European stocks edged higher on Tuesday, despite muted trading activity during a holiday-shortened week. Meanwhile, the U.S. dollar held firm near a two-year high, buoyed by rising U.S. Treasury yields as markets bet on fewer Federal Reserve rate cuts in 2025.
The pan-European STOXX 600 index climbed 0.3%, while Britain’s FTSE 100 and France’s CAC 40 each gained 0.5%. German markets remained closed for the Christmas holiday, contributing to the overall subdued activity.
Asian stocks posted gains, driven by news of a substantial fiscal boost in China. Sources revealed that Beijing plans to issue a record amount of special treasury bonds in 2025 to stimulate its economy. The CSI300 blue-chip index and the Shanghai Composite Index both closed 1.3% higher – Hong Kong’s Hang Seng Index advanced by 1.1%.
Adding to the positive sentiment, China’s finance ministry pledged to enhance fiscal support in 2025. Measures include raising pensions and medical insurance subsidies and promoting consumer spending through expanded trade-in programs for consumer goods.
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While the announcement of fiscal support uplifted markets, many investors remain cautious about China’s economic trajectory. The country faces significant challenges, including its ongoing real estate crisis and the potential for heightened trade tensions with the United States under President-elect Donald Trump.
Ronald Temple, Chief Market Strategist at Lazard, shared his concerns: “China faces significant challenges entering 2025. The ongoing real estate crisis has shattered consumer confidence, while a potential trade war with the United States could trigger the worst growth slowdown in decades. Investor expectations have been raised and dashed more than once in China in recent years, and 2025 may prove to be no different.”
Temple emphasized that China’s market and economic performance will heavily depend on the pace and effectiveness of government reforms.