Last week, the international market was volatile, with the US Congress avoiding a government shutdown at the last minute and the Federal Reserve's decision causing another stir.
In terms of the market, the US stock market fell across the board, with the Dow Jones Industrial Average falling 2.25%, the Nasdaq falling 1.78%, and the S&P 500 index falling 1.99%. The three major European stock indexes performed poorly, with the FTSE 100 index in the UK falling 2.60%, the DAX 30 index in Germany falling 2.55%, and the CAC 40 index in France falling 1.82%.
This week, Europe and America will welcome the Christmas holiday, and the market may be slightly sluggish. After the announcement of the Federal Reserve's decision, the market will focus on economic data performance, including the Consultative Conference's Consumer Confidence Index and November trade accounts. In addition, the Bank of Canada and the Reserve Bank of Australia will release meeting minutes.
As the Bank of Japan remained inactive in December, the Japanese yen experienced a short-term plunge. Investors need to be wary of the Bank of Japan's possible verbal or actual intervention in the foreign exchange market. Bank of Japan Governor Kazuo Ueda will deliver a speech on the 25th. The market expects that Japan may have to wait until at least March to raise interest rates again, which will provide a better understanding of the evolution of wage pressure after the end of spring salary negotiations. Meanwhile, Japan's inflation rate continues to hover above the central bank's target of 2.0%, and Tokyo's December Consumer Price Index (CPI) will be released on the 27th.
Pay attention to employment indicators in the United States
Just hours before the federal government shutdown, the US House of Representatives has approved funding to maintain government operations until mid March. The voting result will be submitted to the Senate for approval before it can be submitted to the White House.
The Federal Reserve held its year-end meeting last week and decided to cut interest rates by 25 basis points for the third consecutive time. The latest dot plot shows that members of the Federal Open Market Committee predict that the Federal Reserve will only cut interest rates by 25 basis points twice in 2025.
Although the Republican Party and Trump won overwhelmingly in the US presidential election, the outside world still felt somewhat caught off guard by the hawkish attitude of the Federal Reserve this time. Federal Reserve Chairman Powell stated at a post meeting press conference that Fed officials are already considering the potential impact of Trump's policies on the economy and inflation.
In terms of data, the confidence index of the consulting firm in December may attract some attention. The index has been on the rise in the past two months, while one of its sub indicators, the "Employment Difficulty" index, has continued to decline. This data is closely positively correlated with the official unemployment rate, and it is expected that further decline in this indicator will indicate a sustained rebound in employment growth.
At the same time, durable goods orders and new home sales in November will also become important references for external evaluations of the US economic situation at the end of the fourth quarter. Durable goods orders are expected to decline by 0.4% after a 0.3% increase in October. However, investors tend to use the core indicator of non defense capital goods orders that do not include aircraft, which fluctuates less and is also calculated as a component of Gross Domestic Product (GDP). In terms of the job market, the trend of initial jobless claims will continue to provide information on the supply and demand of labor.
Crude oil and gold
International oil prices fell last week, suppressed by the rise of the US dollar and continued concerns about demand prospects. WTI crude oil fell 1.92% to $69.46 per barrel in the near month contract, while Brent crude oil fell 2.08% to $72.94 per barrel in the near month contract.
Sevens Report Research, a market research firm, stated that looking ahead, the fundamental background remains bearish on oil, and people are still very concerned that the physical market surplus will become a reality in 2025, as demand expectations continue to be lowered while supply and production trends remain sufficient and healthy.
The turbulence in the stock market has also led to a negative tone for oil and other commodities. Previously, the Federal Reserve stated that the rate cut in 2025 may be less than previously expected. The ICE US dollar index has risen by over 1% in the past week and reached its highest point in over two years at one point. Generally speaking, a strengthening of the US dollar may have a negative impact on goods priced in that unit.
The international gold price has experienced a huge shock, and the expectation of the Federal Reserve cutting interest rates has cooled down, causing gold to test the support of $2600. The COMEX gold futures contract for December delivery on the New York Mercantile Exchange fell 1.0% for the week to $2622.10 per ounce.
JPMorgan Chase stated in a report, "Physical demand is currently at a low level, and expectations for a Fed rate cut in 2025 are relatively low. However, if inflation concerns are ultimately exaggerated, this could drive gold up and make the Fed's monetary policy more operational
Phillip Streible, Chief Market Strategist at Blue Line Futures, stated that the latest data shows that personal consumption expenditure (PCE), personal income data, and personal expenditure data for November were all lower than expected. We have seen funds returning to the gold market and rebuilding positions, and loose pricing suddenly began with two interest rate cuts, which led to a significant sell-off of gold. There is now a possibility of returning to three interest rate cuts, but it is still too early to draw conclusions
Expectations of UK interest rate cuts fall
The European economy is shrouded in uncertainty. European Central Bank President Lagarde stated last week that the European Central Bank may continue to lower its key interest rates due to the threat of US tariffs casting a shadow over already weak growth prospects. The direction forward is clear, and we expect to further lower interest rates. "European Central Bank policymakers have been concerned about the rapid rise in service prices, which they believe is related to wage growth. However, Lagarde stated that there have been recent indications that measures to eliminate the base effect indicate a "sharp decline" in service sector inflation.
The European Central Bank also predicts that wage growth will decrease from 4.8% this year to 3% by 2025. Lagarde stated that the "inertia" of consumer spending is "astonishing," as consumers continue to save a significant portion of their income. With Trump's proposal to impose higher tariffs on imported goods from Europe, growth is facing new threats. The increase in geopolitical uncertainty may have new impacts on family sentiment. In particular, if our largest export market, the United States, turns to protectionism, the growth of the eurozone may be hit, "she said.
The Bank of England's year-end interest rate meeting remained unchanged, maintaining the benchmark bank interest rate at 4.75%. However, policy makers are divided on whether to cut interest rates, despite persistent inflationary pressures. Three out of nine members of the Monetary Policy Committee voted to cut interest rates by 25 basis points, including Deputy Governor Dave Ramsden.
Economic forecasts show that the UK's economic growth in the fourth quarter of this year has been reduced from 0.3% six weeks ago to zero. According to official data from last week, the UK economy experienced a contraction in September and October, marking the first consecutive monthly output decline since 2020. Since Chancellor of the Exchequer Reeves announced a £ 25 billion tax increase in the budget on October 30th, business sentiment has sharply declined. Members who support keeping interest rates unchanged say it is still "particularly uncertain" whether these higher costs will be passed on to consumers through higher prices, or whether they will lead to unemployment and slower wage growth. The members who voted in favor of the interest rate cut believe that a "very strict" policy stance may push inflation far below the 2% target in the medium term and create too much idle capacity in the economy.
Bank of England Governor Bailey said that the central bank needs to stick to its existing "gradual" interest rate cut strategy, "as economic uncertainty intensifies, we cannot promise when or how much interest rate cuts will be made next year." Pricing of interest rate futures shows that there is only a one-third chance of action at the next meeting in February next year. The overall expectation for 2025 remains unchanged twice. The consumer price inflation rate in the UK rose to 2.6% in November, the highest level among the G7 countries. The Bank of England stated, "We expect the overall inflation rate to continue to rise slightly in the near future
This week's highlights