Beware of China Exporting Its Deflation in 2025

China's slumping industrial sector will be a key source of global deflation

Highlights

• China's slumping industrial sector will be a key source of global deflation

• Hawkish Fed guidance is the main culprit behind rising bond yields

• Take away the fiscal largess and there's nothing "exceptional" behind the U.S. economy

• Inflation remains on a cooling path, regardless of the market narrative

Key Takeaways

U.S. Futures Point to Negative Start

• It’s more of the same with U.S. futures pointing to a moderately negative open. The Euro Stoxx 50 is flat. Bond markets have retained their recent bid, with the 10-year T-note yield dropping -3 basis points to 4.50%.

S&P 500 Gains, Eyes 2025

• While 2024 has closed with a round of profit-taking and rebalancing, the S&P 500 is still on track to have climbed +24% this year, making this the best back-to-back annual performance since 1997-98. This, even with the late-year spike in real interest rates. The bar has been set very high for 2025, with the consensus penning in +12.0% earnings growth, an acceleration from an estimated +8.5% this year.