Weekly Market Update - 10 December 2024

The 2024 news cycle has typically been dominated by the likes of the US and UK elections, or conflict in Ukraine and the Middle East. However, the year looks to be ending with a focus on developments in France and South Korea.

Starting in France, Prime Minister Michel Barnier resigned on Wednesday last week, after losing a vote of no confidence.

The French Parliament is currently divided between President Macron’s centrist party, a left-wing alliance and the right-wing National Rally. Barnier was attempting to navigate this complex situation to pass next year’s budget however, ultimately, was unable to find a solution that satisfied two out of the three groups.

His resignation leaves Macron with something of a dilemma. As President, he gets to name the next Prime Minister, but the candidate will need to be acceptable to Parliament or will likely suffer similar issues to Barnier. Macron is not allowed to call another election until mid-2025, meaning whoever succeeds Barnier will face the same problem until at least then. Despite this, on Friday Macron said he would appoint the new President in the coming days.

Writing the day after Barnier’s resignation, Felipe Villaroel, Partner at TwentyFour Asset Management, noted there was contrast between the political turbulence and relative calm reaction from financial markets in the immediate aftermath.

Villaroel reasons: “As opposed to previous problematic episodes in the Eurozone, there is no imminent threat of a ‘Frexit’.” He adds: “A US-style government shutdown scenario is not on the cards; if there is no support for a new budget, then a version of 2024’s would apply next year. This means the French government can continue receiving taxes, spending monies and most importantly paying bond coupons. Therefore, from a markets perspective the worst-case scenario here is far less damaging than previous examples of government budget stand-offs.”

The Euronext France CAC 40 index actually rose 2.78% last week, with the market performing better in the second half of the week.

The second major political situation last week was the fallout from South Korean President Yoon Suk Yeol’s attempt to impose martial law on the country. The attempt failed, as the country’s National Assembly voted it down, however, the ultimate nature of the political fallout is still unclear. An attempt to impeach Yoon failed last week, after his Party refused to back the motion. That said, calls for his resignation continue, and he has now been placed under an international travel ban.

In response to the political uncertainty, the Korea Stock Exchange fell 1.13%, in local currency.

Staying in Asia, the tit-for-tat trade war between China and the US continued to expand last week, with the Chinese government placing restrictions on several rare earth mineral exports to the US. These are used in the manufacture of a range of technologies, including semiconductors.

Commenting on these recent developments, Martin Hennecke, Head of Asia & Middle East Investment Advisory at St. James's Place said: “Events like the political turmoil in South Korea or the rare earth export restrictions applied by China in response to new semiconductor export restrictions by the US are hard to predict. It can serve as a good reminder of the importance of the three factors of diversification. Avoiding short term speculation as well as avoiding leverage coupled with overconfidence on specific predictions.”

The Chinese export news wasn’t enough to stop the S&P 500 hitting record highs at the end of last week, as jobs data released on Friday fuelled hope of another interest rate cut.

In the UK, the FTSE 100 ended relatively flat last week. This was despite Bank of England Governor Andrew Bailey telling the Financial Times that he expected four cuts to interest rates next year, and house prices hitting a record high at the end of last week.