The Davy Digest - 16th December 2024

Last week's main event was 2024's final European Central Bank meeting. As expected, the meeting culminated with a 25 basis point reduction in interest rates, while staff projections for growth and inflation were downgraded for 2025 and beyond. The Swiss National Bank delivered a cut as well, reducing their policy rate to 0.5%. As inflation continues to run below 1% there, the possibility of a return to negative interest rates next year is considered a distinct possibility. Data on the United Kingdom’s economy continued to disappoint, with October’s Gross Domestic Product print unexpectedly shrinking by 0.1% - the measure’s first consecutive monthly drop since April 2020. Meanwhile in the US, inflation data for both consumers and producers were released, with both year-on-year rates modestly accelerating to 2.7% and 3.4%, respectively. Despite this, markets were broadly relieved by the data. Equities closed higher as expectations for a further rate cut at this week’s Federal Reserve meeting were cemented. In Asia, Chinese equities struggled as their Central Economic Work Conference failed to produce any material policy shifts.

Last week's highlights

	US Inflation (11/12) - Increased to 2.7% YoY, in line with consensus.  US Producer Price Index (12/12) - Increased to 3.4% YoY, above consensus.
	ECB Meeting (12/12) - Cut rates by 25bps, as expected, and revised 2025 forecasts for growth and inflation downwards.
	UK October Gross Domestic Product (13/12) - Decreased by 0.1% from previous month (vs +0.1% expected).
	China Inflation (09/12) - Fell to five-month low of 0.2% MoM in November (vs. 0.5% expected).  Japan Producer Price Index (11/12) - Increased to 3.7% YoY; reaching 16-month highs.

Our final update of the year features a series of central bank meetings and inflation prints that will undoubtedly create some festive cheer. The outcome of the Federal Reserve meeting will likely be the headline of the week, where Jerome Powell – in the spirit of Christmas – is expected to reduce rates by a further 25 basis points. Alongside the announcement on interest rates, staff economics projections for growth, inflation, and employment will also provide a valuable insight into the Fed’s view on the state of the US economy. Elsewhere, the Bank of England are currently expected to keep rates on hold at their meeting on Thursday, despite increasingly weak growth and activity data. The Bank of Japan’s meeting will also be receiving plenty of attention. There has been strong upward momentum in inflation data there and with further wage growth expected in Q1, it may be an appropriate time for Kazuo Ueda to raise rates.

What's on the radar

	Industrial Production (17/12)  Federal Reserve Meeting (18/12)  Personal Consumption Expenditure (19/12)
	Eurozone Flash PMIs (16/12)
	UK Inflation (18/12) Bank of England Meeting (19/12)
	Bank of Japan Meeting (18/12) Japan National Inflation (19/12)

Chart of the moment

S&P 500 Bottom-up EPS

Source: Factset as of 5^th December 2024. 

• In this chart, we contrast earnings per share (EPS) forecasts against their actual level. 
• Over the past 25 years, the average difference between the bottom-up EPS estimate at the beginning of the year and the final EPS number for that year has been 6.3%. 
• 2025 EPS estimates are currently running at about $270 per share going into next year, but these figures will likely shift upwards or downwards as the year unfolds.