Major US equity averages fell on Thursday as investors assessed a hotter-than-expected producer price index reading for November. 

At the time of writing, the Dow Jones Industrial Average was down 0.2%, and the Nasdaq Composite was also 0.2% lower. The S&P 500 also shed 0.2% on Thursday. 

The producer prices index in the US, which tracks wholesale prices, rose 0.4% in November against analysts’ expectations of a 0.2% rise. 

The producer prices index comes after the consumer price index on Wednesday came in line with market expectations. This had prompted investors to anticipate another interest rate cut next week by the Federal Reserve.

Clark Bellin, president and chief investment officer at Bellwether Wealth told CNBC:

While Thursday’s PPI was stronger-than-expected, we believe the Federal Reserve will still proceed with its expected 25 basis point rate cut in December, since other inflation data points in recent weeks and months have moved in the right direction.

On Wednesday, the Nasdaq Composite topped 20,000 for the first time ever. The S&P 500 index had also gained, while the Dow Jones marked its fifth consecutive session in the red. 

Adobe plunges, Uber gains

Share of Adobe fell nearly 13% despite topping its fiscal fourth quarter earnings estimates, but fell behind full-year guidance forecasts. 

The company issued a disappointing annual sales outlook, indicating that its recent measures to incorporate artificial intelligence into its offerings were taking longer than expected to generate returns. 

Meanwhile, shares of Uber climbed more than 3%, rebounding from losses earlier this week. 

The stock had dropped nearly 6% on Wednesday after General Motors halted the funding of Cruise. 

The autonomous driving division had a partnership with Uber.

Producer price index comes in hot

Wholesale prices rose more than expected in November, clouding the outlook for the US monetary policy, going forward. 

The index increased 0.4% on a month-on-month basis during November. Economists polled by Dow Jones had expected the figure to come in at 0.2%. 

Though the market still expects the US Fed to cut interest rates by 25 basis points at next week’s policy meeting, the hotter-than-expected figure could complicate matters. 

Inflation has remained sticky in the US and a resilient labour market has prompted the Fed to be cautious with its rate-cut approach. 

According to the CME FedWatch tool, traders are pricing in a 99.1% probability of the Fed cutting rates by 25 bps next week. 

Share of Riot Platforms jump

Shares of Riot Platforms jumped after the Wall Street Journal reported activist investor Starboard Value has taken a significant position in the bitcoin miner. 

It also reported that the investors were pushing for the company to convert some of its bitcoin mining facilities into space for big-data center users. 

The report did not mention the size of Starboard’s stake. 

At the time of writing, the company’s shares were nearly 10% higher from the previous close. 

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Indian equity markets witnessed a steep sell-off on Friday, with the benchmark indices Sensex and Nifty shedding over 1%.

The Sensex dropped 1,147 points, or 1.41%, to 80,142, while the Nifty50 lost 337 points, or 1.37%, touching 24,211, as of 10:35 am, India time.

Investors were spooked by weak global cues, higher domestic inflation, and persistent uncertainty over China’s economic stimulus measures.

The sell-off wiped ₹6.5 lakh crore from the total market capitalization of BSE-listed companies, now at ₹451.65 lakh crore.

Interest rate-sensitive sectors also saw significant losses.

The Nifty Bank, Auto, Financial Services, PSU Bank, and Realty indices dropped between 1.5% and 2.7%.

Meanwhile, India VIX, a measure of market volatility, spiked 9.9% to 14.5, signalling heightened investor anxiety.

China stimulus ambiguity drags down metal stocks

The Nifty Metal Index was the worst performer of the day, slumping 5% as uncertainty loomed over China’s economic policies.

Steel Authority of India (SAIL) and NMDC led the decline with over 4% losses, while Tata Steel, JSW Steel, and Hindustan Copper shed more than 2%.

China, a key driver of global metal demand, has signaled potential economic stimulus, including interest rate cuts and adjustments to banks’ reserve requirements.

However, the lack of clarity on the timing and scale of these measures has dampened investor sentiment, triggering profit booking across metal stocks.

“The metal rally seen after China’s initial stimulus announcements in September has fizzled out as the broader market sentiment remains weak,” said Gaurang Shah, Head Investment Strategist at Geojit Financial Services.

Rising inflation adds to market pressure

India’s retail inflation eased to 5.48% in November, falling within the Reserve Bank of India’s (RBI) target range.

However, rural inflation surged to 9.10% from 6.68% in October, and urban inflation rose to 8.74% from 5.62%.

The spike in inflation levels, particularly in rural areas, has raised concerns over its potential impact on monetary policy decisions.

Higher inflation could compel the RBI to maintain a cautious stance in its upcoming policy review, potentially delaying rate cuts that many investors are hoping for.

