InvestMacro

At the end of Friday, the Dow Jones Index (US30) was up 1.18% (for the week -2.25%). The S&P 500 Index (US500) gained 1.09% (for the week -2.19%). The Nasdaq Technology Index (US100) increased by 0.85% (for the week -2.75%). Friday’s rally followed lower-than-expected inflation data, with the November PCE Index showing an increase to 2.4% year-over-year, slightly below expectations of 2.5%. That helped ease market anxiety over the Federal Reserve’s prediction of fewer rate cuts in 2025. However, despite Friday’s gains, all three indices closed negative at the end of the week.

Goldman Sachs updated its economic projections to reflect nuanced changes in monetary policy expectations and global growth trends for 2025. The US Federal Reserve’s ultimate policy rate is now expected to be in the 3.5–3.75% range, up from previous estimates of 3.25–3.5%. The broker expects the next 25 basis point rate cut to occur in March, followed by additional cuts in June and September. The US economic performance is projected to continue to outperform developed economies, supported by strong real income growth and excellent productivity gains. The European Central Bank (ECB) is expected to continue to cut rates through mid-2025, eventually reaching the 1.75% level. In China, the outlook remains cautious despite recent policy easing.

The Mexican peso (MXN) strengthened to 20.2 per US dollar, amid a weaker US dollar following the release of softer-than-expected Core PCE data. Last week, the Bank of Mexico cut interest rates by 25 basis points to 10%, matching investor expectations. The rate cut came amid lower inflation in Mexico. The Bank of Mexico anticipates further easing next year amid prognoses for inflation to fall to 4.6% by the end of the year, although it does not expect to reach its 3% target until mid-2026.

Donald Trump said on Saturday that the Panama Canal charges “exorbitant prices and tariffs for passage” for US military and merchant ships. He demanded the fees be lowered or Panama must return the canal to the United States. The US is the canal’s largest customer, with about three-quarters of its cargo passing each year. China is its second-largest customer. Trump has suggested that China should not run the canal. A Chinese company based in Hong Kong controls two of the five ports adjacent to the canal, one on each side. “If the principles, both moral and legal, of this magnanimous gesture of giving are not honored, we will demand that the Panama Canal be returned to us, fully and without question,” Trump said. The US completed the 51-mile (82-kilometer) canal across the Central American isthmus in 1914. However, in 1977, US President at the time Jimmy Carter handed the Panama Canal back to Panama.

Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) fell by 0.43% (for the week -2.34%), France’s CAC 40 (FR40) closed down 0.27% (for the week -1.46%), Spain’s IBEX 35 (ES35) gained 0.24% (for the week -2.25%), and the UK’s FTSE 100 (UK100) lost 0.26% (for the week -2.60%) on Friday. Concerns over the potential impact of a second Trump administration in Europe intensified after Donald Trump threatened to impose tariffs on the European Union if EU countries do not increase their purchases of US oil and gas.

WTI crude oil prices decreased by 0.1% to close at $69.46 per barrel on Friday, recovering some losses but still showing a 3% decline for the week. China’s energy outlook added to market uncertainty, with Sinopec estimating crude imports could peak by 2025 and oil consumption by 2027. OPEC+ lowered its demand growth projection for 2024 for the fifth consecutive time, emphasizing the need for supply discipline. In addition, President-elect Trump has indicated the possibility of imposing tariffs on the EU if it fails to address trade imbalances, particularly with US oil and gas.

Natural gas prices (XNG/USD) rose to $3.7 per mmbtu on Friday, the highest in a month. The reduced likelihood that Europe will continue to receive Russian gas via Ukraine has prompted investors to take long LNG positions as EU countries look for alternative sources of gas. These boosts demand for US LNG at the turn of the US presidential election: President-elect Trump has pledged to issue more LNG export permits, prompting companies to favor more profitable exports over cheaper domestic gas sales due to the abundance of gas available in the United States.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) fell by 0.29%, China’s FTSE China A50 (CHA50) gained 0.19%, Hong Kong’s Hang Seng (HK50) lost 1.14% and Australia’s ASX 200 (AU200) was negative 1.48% for the week.

