IC Markets Asia Fundamental Forecast | 17 December 2024
What happened in the U.S. session?
Manufacturing activity in the U.S. slumped deeper into contraction as evident in the Empire State Manufacturing Index and the flash manufacturing PMI reports as new orders and shipments grew at a much slower pace in the state of New York. The manufacturing PMI report signalled a deterioration in business conditions for a sixth successive month with the rate of contraction accelerating at the fastest rate since September. However, the service-producing businesses were once again the bright spot as this sector lifted overall PMI activity with the flash Composite accelerator from 54.9 in November to 56.6 in December. This reading pointed to the strongest growth of private sector activity since March 2022, prompted by a surge in categories such as new orders and employment in the services sector. The dollar index (DXY) hit an overnight high of 107.16 following the release of the above-mentioned data before dipping under 107 by the end of this session.
What does it mean for the Asia Session?
As Asian markets digest the latest U.S. macroeconomic data, the DXY was hovering around 106.80 while spot prices for gold stabilized around $2,650/oz. With no major data releases during this session, financial markets could tread cautiously before kicking into action as the U.K. labour force survey and EU Zew Economic Sentiment index are released during the European trading hours.
The Dollar Index (DXY)
Key news events today
Retail Sales (1:30 pm GMT)
What can we expect from DXY today?
Consumer spending in the U.S. looks set to rise for the third consecutive month with sales expected to increase 0.6% MoM in November. With the holiday shopping season already in full-swing following the Black Friday sales after Thanksgiving, retail sales should continue to grow steadily as the year comes to an end, providing the dollar with further tailwinds.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to lower the Federal Funds Rate target range by 25 basis points to 4.50% to 4.75% on 7th November.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while labour market conditions have generally eased, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- The next meeting runs from 17 to 18 December 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Retail Sales (1:30 pm GMT)
What can we expect from Gold today?
Consumer spending in the U.S. looks set to rise for the third consecutive month with sales expected to increase 0.6% MoM in November. With the holiday shopping season already in full-swing following the Black Friday sales after Thanksgiving, retail sales should continue to grow steadily as the year comes to an end, providing the dollar with further tailwinds – a result that could weigh on gold in the near-term.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie stabilized around 0.6350 on Monday and was seen edging higher towards 0.6380 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6345
Resistance: 0.6415
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 10th December, marking the ninth consecutive pause.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. However, measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target.
- The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026 but the Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts with risks remaining in place.
- Growth in output has been weak as the economy grew by only 0.8% in the September quarter over the past year. Outside of the COVID-19 pandemic, this was the slowest pace of growth since the early 1990s.
- A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised. The unemployment rate was 4.1 per cent in October, up from 3.5 per cent in late 2022.
- Wage pressures have eased more than expected in the November SMP. The rate of wages growth as measured by the Wage Price Index was 3.5% over the year to the September quarter, a step down from the previous quarter, but labour productivity growth remains weak.
- Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.
- The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions, paying close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
- The next meeting is on 18 February 2025.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After falling sharply last week, the Kiwi found footing around 0.5760 on Monday to stem the downfall. This currency pair was seen rising steadily towards 0.5800 at the beginning of the Asia session- these are the support and resistance levels for today.
Support: 0.5740
Resistance: 0.5810
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 4.25% on 27 November, marking the third consecutive rate cut.
- The Committee assessed that annual consumer price inflation has declined and is now close to the midpoint of the MPC’s 1 to 3% target band; inflation expectations are also close to target and core inflation is converging to the midpoint.
- Economic activity remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.
- Domestic economic activity remains below trend, as a result of weakness in demand for durable goods consumption and investment. This has been reflected in falling activity in interest rate sensitive sectors such as construction, manufacturing, and retail trade. In contrast, some services sectors have continued to grow.
- Consistent with feedback from business visits, high frequency indicators suggest that the economy has stabilised in recent months. Economic growth is expected to recover from the December quarter, in part due to lower interest rates, but there is uncertainty around the exact timing and speed of the recovery.
- Wage growth is slowing, consistent with inflation returning to the target midpoint while employment levels and job vacancies have declined, reflecting subdued economic activity; unemployment is expected to continue rising in the near term.
- Expectations of future inflation, the pricing intentions of firms, and spare productive capacity are consistent with the inflation target being sustainably achieved, providing the context and the confidence for the Committee to further ease monetary policy restraint.
- The next meeting is on 19 February 2025.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen continued to remain weak keeping USD/JPY elevated on Monday. This currency pair reached an overnight high of 154.47 before pulling back slightly, floating above the 154-level as Asian markets came online – these are the support and resistance levels for today.
