Agencies
In the week ending on the 22nd of December, global markets witnessed major developments, as economic data continues to shape the economic outlook. In the US, inflation, as measured by core PCE, increased by 0.1 percent month-over-month and 2.8 percent year-over-year in November, maintaining stable inflation expectations. Personal spending rose 0.4 percent, while disposable income grew 0.3 percent.
The US dollar showed resilience, reaching near 108.54 on the DXY, supported by a hawkish cut by the Federal Reserve and strong economic growth as GDP rose 3.1 percent. Treasury yields rose, with the 10Y yield climbing past 4.5 percent. Equities sold off, as the S&P 500 fell 3.0 percent, the Nasdaq dropped 3.6 percent. In Europe, the ECB confirmed a 0.25 percent rate cut as inflation fears abated, with the euro reaching a low of $1.034.
While in the UK, the Bank of England has decided to keep policy rates unchanged at 4.75 percent as inflation is proving to be persistent at 2.6 percent y/y. Meanwhile, Japan’s yen depreciated to 157.9 against the US dollar after dovish central bank commentary.
Commodities saw contrasting moves, with gold reaching around $2,600 per ounce, while Brent crude slipped to $72 per barrel, weighed by demand concerns. Global markets continue to react to central bank recalibrations, reflecting cautious optimism tempered by persistent economic challenges.
The S&P Global Flash US Composite PMI rose to 56.6 in December 2024, up from 54.9 in November, marking the strongest private sector growth since March 2022.
The services sector surged to 58.5 (highest since October 2021), while manufacturing fell further to 48.3 (a three-month low). The increase was driven by strengthening demand, with new orders rising at their fastest pace since April 2022 and employment growing for the first time in five months.
Inflationary pressures eased overall, despite rising input costs in manufacturing. Business optimism reached a two-and-a-half year high, supported by positive expectations under the incoming Trump administration.
US retail sales rose by 0.7 percent month-on-month, surpassing the forecasted 0.6 percent. October’s figure was also revised upward to 0.5 percent.
However, core sales, excluding automotive and gas, grew only 0.2 percent, consistent with October but below predictions. Industrial production fell by 0.1 percent, marking a third consecutive decline but improving on the previous month’s 0.4 percent drop. Manufacturing showed a modest recovery, rising 0.2 percent after a 0.7 percent contraction in October.
The Federal Reserve reduced its benchmark interest rate by 25 bps to a range of 4.25-4.5 percent, marking the third consecutive cut in its current cycle.
However, the FOMC signaled a slower pace of easing next year, with policymakers projecting only two quarter-point rate cuts for 2025 instead of the three previously expected by some economists. Inflation estimates were revised higher, reflecting increased concerns about price stability, whilst Fed officials’ neutral rate estimate rose to 3 percent. Chair Jerome Powell highlighted that the policy stance is now “significantly less restrictive”, allowing for cautious adjustments as inflation trends remain “sideways” and labor market risks had “diminished”.
The US economy grew at an annualized rate of 3.1 percent in Q3 2024, up from the second estimate of 2.8 percent and exceeding Q2’s 3 percent growth, marking the strongest expansion this year. Personal spending rose 3.7 percent, the fastest since Q1 2023, driven by a 5.6 percent increase in goods consumption and strong service spending (2.8 percent). Fixed investment grew 2.1 percent, with equipment investment surging 10.8 percent, while structures (-5 percent) and residential investment (-4.3 percent) declined. Government spending increased 5.1 percent, and net trade contributed less negatively, with exports and imports revised higher at 9.6 percent and 10.7 percent respectively.
Personal consumption expenditures (PCE) rose by 0.4 percent in November 2024, supported by a 0.7 percent increase in goods spending, driven by robust demand for motor vehicles and recreational products.
Services spending grew modestly by 0.1 percent, with healthcare and recreation services leading the gains. The PCE price index increased by 0.1 percent month-over-month, maintaining a steady annual rate of 2.4 percent. Core PCE, excluding food and energy, also rose by 0.1 percent month-over-month and 2.8 percent year-over-year. Personal income and disposable income both increased by 0.3 percent, signaling resilience in consumer activity amid stable inflationary pressures. The US dollar index closed the week at 107.82.
Canada’s inflation eased to 1.9 percent year-on-year in November, less than the expected 2 percent. Core inflation remained flat at 0.0 percent month-on-month, down from 0.4 percent previously. This marks further progress toward the central bank’s target rate, supporting its current stance on monetary easing. Where markets are currently pricing 52 percent probability of a cut in their upcoming meeting in January.
The USD/CAD pair closed the week at 1.4368 The HCOB Flash Eurozone PMI for December 2024 reported a composite output index of 49.5, below the neutral 50 mark but slightly higher than November’s 48.3. Manufacturing PMI fell to 44.5, marking a 32-month low, driven by sharp declines in Germany and France. In contrast, the services PMI rose to 51.4, a two-month high, indicating modest growth in services activity, particularly in parts of Southern Europe.
Persistent drops in new orders and export demand remain key challenges, with Germany and France’s weakness overshadowing stronger performances from other eurozone countries.
