather than a 0.3% rise.
Chinese retail sales growth slowed far more than expected in November, despite all the government stimulus measures aimed at encouraging consumers to spend. Retail sales rose by 3% last month from a year ago - significantly below forecasts and October's pace. On the flipside, industrial production increased by a slightly more-than-expected 5.4%, in a continuing show of strength from the factories side of the economy.
Nissan and Honda are reportedly in talks about a potential merger. The two already collaborate on EV battery development and software, and the idea of a tie-up isn't new - the Japanese government suggested it in 2020 to counter growing competition from Chinese EV makers. If they merge, the combined company would become the world's third-biggest carmaker by sales volumes. Mitsubishi, 26% owned by Nissan, could also join, consolidating Japan's car industry into two dominant players: Toyota and the newly merged giant.