Stronger dollar deters foreign investments

The US dollar continued its ascent, with the dollar index rising 0.13% to 107.1.

A stronger dollar erodes the attractiveness of emerging markets like India, as it increases the cost of foreign debt and reduces the appeal of local equities.

“The rising dollar is a concern since it can lead to imported inflation,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Outlook remains cautious

The combination of global uncertainty, domestic inflation concerns, and weak metal demand has created a challenging environment for Indian markets.

While some relief could come from clarity on China’s economic policies, analysts expect near-term volatility to persist.

“Investor confidence may only return with tangible stimulus measures from China and a clear signal from the RBI on interest rates,” said Jeff Ng, Head of Asia Macro Strategy at Sumitomo Mitsui Banking Corporation.

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The German economy, long considered a powerhouse of global trade, experienced an unexpected setback in October, with exports declining more than anticipated.

This downturn casts a shadow on hopes for a swift recovery in external demand, signaling a potential delay in the much-anticipated rebound.

According to data released by the federal statistics office on Friday, German exports contracted by a significant 2.8% compared to the preceding month.

This figure surpassed even the most pessimistic forecasts, exceeding the 2% drop predicted by a Reuters poll, underscoring the depth of the slowdown.

Trade surplus shrinks amid global demand weakness

The decline in exports had a direct impact on Germany’s trade balance, which saw a marked contraction in October.

The foreign trade balance recorded a surplus of 13.4 billion euros ($14.02 billion), a notable decrease from the 16.9 billion euro surplus in September and a sharp fall compared to the 18.9 billion euros recorded in October of the previous year.

This shrinking surplus highlights the challenges facing Germany’s export-oriented economy amidst weakening global demand.

The data from the statistics office revealed that exports to EU countries experienced a modest 0.7% decrease, while those to third countries saw a more substantial decline of 5.3%.

US and China lead export declines, UK bucks the trend

Examining the regional breakdown of exports reveals a nuanced picture of Germany’s trade relationships.

While the United States remained the primary destination for German goods in October, exports to the US experienced a sharp decline of 14.2% compared to the previous month.

This significant drop suggests a weakening demand from a key trading partner.

Similarly, exports to China also decreased by 3.8% in the month.

On the other hand, exports to the United Kingdom bucked the trend, witnessing a modest increase of 2.1%.

This geographical variance underscores the complex and evolving nature of global trade dynamics impacting Germany’s export landscape.

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The European Central Bank (ECB) has cut its deposit rate for the fourth time this year, reducing it to 3%.

Starting from a record high of 4% in June, it seems that the ECB is finally close to accomplishing its goal of combatting inflation in the Eurozone, which is now near its 2% target.

However, with growth forecasts continuing to shrink and mounting political uncertainties in France and Germany, ECB President Christine Lagarde has turned her focus to broader systemic issues, questioning whether the eurozone’s problems are self-inflicted.

Additional risks were addressed, mainly due to Donald Trump’s second presidency and how that might affect Europe.

What do the numbers say?

The ECB’s latest forecast projects eurozone growth at just 1.1% in 2025, down from an earlier estimate of 1.3%.

The 2026 outlook has also been revised down to 1.4%. Surveys show slowing activity in the current quarter, with businesses hesitant to invest and consumers reluctant to spend.

Inflation averaged 2.3% in November, higher than in previous months due to rising energy prices.

Despite this, policymakers argue that inflation is on track to meet its target, which might leave more room for easing.

Markets anticipate the ECB will continue cutting rates through mid-2025, potentially lowering the deposit rate to 2%.

The ECB is not alone in its rate cutting path.

The Swiss National Bank (SNB) surprised markets with a half-point cut to 0.5%, responding to currency pressures.

Meanwhile, the US Federal Reserve and other central banks have also adopted dovish stances, reflecting slowing global inflation.

Lagarde’s criticism of France and Germany

At a recent press conference, Lagarde made a pointed critique of the bloc’s largest economies, accusing them of creating “self-inflicted uncertainty.”

Without naming names, she highlighted how political paralysis in Germany and France is complicating the eurozone’s fiscal outlook.

Germany is close to a federal election after its coalition government collapsed, and France’s inability to pass a budget indicates growing political fragmentation.

Lagarde warned that such instability undermines economic recovery, describing the lack of clear fiscal policies as a “complication” for the ECB’s planning.

This dysfunction is particularly damaging given the current economic backdrop.

Lagarde acknowledged that the eurozone economy is “losing momentum,” with 2025 growth forecasts revised down to 1.1%, compared to 1.3% just three months ago.

She also noted that companies are scaling back investments due to weak demand and an unclear outlook.

How will Trump’s policies impact Europe?

