InvestMacro

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%.

On the last day of 2024, the Dow Jones Index (US30) was down 0.07% (for 2024 +12.80%). The S&P 500 Index (US500) fell by 0.43% (for 2024 +24.01%). The Nasdaq Technology Index (US100) decreased by 0.87% (for 2024 +27.01%). In the US, markets are awaiting Friday’s US Manufacturing Activity Index data for December to determine the market’s direction and assess the health of the US manufacturing sector. The December manufacturing sector business activity index is expected to decline by 0.2 to 48.2.

The Mexican peso faced negative factors related to the strength of the US dollar, which was supported by rising yields and demand for the safe-haven currency. In addition, low liquidity during the holidays further exacerbated losses, leaving the peso among the worst-performing emerging market currencies in 2024, with a year-to-date decline of nearly 19%.

European markets were not trading on Tuesday. Germany’s DAX (DE40) gained +18.72% over 2024, France’s CAC 40 (FR40) closed down 1.99% for the year, Spain’s IBEX 35 (ES35) gained 13.88% for the year, and the UK’s FTSE 100 (UK100) added 5.85% over the past year.

WTI crude oil prices rose above $72 a barrel on Thursday, in the first session after the New Year’s break, following the release of a report on a decline in US crude inventories. The API data showed a 1.4 million barrel decline in US crude inventories for the week ended December 27. If the official data is confirmed today, it would mark the third consecutive weekly decline.

Asian markets were mostly up on Tuesday, December 31. Japan’s Nikkei 225 (JP225) was not trading (+19.85% for 2024), China’s FTSE China A50 (CHA50) was down 1.03% (+19.50% for the year), Hong Kong’s Hang Seng (HK50) added 0.09% (up +19.49% for the year), and Australia’s ASX 200 (AU200) was also not trading on December 31 (up +7.18% for 2024).

China’s central bank (PBoC) injected 1.7 trillion yuan ($233 billion) into the economy and financial markets in December, boosting liquidity at the end of the year. This followed 800 billion and 500 billion yuan injections in the past two months, with a new instrument introduced in October. The cash injections underscore the PBOC’s accommodative stance after the country’s top leaders pledged to provide additional “moderately loose” policy support for an economy facing the threat of escalating trade tensions.

The Australian dollar (AUD) climbed above US$0.62 on Thursday, recovering from two-year lows as higher commodity prices lent support, favoring Australia’s position as a net exporter of basic resources.

The New Zealand dollar (NZD) strengthened slightly as traders anticipated a recovery in China, New Zealand’s main trading partner, following President Xi Jinping’s pledge last Tuesday to implement more active policies to stimulate growth. However, private data showed an unexpected slowdown in factory activity growth, coinciding with a growth slowdown indicated by official data released earlier this week. The currency remained near two-year lows under pressure from dovish expectations from the Reserve Bank of New Zealand.

Indonesia’s annual inflation rate for December 2024 was 1.57%, little changed from November’s three-year low of 1.55%. The latest result was slightly below market expectations of 1.6% but remained within the central bank’s target range of 1.5% to 3.5%. Core inflation, excluding managed and volatile food prices, held steady at 2.26%, remaining at a 16-month high but slightly short of the expected 2.28%.

Singapore’s GDP grew at an annualized rate of 4.3% in the fourth quarter of 2024, slowing from the 5.4% growth in the third quarter but beating market expectations of 3.8%. For the full year, the economy grew by 4%, exceeding the 1.1% growth seen in 2023 and beating forecasts of 3.5%.

As of Friday, the Dow Jones (US30) decreased by 0.77% (for the week +1.65%). The S&P500 Index (US500) was down 1.11% (for the week +2.21%). The Nasdaq Technology Index (US100) fell by 1.36% (for the week +2.55%). The major Wall Street indices fell sharply in afternoon trading, led by a technological stock sell-off. Nevertheless, all 3 major indices remained positive at the end of the week.

The US trade deficit widened to $102.9 bln in November from $98.3 bln in October, more than expectations of $101.2 bln. This is negative for Q4 GDP and bearish for stocks.

Tesla (TSLA) fell more than 3% amid reports that car rental company Hertz is so desperate to get rid of its inventory of Tesla vehicles that it is aggressively sending out cheap buyback options to customers. Broadcom (AVGO) is down more than 2% on signs of insider selling after the CFO sold $2.89 million shares last Friday.

Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) rose by 0.68% (for the week -1.43%), France’s CAC 40 (FR40) closed 1.00% higher (for the week +0.91%), Spain’s IBEX 35 (ES35) gained 0.50% (for the week +0.60%), and the UK’s FTSE 100 (UK100) closed up 0.16% (for the week -0.60%) on Friday.

WTI crude oil prices rose 1.4% to $70.6/bbl on Friday amid another decline in US crude inventories. Increasingly pessimistic economic signals from China supported bets that fuel demand from the world’s main oil importer will slow. In turn, rising supply from Canada, the US, and Brazil may offset prolonged production cuts by OPEC+ members. Nevertheless, uncertainty remains as US President-elect Trump may support domestic production and tighten sanctions on energy exports from Iran.

The US natural gas prices rose to $3.36/MMBtu after the EIA reported a smaller-than-expected 93 billion cubic feet decline in storage inventories for the week ended Dec. 20, which was below forecasts for a 99 bcf decline, bringing inventories to 3,529 bcf.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) rose by 3.18%, China’s FTSE China A50 (CHA50) gained 2.03%, Hong Kong’s Hang Seng (HK50) added 2.45%, and Australia’s ASX 200 (AU200) was negative 0.57% for the week.

On Friday, Bank of Japan (BoJ) Governor Kazuo Ueda reiterated the need to monitor economic risks but refrained from giving clear guidance on future rate hikes. As for the data, Japan’s retail sales rose the most in three months in November, while industrial production fell less than expected.

The Australian dollar rose to around $0.62 but remained near two-year lows, reflecting its continued troubles amid subdued holiday trade. Earlier in December, the Reserve Bank of Australia (RBA) adopted a dovish tone, introducing an explicit easing bias. Weaker-than-expected trends in consumer spending, wage growth, and housing-related inflation drove the shift. As a result, markets have come to view the probability of a rate cut as early as February as 50/50.