The Davy Digest - 6th January 2025

Despite pulling back in the final weeks of the year, global equities had a strong year in 2024. This was driven primarily by stocks in the US, with the S&P 500 gaining 25% during the period. It was the first time since 1998 and 1999 that the index finished with back-to-back years of total returns above 20%. Bonds were largely flat on the year, as earlier gains were erased by a Q4 selloff. Data has been scarce so far in 2025. Manufacturing PMIs in the US, Europe, and China have been the biggest headlines. December prints for Europe, China, and the UK all came in below consensus forecasts, while the US figure came in above expectations at 49.3, but remained in contractionary territory.

Last week's highlights

	ISM Manufacturing PMI (03/01) – Increased to 49.3, above consensus forecasts.
	Eurozone Manufacturing PMI (02/01) – Final December estimate falls to 45.1, below preliminary figure.
	UK Manufacturing PMI (02/01) – Final estimate revised lower to 47.0, hitting an 11-month low.
	China Caixin Manufacturing PMI (02/01) – Came in at 50.5 vs 51.7 expected, showing factory activity grew in December but at a slower than expected pace.

We return to our usual schedule of macro news and data this week, beginning with inflation data and a services PMI report from China. In the US, we will get the minutes from December’s Federal Reserve meeting as well as the first jobs report of 2025. In Europe, the main headlines will be around inflation, with Eurozone and Swiss HICP figures being released on Tuesday.

What's on the radar

	ISM Services PMI (07/01) FOMC Minutes (08/01) Nonfarm Payrolls (10/01)
	Eurozone HICP Inflation (07/01) Swiss Inflation (07/01)
	UK BRC Retail Sales (07/01)
	China Inflation (10/01) China Caixin Services PMI (06/01)

Chart of the moment

Fiscal Profligacy Ain’t Cheap

Source: St. Louis Federal Reserve 

• The US government spent more than $1 trillion on interest payments in 2024, exceeding the amount spent on defence and national security.
• The interest payments are the result of a combination of deficit spending, especially during the pandemic, and higher interest rates after the Fed started hiking rates in 2022.
• The Fed has now started to lower rates again but will do so gradually due to the strength of the US economy and the potential for a new wave of inflation.
• US spending appears sustainable in the short term due to strong economic growth and current rates, but it will need to be addressed eventually to avoid fiscal and political instability.