Singapore’s Core Consumer Prices showed 1.9% year-on-year in November 2024, down from 2.1% in the previous month, below market estimates of 2.1%. This was the lowest core inflation rate since November 2021, thanks to lower inflation in food and services. MAS core inflation is expected to remain below 2% until the end of 2024. Core inflation is projected to average 2.5–3.0% in 2024 before falling to 1.5–2.5% in 2025.

At the end of Thursday, the Dow Jones Index (US30) was up 0.04%. The S&P 500 Index (US500) decreased 0.09%. The Nasdaq Technology Index (US100) lost 0.47%. The US economic reports released on Thursday were mostly stronger than expected and pushed bond yields to a 6-month high, which pressured the indices. The US Q3 GDP was unexpectedly revised upward to 3.1% (q/q annualized), stronger than expectations of no change at 2.8%. The US weekly initial jobless claims fell by 22,000 to 220,000, indicating a stronger labor market than expected at 230,000. The US home sales for November rose by 4.8% m/m to an 8-month high of 4.15 million, stronger than expectations of 3.2% to 4.09 million.

On Friday, markets await key inflation data: the PCE Core Price Index for November, the Fed’s preferred inflation gauge, to see if policymakers can continue to cut interest rates. The Core PCE Index for November is expected to rise to 2.9% y/y from 2.8% y/y in October.

The Mexican peso remained above 20.3 per US dollar, near the one-month low of 20.37 seen on December 18, after the Bank of Mexico (Banxico) cut rates to 10% and signaled further easing, possibly with larger cuts, depending on the pace of disinflation and economic conditions.

Equity markets in Europe were mostly down on Thursday. Germany’s DAX (DE40) fell by 1.35%, France’s CAC 40 (FR40) closed down 1.22%, Spain’s IBEX 35 (ES35) lost 1.53%, and the UK’s FTSE 100 (UK100) closed down 1.14%. The GfK Consumer Confidence Index in Germany for January rose by 1.8 to minus 21.3, beating expectations of minus 22.5. The Bank of England (BOE) left the benchmark rate unchanged at 4.75%. Bank of England Governor Bailey stated that a “gradual approach” to future rate cuts remains the right approach, and we cannot determine when and by how much to cut interest rates in 2025.

Norway’s Norges Bank kept its key rate unchanged at 4.5% at its December 2024 meeting, in line with market expectations, but said rates will likely be cut in March 2025. Policymakers have kept the interest rate at a sixteen-year high of 4.5% since December 2023, helping to cool the Norwegian economy and lower inflation. Sweden’s Riksbank cut its key rate by 25 bps to 2.50% at its December meeting, confirming market expectations. This is the fifth rate cut this year, for a total of 150 bps, in response to the continued decline in inflation and stabilization of inflationary pressures. This was reflected in November core inflation, which came in at 1.6%, the lowest level since July 2021, remaining below the central bank’s 2% target for the fourth consecutive month.

The US natural gas (XNG/USD) prices rose to $3.5 per MMBtu on Thursday, the highest in more than a year, as bets on higher global LNG demand boosted domestic consumption. EIA data showed utilities withdrew more than 100 billion cubic feet of natural gas from storage for the second straight week, extending the expected withdrawal season. In addition, uncertainty over whether Europe will continue to receive Russian gas via Ukraine prompted investors to take long LNG positions as EU countries seek alternative gas sources.

Palladium prices slipped below $900 an ounce (XPD/USD), near their lowest level in four months, foreshadowing a fall of more than 18% for the full year amid slowing industrial demand, hawkish Fed monetary policy, and supply growth projections.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) was down 0.69%, China’s FTSE China A50 (CHA50) was down 0.41%, Hong Kong’s Hang Seng (HK50) lost 0.56%, and Australia’s ASX 200 (AU200) was negative 1.70%. Chinese stocks rose on Friday. The rally followed the latest policy decision by the People’s Bank of China (PBoC), which left one-year and five-year lending rates unchanged at 3.1% and 3.6% respectively, matching market expectations. Earlier this month, senior Chinese officials pledged to adopt “more active” fiscal measures and “moderate” monetary policy easing next year to boost economic growth, signaling a shift away from the more cautious approach of the past decade.