The inauguration of Donald Trump in January brings new risks.

His administration’s promise of higher tariffs could hit Europe’s export-driven economy hard.

The manufacturing sector, particularly in Germany, is vulnerable to a potential trade war.

This adds to existing pressures on Europe’s industrial base, which is already struggling with global competition and rising costs.

ECB policymakers acknowledge that these external factors may require a reassessment of their current strategy.

While quarter-point cuts are planned for January and March, a larger half-point cut remains an option if conditions deteriorate further.

Bright spots in a cloudy landscape

It’s not all doom and gloom for Europe. Some eurozone nations are outperforming.

Spain, for example, could rival the US as one of the fastest-growing advanced economies, thanks to a tourism boom, a robust labor market, and green investment initiatives.

Similarly, former crisis-hit countries like Portugal, Ireland, Greece, and Spain—once dubbed the “PIGS”—are now among the region’s most resilient performers.

These nations highlight the potential for targeted reforms and investments to drive growth, even in a challenging environment.

However, their success contrasts sharply with the broader eurozone, where political inertia and structural weaknesses persist.

What needs to change?

Europe’s underperformance compared to the US is perhaps indicative of deeper underlying issues.

Former ECB President Mario Draghi has called for urgent reforms to address these challenges, describing the situation as an “existential challenge” for the EU.

What Europe needs right now is increased investment and a more competitive industrial policy.

Additionally, political will is the missing piece.

Without coordinated fiscal policies and a commitment to reform, the burden falls disproportionately on central banks to support the economy.

Lagarde herself has warned that the ECB cannot act as a “jack-of-all-trades,” urging governments to step up.

Final thoughts

The eurozone faces critical decisions in the coming months.

Rate cuts may buy time, but they cannot resolve the region’s deeper structural and political issues.

With potential tariffs from US and increased internal tensions in Germany and France, Europe is in for a hard time.

Whether it can rise to the occasion will depend not just on central bank interventions but on the political courage to enact meaningful reforms.

Without such action, the region risks falling further behind in an increasingly competitive global economy.

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The UK economy has unexpectedly contracted for the second consecutive month in October, a concerning development that highlights the economic challenges faced by the new Labour government led by Prime Minister Keir Starmer.

The latest figures from the Office for National Statistics (ONS) reveal a 0.1% decrease in Gross Domestic Product (GDP), following a similar decline the month before.

This downturn has defied economists’ expectations of a 0.1% gain, sending a ripple of concern through the markets and causing the pound to weaken.

This is particularly unsettling as it suggests a stalling of economic progress as the new government navigates the complex landscape.

Labour’s economic agenda faces early headwinds

The October contraction marks a difficult start for Labour, with the economy only showing growth in one of the four months since their landslide victory on July 4.

This shaky beginning presents a significant challenge to the party’s ambitious economic goals.

While Labour has pledged to improve living standards and achieve the highest sustained growth among G-7 nations, economists view this promise with skepticism given the current economic climate.

The latest data shows that the service sector, a major economic driver, remained flat for the second consecutive month, while both manufacturing and construction output declined, pointing to widespread weakness in various sectors.

Cooling job market and cost-of-living pressures

The new Labour administration is grappling with a multitude of economic headwinds.

The jobs market is cooling, mortgage and energy costs continue to rise, and businesses are considering passing on the impact of a substantial payroll-tax increase to consumers, possibly by raising prices or cutting jobs.

A recent survey also revealed that consumer confidence remains low in December.

The economy has stagnated since the election, adding to the pressure on the new government.

Furthermore, the potential for global trade disruptions stemming from a possible return of Donald Trump to the White House presents an additional challenge that could further weaken the global economy.

Consumer spending declines amidst budgetary fears

A significant factor contributing to the economic downturn was a notable decline in consumer-facing services, which saw a 0.6% drop in output.

The leisure sector was particularly affected, with pubs and restaurants experiencing a 2% decline, indicating that households have likely tightened their spending in anticipation of a potential squeeze from the budget.

Despite the bulk of the £40 billion ($50.6 billion) tax hikes eventually being placed on businesses rather than consumers, the initial anxiety seemed to have curbed spending in October.

Government acknowledges disappointment, pledges growth

Chancellor Rachel Reeves acknowledged the disappointing figures in a statement, affirming the government’s resolve to “deliver economic growth as higher growth means increased living standards for everyone.”

The sharp slowdown in the economy since Starmer assumed office, evidenced by a mere 0.1% expansion in the third quarter after a remarkable 1.2% surge in the first half, raises concerns about the fourth quarter as a whole.

While current forecasts suggest growth of 0.3% to 0.4%, to continue over the next two years, the October contraction will raise questions over these predictions.

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