A look at the day ahead in U.S. and global markets from Dhara Ranasinghe.
Don't be fooled by what might prove to be a positive start to the new year, with stock futures pointing to a strong opening on Wall Street on Thursday.
For the last four years, the first trading day of the year has been a contrarian indicator, according to Deutsche Bank (ETR:DBKGn) research, which notes the broad S&P 500 stock index ended each year in the opposite direction it moved on the first day.
Take last year for instance, the S&P closed roughly 0.6% lower on the first trading day of 2024 but closed the year over 20% higher and notched up a two-year jump of about 53% - the strongest back-to-back annual performance since 1998.
Instead of where stocks close on Thursday, more attention may be paid to the signals coming from markets in the final, albeit quieter, last two trading weeks of 2024 which saw some decisive selling.
Investors liquidated global equity funds at the fastest rate in 15 years in the week to Dec. 18, according to LSEG Lipper data, in moves that can partly be explained by profit taking on stellar gains and also by the Federal Reserve's hawkish signal at its December meeting for fewer rate cuts and higher inflation.
On the one hand, U.S. economic exceptionalism, bolstered by robust consumer spending and a resilient labour market, deregulation and hopes for a China rebound bode well for global markets in 2025.
China's President Xi Jingping said on Tuesday in his New Year's address that the country would implement more proactive policies to promote growth in 2025.
China's factory activity grew in December, according to the private-sector Caixin/S&P Global survey on Thursday, though at a slower than expected pace.
On the flip side is the more cautious narrative that sticky inflation could force the Fed to pause rate cuts, U.S. President-elect Donald Trump's plans for tariff hikes could hurt global economic growth just as political uncertainty in France and Germany dents confidence in the single-currency bloc.
China stocks ended sharply lower on the first trading session of 2025, their weakest New Year start since 2016.
Geopolitical risks are also on the worry list. Russian gas exports via Soviet-era pipelines running through Ukraine came to a halt on New Year's Day, marking the end of decades of Moscow's dominance over Europe's energy markets.
The widely expected stoppage will not impact prices for consumers in the European Union though, unlike in 2022 when falling supplies from Russia sent prices to record highs, worsened a cost-of-living crisis and hit the bloc's competitiveness.
Still, the move could be a potential issue for central European countries, analysts say, while the rise in European natural gas futures to a more than one-year high could add to inflationary pressures in the euro area.
Ahead of the U.S. open, the dollar and U.S. Treasury yields edged down, while oil prices were around a third of a percent firmer.
Key developments that should provide more direction to U.S. markets later on Thursday:
- U.S. weekly mortgage market index, initial jobless claims
- S&P Global (NYSE:SPGI) U.S. December PMI (final)