Malaysia’s annual inflation rate eased to 1.8% in November 2024 from 1.9% in the previous month, below the market estimates of 2.1%. Core Consumer Prices, excluding volatile fresh food and administrative expenses, rose 1.8% y/y, holding steady for the third month and remaining at the slowest pace in six months.

As of Tuesday’s close, the Dow Jones Index (US30) was down -0.61%, extending its losing streak to nine sessions. The S&P500 index (US500) was down -0.39%. The Nasdaq Technology Index (US100) lost -0.43%. The US stocks declined on Tuesday as markets refrained from opening risky positions ahead of tomorrow’s Federal Reserve decision. After Wednesday’s meeting, the FOMC is expected to cut the target range for the federal funds rate by -25 bps. Markets will also be looking to Fed Chair Powell’s comments after Wednesday’s meeting for clues on the future direction of Fed policy. Jerome Powell’s recent comments noted reduced risks in the labor market, but persistent inflation has led to speculation of a rate cut, with a hawkish stance for the next meeting in 2025. If this scenario were to occur, it would boost the dollar index, which would negatively impact risk assets (euro, British pound, Mexican peso) and pressure precious metals (gold and silver).

The US retail sales report for November published on Tuesday came in stronger than expected, showing a resilient economy with strong consumer spending. However, it could prompt the Federal Reserve to cut interest rates next year when it updates its quarterly dot-com forecasts on Wednesday. The US retail sales for November rose by +0.7% m/m, stronger than expectations of +0.6% m/m. Retail sales excluding motor vehicles for November rose by +0.2% m/m, weaker than expectations of +0.4% m/m. US manufacturing production for November added +0.2% m/m, weaker than expectations of +0.5% m/m.

On Tuesday, shares of healthcare companies that own pharmacy benefit management units declined after Pfizer’s CEO said President-elect Trump is “very committed” to reforming pharmacy benefit management (PBM). As a result, Humana (HUM) closed down more than -10%, topping the list of S&P 500 losers. Meanwhile, Pfizer (PFE) stock price gained more than +4% and topped the list of top gainers in the S&P 500 after reaffirming its 2024 outlook and 2025 adjusted EPS guidance of $2.80-$3.00, above the average consensus estimate of $2.89.

Canada’s annual inflation rate for November 2024 was 1.9%, down from 2% in the previous month and short of market expectations of 2%. The result was in line with the Bank of Canada’s baseline scenario, which sees CPI inflation remaining near the 2% threshold for the foreseeable future. However, the average prime rate remained unchanged at 2.7% instead of expectations of a cut to 2.5%, limiting the extent of rate cuts that can be undertaken by the monetary authorities to promote economic growth.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) fell by -0.33%, France’s CAC 40 (FR 40) closed up +0.12%, Spain’s IBEX 35 (ES35) lost -1.62%, and the UK’s FTSE 100 (UK100) closed down -0.81% yesterday. European equities continued to decline amid new pessimistic economic signals ahead of monetary policy decisions by major central banks this week. In terms of data, the Ifo business climate index for Germany fell more than expected, while the ZEW economic sentiment index unexpectedly rose. Swaps put the odds of a -25bp ECB rate cut at the January 30 meeting at 100% and the odds of a 50bp rate cut at the same meeting at 10%.

WTI crude oil held above $69 a barrel on Wednesday. API data showed that US crude inventories fell by 4.7 million barrels last week, beating forecasts for a 1.9 million barrel decline, which would mark the fourth consecutive decline if confirmed by official data later on Wednesday. Oil prices remain under pressure due to renewed concerns over Chinese demand, driven by unexpectedly weak Chinese consumer spending data. These concerns are compounded by forecasts of a significant rise in non-OPEC+ production next year.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) fell by -0.24%, China’s FTSE China A50 (CHA50) added +0.67%, Hong Kong’s Hang Seng (HK50) lost -0.48%, and Australia’s ASX 200 (AU200) was positive +0.78% yesterday.

