U.S.

Last week, U.S. stock markets rose, recovering from a significant drop earlier. Value stocks outperformed growth stocks, partly due to rising oil prices and declines in some tech companies' values. Big banks like JPMorgan and Goldman Sachs reported strong profits, boosting the financial sector.

The December inflation report showed a slight increase in overall prices, but core inflation (excluding food and energy) rose by only 0.2%—the smallest increase since July. This raised hopes that interest rates could soon be cut. As a result, major stock indexes experienced their biggest one-day gains since November. U.S. Treasury bonds also gained value as their yields dropped.

UK

This week, two significant reports were released: one on GDP for November and another on inflation for December.

The UK economy grew by 0.1% in November, marking the first growth since August. However, this growth was smaller than expected and followed two months of decline, highlighting the economy's overall weakness. In fact, the UK economy in November 2024 was still 0.1% smaller than in March 2024, indicating limited growth since spring. The Bank of England has also lowered its growth forecasts, predicting no growth in the last quarter of 2024.

December’s inflation data was also closely watched. The annual inflation rate for December stood at 2.5%, below the Bank of England’s target and lower than the previous month.

The slowdown in inflation and the weak economy increase the likelihood that the Bank of England might lower interest rates at its next meeting in February. However, global factors, such as the potential for higher inflation in the U.S., could make the Bank of England cautious about cutting rates too quickly. They have previously taken a measured approach to lowering rates to maintain control over inflation.

Europe

In Europe, inflation slowed more than expected, and stock markets posted significant gains. The pan-European STOXX Europe 600 Index rose 2.37%, while major indexes like France’s CAC 40 and Germany’s DAX also saw strong increases.

The European Central Bank (ECB) is expected to lower interest rates gradually and cautiously, according to notes from its December meeting, where rates were reduced for the third time in a row. Investors anticipate another 25 bps cut in January.

ECB Chief Economist Philip Lane, Vice President Luis de Guindos, and officials Yannis Stournaras and Mario Centeno agreed with this cautious approach. Lane and de Guindos emphasized the high level of uncertainty regarding the future, citing potential challenges from global trade issues, political developments, and financial policies within the euro area.