InvestMacro

At Wednesday’s close, the Dow Jones Industrial Average (US30) added 0.25%, the S&P 500 Index (US500) was up 0.16%. and the Nasdaq Technology Index (US100) rose by 0.04%. Minutes from the Federal Reserve’s December meeting showed that several officials favor a gradual reduction in interest rates throughout 2025. Nearly all Fed officials felt that there were increased upside risks to inflation due to recent stronger-than-expected inflation data and the likely impact of potential changes in trade and immigration policy. Meanwhile, President-elect Donald Trump is considering declaring a national economic emergency to support his proposed tariffs. This has boosted the US Dollar Index but has put pressure on all risk assets.

Ahead of Friday’s jobs report, data showed private-sector hiring and wage growth slowed in December. ADP’s national employment report showed an increase of 122,000 jobs, falling short of the expected 140,000. Weekly initial jobless claims in the US unexpectedly fell by 10,000 to 201,000, indicating a strengthening labor market compared to expectations of a rise to 215,000.

eBay’s (EBAY) stock price rose more than 9% and led the S&P 500 higher after Meta Platforms offered to publish eBay listings on Facebook Marketplace to comply with a European Union antitrust ruling. Moderna’s (MRNA) stock closed down more than 9% after UBS cut its target price on the company’s shares to $96 from $108.

The US stock markets will be closed on January 9 due to a national day of mourning for former President Jimmy Carter.

The Canadian dollar weakened to 1.44 per dollar, nearing January 2016 lows, as investors reacted to increased trade concerns amid political uncertainty following Prime Minister Justin Trudeau’s resignation. Trudeau’s departure amid a crisis that includes a downgrade in his approval rating and looming tariff threats has left Canada without a clear strategy to counter Trump’s proposed tariffs, which could significantly impact Canadian exports.

Equity markets in Europe were mostly down on Wednesday. Germany’s DAX (DE40) fell by 0.05%, France’s CAC 40 (FR40) closed down 0.49%, Spain’s IBEX 35 (ES35) lost 0.12%, and the UK’s FTSE 100 (UK100) closed positive 0.07%. The Eurozone Producer Price Index for November rose by 1.6% m/m, but on an annualized basis the index declined 1.2% y/y, stronger than expectations of positive 1.5% m/m and negative 1.4% y/y.

On Wednesday, US natural gas prices (XNG/USD) rose more than 6% to above $3.6/MMBtu, helped by supply disruptions and strong global demand. The US utilities are drawing natural gas from storage at a faster-than-expected pace as colder-than-normal weather is expected to persist throughout January. Supply constraints have been exacerbated by increased volumes of gas going to LNG export plants due to Europe’s rejection of Russian pipeline supplies. As extreme cold weather is estimated to persist, fears of further supply cuts are pushing prices higher.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) was down 0.26%, China’s FTSE China A50 (CHA50) lost 0.17%, Hong Kong’s Hang Seng (HK50) fell by 0.86%, while Australia’s ASX 200 (AU200) was positive 0.77%.

The People’s Bank of China (PBOC) will auction CNY60 billion worth of six-month bills on the Hong Kong market on January 15 to boost overseas demand for the currency, the Hong Kong Monetary Authority (HMA) said in a statement. The issuance will be the largest since the Chinese Central Bank began holding regular bill auctions in the city in 2018. The move is aimed at reducing yuan liquidity in the market, increasing funding costs, and making short positions more expensive for traders. So far, the Central Bank has shown its resolve by stabilizing the yuan through daily fixings and promising not to allow excessive exchange rate fluctuations.

China’s annual inflation rate fell to 0.1% in December 2024 from 0.2% in the previous month, matching market estimates and marking the lowest since March. The latest results underscored the growing risks of deflation in the country despite government stimulus measures and the Central Bank’s supportive monetary policy.

At the end of Monday, the Dow Jones Index (US30) was down 0.06%. The S&P 500 Index (US500) added 0.55%. The Nasdaq Technology Index (US100) increased by 1.09%. The S&P 500 (US500) and Nasdaq (US100) indices gained thanks to gains in chipmakers and positive market sentiment ahead of a key December Nonfarm Payrolls report due out later this week. The semiconductor sector rallied sharply yesterday, especially after Nvidia’s server manufacturing partner Foxconn reported record earnings and an optimistic sales outlook. Market sentiment was boosted by a Washington Post report that President-elect Trump’s tariff plan will be narrower than expected, which could ease global trade tensions.

The Canadian dollar strengthened to 1.43 per US dollar, rebounding from January 2016 lows reached earlier this month. Traders reacted to Prime Minister Trudeau’s resignation and news that President Trump rejected reports of less stringent tariffs. Trudeau’s departure followed mounting crises including threats of tariffs, resignations of key allies and falling approval ratings, marking the end of his nine-year tenure as prime minister and potentially setting the stage for a snap election. Opinion polls currently favor conservatives, who favor tax cuts and maintain closer ties to Trump.

The Mexican peso strengthened to 20.36 per US dollar, recovering from a March 2022 low, driven by speculation over President-elect Donald Trump’s tariff policies. Reports suggest a more targeted approach, focusing only on imports deemed critical to US national or economic security, easing market concerns. In addition, the peso’s rally has been bolstered by reduced risk aversion and growing optimism about Mexico’s economic outlook. This has made the peso one of the most dynamic emerging market currencies.

Equity markets in Europe mostly rose on Monday. Germany’s DAX (DE40) rose by 1.56%, France’s CAC 40 (FR40) closed 2.24% higher, Spain’s IBEX 35 (ES35) gained 1.34%, and the UK’s FTSE 100 (UK100) closed positive 0.31%. In Europe, data showed that German inflation unexpectedly rose to 2.9% in December, beating estimates of 2.6%, adding to fears of continued price pressures. The data reinforced expectations that the European Central Bank (ECB) would be cautious about cutting interest rates.

