Introduction

December 2023 capped off a remarkable final quarter for global markets, driven by falling inflation, dovish central bank pivots, and renewed optimism around 2024 growth. Equities surged, bond yields fell sharply, and risk assets rallied across the board as investors embraced the “goldilocks” scenario of lower rates and a soft economic landing. With volatility declining and confidence returning, December rounded out one of the strongest quarters for global markets since the pandemic era.

United States

U.S. equity markets extended their year-end rally. The S&P 500 rose 4.4% in December and closed just shy of its all-time high, while the Nasdaq Composite added 5.5%, driven by renewed strength in mega-cap technology and semiconductors.

The Federal Reserve held interest rates steady at 5.25%–5.50% but surprised markets by projecting three rate cuts in 2024. Chair Jerome Powell acknowledged that inflation was easing “more rapidly than expected,” prompting the shift in guidance. The November CPI showed headline inflation at 3.1% and core inflation at 4.0%, continuing a consistent disinflation trend.

Europe

European equities followed the global rally, with the Euro Stoxx 50 advancing 3.9% in December. Bond yields fell across the continent as the European Central Bank maintained rates and signalled that discussions around policy easing would likely begin in early 2024. The ECB cut its growth and inflation forecasts, and President Lagarde acknowledged downside risks to the economic outlook.

Eurozone inflation slowed to 2.9%, while core inflation fell to 3.4%, opening the door to a potential rate cut as early as April 2024. German bund yields posted their largest monthly drop since the start of the COVID pandemic.

Asia-Pacific

Japan's Nikkei 225 rose 3.2% in December, closing out its best year since 2013. A weaker yen, strong corporate earnings, and improving capital efficiency among Japanese firms continued to attract foreign investors. The Bank of Japan kept policy unchanged but hinted at “ongoing discussions” regarding its yield curve control exit, likely in 2024.

In China, sentiment remained fragile. The Hang Seng Index ended December down 0.8%, while the Shanghai Composite was flat. Stimulus measures fell short of expectations, and concerns around the property sector, local government debt, and deflation persisted. Australia's ASX 200 climbed 2.7% on strong mining and financials performance, aided by stable policy from the Reserve Bank of Australia.

Emerging Markets

Emerging markets rallied sharply in December, with the MSCI Emerging Markets Index gaining 5.3%. Lower U.S. yields, improved risk appetite, and falling inflation supported broad-based strength. EM debt saw its largest monthly inflows in over two years.

India's Nifty 50 closed the year at a record high, with strong GDP data and political stability driving momentum. Latin American markets performed well, particularly in Brazil, where the central bank cut rates for a third consecutive time. Currency appreciation in Mexico, Colombia, and Indonesia also contributed to positive returns.

Commodities

Oil prices slipped in December, with Brent crude ending near USD 77/barrel despite geopolitical risks in the Middle East and Red Sea shipping disruptions. Demand concerns, rising inventories, and mixed OPEC+ messaging weighed on prices.

Gold finished the year strong, closing at USD 2,062/oz, just shy of record highs. The rally was supported by a weaker dollar, falling real yields, and central bank buying. Copper and other industrial metals gained late in the month on optimism around global manufacturing and stimulus prospects for China in Q1 2024.

Fixed Income & Currencies

Bonds posted one of their best monthly performances in decades. The U.S. 10-year Treasury yield fell from 4.33% to 3.88%, reflecting a decisive shift in rate expectations. Global bond indices posted double-digit quarterly returns as investors priced in multiple cuts across the Fed, ECB, and Bank of England.

The U.S. dollar weakened sharply against major currencies. The euro and yen both advanced, while the Singapore dollar appreciated modestly on stable policy and trade resilience. Emerging market currencies rallied across the board as capital returned to higher-yielding assets.

Outlook

December confirmed a decisive turn in global monetary policy expectations, setting the stage for what could be a strong start to 2024. The key question remains whether inflation can remain contained as rates fall and liquidity improves. Investors will also be watching U.S. labour market dynamics, China's growth initiatives, and geopolitical risks in the Middle East and Taiwan Strait.

Brightness Capital & Asset Advisory enters the new year with a constructive but selective approach. We favour exposure to high-quality global equities, investment-grade credit, and EM fixed income, while remaining tactically positioned to navigate any early-year volatility. 2024 begins with opportunity - but not without risk.