The Westpac-Melbourne Institute of Australia’s leading economic index for November 2024 rose by +0.1% month-on-month after rising +0.2% in the previous month. This was the index’s first positive reading in 2.5 years amid optimism that economic growth will pick up slowly over the next few quarters. Australia’s GDP is forecast to grow from 0.8% y/y currently to 2.2% by the end of 2025.

At the end of Monday, the Dow Jones Index (US30) declined by 0.25%. The S&P 500 Index (US500) added 0.38%. The Nasdaq Technology Index (US100) was up 1.45%. Top gainers included Alphabet (+4.4%), Tesla (+5.1%), and Broadcom, which soared after its market value surpassed $1 trillion last week. Apple and Alphabet hit new all-time highs, while Nvidia fell 2%.

Bitcoin (BTC/USD) rose more than 4% to a new record high of $107,000 amid President-elect Trump’s support for digital assets. Trump is seeking to create a favorable regulatory environment for digital assets by lifting restrictions imposed by the outgoing administration of President Biden. The US ETFs investing directly in Bitcoin have attracted $12.2 billion in net inflows since Trump won the November 5 presidential election.

Equity markets in Europe were mostly down on Monday. Germany’s DAX (DE40) fell by 0.45%, France’s CAC 40 (FR40) closed down 0.71%, Spain’s IBEX 35 (ES35) gained 0.23%, and the UK’s FTSE 100 (UK100) closed down 0.46%. The French Index is under pressure after Moody’s unexpected downgrade of France’s credit rating from Aa2 to Aa3, prompted by concerns over deteriorating public finances amid political instability. Meanwhile, on Friday, President Emmanuel Macron named Francois Bayrou as the new prime minister following the collapse of Michel Barnier’s government. In Germany, Chancellor Olaf Scholz lost a confidence vote as expected, confirming elections scheduled for late February. The leaders of the fall on the German stock exchange were the largest automakers: Mercedes Benz, BMW, and Stellantis, which fell in value from 3% to 5%. They were pressured by a weak retail sales report from China and industrial production, which increased competition from the country’s automakers. The UK saw the fastest decline in private sector employment in nearly four years in December, despite a slight increase in output following a payroll tax hike in Labour’s new budget.

WTI crude oil prices fell to below $71 a barrel on Monday. A batch of economic data from China heightened fears of weakening aggregate demand from the world’s top oil importer, adding to the pessimism that the economy will struggle to gain momentum despite Beijing’s promises of fiscal stimulus. The IEA predicts the global oil market will maintain a surplus next year, despite OPEC+ members agreeing to postpone production increases.

The US natural gas (XNG/USD) prices fell to $3.15 per MMBtu, a sharp retreat from a 13-month high of $3.5, as markets lowered their expectations of strong US gas demand. Reports from the EU fueled optimism that European countries could find alternative sources of natural gas supplies after Russian flows through Ukraine were cut off later in the year, and major German companies had already struck LNG deals with Middle Eastern producers.

Asian markets were declining yesterday. Japan’s Nikkei 225 (JP225) was down 0.03%, China’s FTSE China A50 (CHA50) lost 0.03%, Hong Kong’s Hang Seng (HK50) decreased by 0.88% and Australia’s ASX 200 (AU200) was negative 0.56%.

Markets are awaiting a series of economic releases for New Zealand, central among which is Q3 GDP, which is estimated to contract by 0.4% quarter-on-quarter, which could signal a return to recession. The subdued data will provide further evidence in favor of a more aggressive Reserve Bank of New Zealand policy. Meanwhile, the New Zealand Treasury is prognosing a widening budget deficit this year, citing rising unemployment and slowing economic growth, delaying a return to surplus for at least five years.