WTI crude oil prices fell by 0.5% on Monday, breaking a five-day streak of gains, after the US dollar cut losses and weak economic data from the US and Germany cast a shadow over the demand outlook. A weaker dollar usually makes oil cheaper for buyers using other currencies.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) fell by 1.47%, China’s FTSE China A50 (CHA50) declined 1.15%, Hong Kong’s Hang Seng (HK50) lost 0.36%, and Australia’s ASX 200 (AU200) was positive 0.08%. The declines in Hong Kong were mainly led by the consumer and technology sectors, with Tencent Holdings falling nearly 5% after the US blacklisted it along with CATL Co. over alleged ties to the Chinese military. The move came just weeks before Donald Trump took office.

In 2024, the Australian dollar fell the most in six years, but its decline seems far from over — there is a chance it will fall below 60 US cents in the coming months. Since late September, the Australian dollar has suffered from deteriorating global risk sentiment and growing expectations that the Reserve Bank of Australia (RBA) will be forced to cut interest rates. Another negative factor is the prospect of a trade war between the US and China, Australia’s largest trading partner.

The New Zealand dollar rose to around $0.565 on Tuesday after rising 0.6% in the previous session. The kiwi received support from strong service sector activity data as well as additional support from China, New Zealand’s largest trading partner. However, domestic factors continue to weigh on the currency amid expectations of aggressive monetary policy easing by the Reserve Bank of New Zealand. The RBNZ is expected to cut the 4.25% monetary rate by 50 bps at its February meeting.

The Dow Jones (US30) added 0.80% on Friday (for the week -0.95%). The S&P 500 Index (US500) was up 1.26% (for the week -1.06%). The Nasdaq Technology Index (US100) was up 1.67% (for the week -1.42%). ISM data showed that US manufacturing orders rose more than expected in December, raising hopes that the sector may be on the road to recovery. However, factories expressed concern about the impact of tariffs and increased purchases to reduce the cost of more expensive inputs in the near term.

Goldman Sachs outlined seven key macroeconomic estimates for 2025, predicting that the year will be characterized by easing financial conditions, further rate cuts, and geopolitical uncertainty. From the main one:

• The bank predicts strong global real GDP growth of 2.7% annualized in 2025, driven by rising real disposable income and easing financial conditions.
• Goldman expects US GDP growth to exceed consensus at 2.4% in 2025, citing solid income growth and easing financial policy. Core PCE inflation is estimated to slow to 2.4% by December 2025, reflecting a further cooling of inflation.
• Goldman Sachs expects the Fed to conduct three rate cuts in 2025, with the first 25 bps rate cut in March, followed by additional cuts in June and September. This would result in a final rate of 3.5-3.75%. The Bank also expects the Fed to begin winding down its balance sheet in January and complete it by the second quarter of 2025.
• The European Central Bank is expected to continue its sequential 25 bps rate cuts, bringing the rate to 1.75% by July 2025. However, Goldman notes the potential downside risks to rate cuts, warning that faster and deeper cuts may be needed if growth and inflation weaken further.
• Goldman Sachs estimates that real GDP growth in China will slow to 4.5% in 2025 as policy easing measures will not fully offset weak domestic consumption and the impact of higher US tariffs.
• Goldman advises investors to monitor US policy changes and geopolitical developments closely. The report notes risks related to the Middle East situation, the war between Russia and Ukraine, and US-China relations.

Equity markets in Europe were mostly down on Friday. The German DAX (DE40) fell by 0.59% (for the week +0.29%), the French CAC 40 (FR40) closed down 1.51% (for the week -0.10%), the Spanish IBEX 35 (ES35) lost 0.22% (for the week +1.74%), the British FTSE 100 (UK100) closed negative 0.44% (for the week -1.07%). European indices are now under pressure as investors continue to assess the impact of more expensive energy prices and potential tariffs from the US. The cessation of natural gas supplies from Russia via Ukraine risks a new spike in electricity prices in Germany and other countries dependent on cheap natural gas. In addition to lowering the profits of major German producers, rising electricity costs also have the potential to reignite inflation in the Eurozone, limiting the ECB’s ability to cut rates.

WTI crude oil prices rose by 1.1% to reach $74 per barrel on Friday, helped by cold weather in Europe and the US and optimism over China’s stimulus measures. That rally drove prices to a two-month high and contributed to a weekly gain of nearly 5%. Concerns about the fragility of the Chinese economy have heightened expectations of new policy measures to stimulate growth in the world’s largest oil importer. These hopes offset last week’s bearish demand outlook.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) rose by 1.75%, China’s FTSE China A50 (CHA50) declined 4.12%, Hong Kong’s Hang Seng (HK50) fell by 1.61%, and Australia’s ASX 200 (AU200) was positive 0.60%.

The Australian dollar held steady above $0.62 on Friday, supported by higher oil and gold prices, given Australia’s role as a major commodity exporter. The currency also received support from an improving economic outlook in China, Australia’s largest trading partner, after Beijing promised “more active” macroeconomic policies and lower interest rates this year. However, the Australian dollar remains near two-year lows, pressured by the continued strength of the US dollar.

Vietnam’s annual inflation rate rose to 2.94% in December 2024, accelerating from 2.77% in the previous month. This is the highest inflation rate since August, as housing and construction materials prices rose. The annualized core inflation rate, which excludes volatile items, rose to a ten-month high of 2.85%.