Merry Christmas, from Jerome Powell and the US Federal Reserve (Fed). During his speech, Powell left interest rates steady on Wednesday, but filled investors with seasonal joy by saying he foresees lowering rates by 75 basis points in 2024. The decision by the Fed Open Market Committee to hold rates at 5.25 per cent to 5.5 per cent came alongside publication of the Fed’s so-called dot plot, which showed that most officials expected rates would end next year at 4.5 per cent to 4.75 per cent. Those projections for a steeper pace of rate cuts triggered a rally in US stocks and a sharp fall in Treasury yields, with the two-year yield recording its biggest daily decline since the collapse of Silicon Valley Bank in March – meaning the capital value rose rapidly.

Powell drove home that point, saying the Fed did not want to restrict the economy longer than necessary. “We’re aware of the risk that we would hang on too long,” Powell said, referring to waiting too long to cut rates. “We know that’s a risk and we’re very focused on not making that mistake.”

Wall Street reacted strongly, as the Dow Jones Industrial Average notched its best close in almost two years. In recent months, the index has been buoyed by the prospect of a resilient US economy, ebbing inflation, and strong corporate earnings. It certainly seems that beaten up stocks that are tied to the health of the economy have come back to life and the very stocks that have been hit by high rates are starting to recover. This is great news as it matches the portfolio positioning our investment team took last month.

Away from markets, the latest UN climate summit ended with an announcement that nations have committed to transitioning away from all fossil fuels. The president of this year’s UN-sponsored summit, Sultan Al Jaber of the oil-rich United Arab Emirates, brokered an agreement that watered down language sufficiently to satisfy other oil producers, such as Saudi Arabia. The deal calls for countries to quickly shift energy systems away from fossil fuels in a just and orderly fashion, albeit in a non-binding deal.

The outcome is far from perfect. It is better than feared but less than needed. It bows too much to the forces of international diplomacy, and too little to the immovable realities of science. Yet the COP28 climate conference in Dubai has delivered a historic and unmistakable message that the global energy system must move away from the use of coal, oil and gas. This message would nonetheless have been far sharper had the final agreement spelt out firm deadlines for when fossil fuel use should peak and decline this decade. Many countries had sought such an outcome in Dubai, not least those most vulnerable to climate change. The stakes are especially high when the US could soon be led again by a president who just a few years ago pulled the country out of the 2015 Paris climate agreement.

This is my last update before the Christmas break, and it is pleasing to finish the year on a positive note of market recovery. I would like to take this opportunity to thank you for the faith you place in us, and I would like to wish you and your family a Merry Christmas and a prosperous New Year.