In Australia, a private survey showed a decline in Consumer Confidence in December as sentiment became more pessimistic about the economic outlook. In addition, traders await the Australian government’s budget update, which is expected to show a widening deficit, partly driven by weakening activity in China, Australia’s largest trading partner.

The Dow Jones Industrial Average (US30) was down 0.53% on Thursday. The S&P 500 Index (US500) decreased by 0.54%. The Nasdaq Technology Index (US100) fell by 0.68%. The losses came amid signs of stagflation after US weekly jobless claims unexpectedly rose to an 8-week high, and November Producer Prices rose faster than expected, the fastest pace in nearly 2 years.

US weekly jobless claims unexpectedly rose by 17,000 to an 8-week high of 242,000, indicating a weaker labor market than expected down to 220,000. The US final Consumption Goods and Services Price Index for November rose by 3.0% y/y, exceeding expectations of 2.6% y/y and the largest increase in over a year. In addition, the November Price Index, excluding food and energy, was unchanged from October at 3.4% y/y, exceeding expectations of 3.2% y/y. Markets estimate the odds of a 25 bps rate cut at the December 17–18 FOMC meeting at 95%.

Adobe (ADBE) fell more than 13%, topping the list of losers in the S&P 500 and Nasdaq 100, after estimating 2025 revenue of $23.30-$23.55 bln, weaker than the consensus projections of $23.78 bln.

Equity markets in Europe were mostly flat yesterday. Germany’s DAX (DE40) rose by 0.13%, France’s CAC 40 (FR40) closed down 0.03%, Spain’s IBEX 35 (ES35) fell by 0.21%, and the UK’s FTSE 100 (UK100) closed up 0.12%. The ECB, as expected, cut the deposit rate by 25 bps to 3.00% from 3.25% and abandoned previous language that monetary policy will remain “sufficiently restrictive for as long as necessary.” The ECB lowered its 2024 eurozone GDP estimate to 0.7% from a previous projection of 0.8% and its 2024 Eurozone inflation prognosis to 2.4% from a previous one of 2.5%. ECB President Lagarde said the latest information indicates that the eurozone economy is losing momentum and will strengthen more slowly than expected.

The Swiss National Bank (SNB) cut its key rate by 50bps to 0.5% in December 2024, beating market expectations for a smaller 25bps cut. This is the fourth consecutive rate cut and the sharpest since January 2015, bringing borrowing costs to the lowest since November 2022. The decision came amid a decline in inflation from 1.1% in August to 0.7% in November. Inflation is projected to average 1.1% in 2024, 0.3% in 2025, and 0.8% in 2026, staying within the SNB’s target range. Swiss GDP growth is expected to be around 1% this year, rising slightly to 1–1.5% in 2025, supported by recent rate cuts.

Oil prices are targeting their first weekly rise in three weeks, helped by the prospect of tighter sanctions and hopes for improved Chinese demand following Beijing’s pledge to ease monetary policy next year. OPEC also cut its 2024 demand growth prognosis again, the fifth consecutive month of lower demand growth.

The US natural gas prices (XNG/USD) climbed above $3.4/MMBtu to the highest level in more than two weeks, driven by larger-than-expected withdrawals from storage reported by the EIA. For the week ending December 6, US utilities withdrew 190 billion cubic feet of gas from storage, well above the 170 billion cubic feet prognosis. This withdrawal was well above last year’s 72 Bcf and the five-year average of 71 Bcf for the same period.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) fell by 1.09%, China’s FTSE China A50 (CHA50) rose by 1.38%, Hong Kong’s Hang Seng (HK50) gained 1.28%, and Australia’s ASX 200 (AU200) was negative 1.37%.

The New Zealand dollar fell as low as 0.575 USD on Friday, ending at its weakest level in two years under pressure from a strong US dollar. The US dollar strengthened after US Producer Inflation rose more than expected, pushing Treasury yields higher. Domestically, expectations of a significant rate cut by the Reserve Bank of New Zealand have further weighed on the local currency. Markets currently see a 66% chance of a 50bp rate cut at the central bank’s February meeting, with the rate prognosis to fall to 3.10% by the end of 2025.