Support: 153.40
Resistance: 154.90
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 31st October, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- The next meeting is on 19 December 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Germany ifo Business Climate (9:00 am GMT)
ZEW Economic Sentiment (10:00 am GMT)
What can we expect from EUR today?
After falling more than originally anticipated in November, the ZEW Economic Sentiment looks set to extend the downturn even further in December with market forecasts pointing to a decline from 12.5 to 11.8, especially after Monday’s flash results which showed Composite PMI activity in the Euro Area contracting for the fourth month in a row. Overhead pressures on the Euro remain firmly in place and this currency pair could slip under 1.0500 once more.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 12 December to mark the third successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.15%, 3.40% and 3.00% respectively.
- The disinflation process is well on track and most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
- Staff see headline inflation averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.
- Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter – the economy is expected to grow by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
- The next meeting is on 30 January 2025.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Continued weakness in the franc lifted USD/CHF to an overnight high of 0.8947. This currency pair eased at the beginning of the Asia session but it should remain elevated as the day progresses – these are the support and resistance levels for today.
Support: 0.8880
Resistance: 0.8950
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 50 basis points, going from 1.00% to 0.50% on 12 December, marking for the fourth consecutive reduction.
- Underlying inflationary pressure has decreased again this quarter.
- Inflation in the period since the last monetary policy assessment has again been lower than expected as it decreased from 1.1% in August to 0.7% in November; both goods and services contributed to this decline.
- In the shorter term, the new conditional inflation forecast is below that of September: 1.1% for 2024, 0.3% for 2025 and 0.8% for 2026, based on the assumption that the SNB policy rate is 0.5% over the entire forecast horizon.
- GDP growth in Switzerland was only modest in the third quarter of 2024 with growth in the services sector was again somewhat stronger, while value added in manufacturing declined.
- There was a further slight increase in unemployment, and employment growth was subdued while the utilisation of overall production capacity was
- normal.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of between 1.0% and 1.5% for 2025.
- The SNB will continue to monitor the situation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 20 March 2025.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
Labour Force Survey (7:00 am GMT)
What can we expect from GBP today?
After edging lower from May till August, the unemployment rate jumped from 4.0% to 4.3% in September while the claimant count change also soared from 10.1K to 26.7K. November’s estimates point to an unchanged unemployment rate but the claimant count is anticipated to increase by 28.2K. Another month of ‘soft’ employment figures will likely weigh on the pound before the start of the European trading hours.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to reduce the Bank Rate by 25 basis points, to 4.75% on 7 November 2024 – one member preferred to maintain the Bank rate at 5.0%.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024.
- Twelve-month CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison; services consumer price inflation has declined to 4.9%.
- CPI inflation is expected to increase to around 2.75% by the second half of 2025 as weakness in energy prices falls out of the annual comparison, revealing more clearly the continuing persistence of domestic inflationary pressures.
- The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report; this forecast is based on the second case where CPI inflation is projected to fall back to around the 2% target in the medium term as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages.
- GDP had grown by 0.5% in 2024 Q2, 0.2% weaker than had been expected in the August Report, and 0.1% weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2 – headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year.
- The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around 0.75% at their peak in a year’s time, relative to the August projections, while the Budget is provisionally expected to boost CPI inflation by just under 0.5% at the peak.
- Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August; the MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.
- Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate but monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 19 December 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (1:30 pm GMT)
What can we expect from CAD today?
After easing steadily throughout most parts of this year, consumer inflation in Canada accelerated more than anticipated in October as measured by the various metrics such as median- and trimmed-CPI. However, the forecast for November suggests softer price increases in November, a result that could weaken the Loonie and lift USD/CAD during the U.S. trading hours.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.25% while continuing its policy of balance sheet normalization on 11 December; this marked the fifth consecutive meeting where rates were reduced.
- Canada’s economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports.
- The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force while wage growth showed some signs of easing, but remains elevated relative to productivity.
- Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
- CPI inflation has been about 2% since the summer, and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected.
- Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook
- With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
- The Governing Council has reduced the policy rate substantially since June and going forward, they will be evaluating the need for further reductions in the policy rate one decision at a time.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- The next meeting is on 29 January 2025.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices kicked off the brand-new trading week by falling nearly 1% on Monday as soft consumer spending out of China – the world’s largest importer – weighed on this commodity. WTI oil gapped higher at the open touching $71.44 but prices proceeded to head south before stabilizing around $70.50 per barrel overnight. Moving over to U.S. inventories, the API stockpiles have unexpectedly increased over the last couple of weeks which is typically a sign of lower demand for crude oil in the states. Should these inventories build even further, oil prices could face further near-term headwinds later today.
Next 24 Hours Bias
Weak Bearish
