The RBA may start cutting rates in February. In Mexico, inflationary pressures are easing

The US stock market did not trade yesterday.

Today, important data on the labor market, namely the report on Non-Farm payrolls, will be published in the US. This indicator is taken into account by the Fed when adjusting monetary policy. Economists expect the economy to add 154,000 jobs in December after a strong November report (227,000 jobs). The unemployment rate is expected to remain at 4.2% and average hourly earnings are expected to stay at a 4.0% annualized rate. With investors anticipating two rate cuts by the Federal Reserve this year, the 154,000 data will likely remain in line with a gradually slowing but still robust labor market. For the dollar, this would be a positive factor. However, if the data turns out to be worse than expected (a sharp cooling of the labor market), this scenario puts pressure on the USD Index, which would be positive for risk assets and precious metals in the short term.

The Mexican peso (USD/MXN) weakened to 20.5 per USD. December inflation data, which showed a 0.38% monthly increase and an annualized rate of 4.21%, the lowest in 46 months, reinforced expectations of a 50 basis point rate cut at the February Banxico meeting. The peso’s losses were exacerbated by a stronger dollar amid expectations of a cautious Fed, which will not cut rates in January and is expected to cut rates by only 25 basis points in the first half of 2025. In addition, concerns grew as President-elect Donald Trump proposed declaring a national economic emergency to justify the imposition of massive import tariffs.

Equity markets in Europe were mostly up on Thursday. Germany’s DAX (DE40) was down 0.06%, France’s CAC 40 (FR40) closed 0.51% higher, Spain’s IBEX 35 (ES35) added 0.86%, and the UK’s FTSE 100 (UK100) closed positive 0.83%.

WTI crude oil prices rose to $74 on Thursday as traders balanced supply risks with concerns over China’s slowing economy. The market was supported by a seventh consecutive weekly decline in US crude inventories and colder weather is expected to boost demand for the heating fuel.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) fell by 0.94%, China’s FTSE China A50 (CHA50) declined 0.59%, Hong Kong’s Hang Seng (HK50) lost 0.20%, and Australia’s ASX 200 (AU200) was negative 0.24%.

The People’s Bank of China (PBOC) announced on Friday, January 10 that it has suspended open market purchases of treasury bonds due to a supply shortage. Based on market conditions, the Central Bank said it would resume purchases at an appropriate time. The decision came amid repeated warnings from the PBoC about the risks of a bubble in China’s overheated bond market, where long-term yields have fallen to record lows. The shift is largely due to lingering economic uncertainty associated with a prolonged downturn in the real estate market.

The Australian dollar held just below $0.62 on Friday, near its lowest level in two years, amid dovish monetary policy rates from the Reserve Bank of Australia (RBA). ANZ Group, joining a growing number of banks predicting an earlier rate cut, now expects the RBA to act in February rather than wait until May, citing signs of weakening domestic inflation. Markets now estimate the probability of a rate cut next month at 75%, up significantly from 50% just a few days ago.