IC Markets Europe Fundamental Forecast | 2 January 2025 | IC Markets

IC Markets Asia Fundamental Forecast | 2 January 2025

What happened in the Asia session?

The downturn in Australia’s manufacturing sector deepened further as the PMI reading dropped from 49.4 in November to 47.8 in December, lower than the forecast of 48.2. This sector deteriorated at a more pronounced rate as contraction for both overall and export orders accelerated while capacity pressures eased and job shedding renewed. Despite the poor PMI result, the Aussie climbed above 0.6200 as Asian markets came online.

After contracting in September, the Caixin Manufacturing PMI rebounded into expansion for the months of October and November, with the latest reading jumping to 51.5 – the highest since June 2024. However, December’s result edged down to 50.5 as both output and new orders expanded at slower rates while foreign orders shrank after increasing at the fastest pace for seven months in November. In addition, employment dropped for the fourth month. The ‘softer’ manufacturing output caused crude oil prices to run into headwinds this morning. WTI oil stalled at around $72.50 per barrel before sliding lower towards the $72-mark.

What does it mean for the Europe & US sessions?

Manufacturing output in the Euro Area has been severely depressed over the past two and half years to highlight a struggling economy. The final PMI estimate of 45.2 for the month of December shows an unchanged figure from the preliminary estimate and is likely to heap further woes on the Euro as European markets get underway.

After expanding strongly from March to September of 2024, manufacturing activity in the U.K. slumped from October to December. The final PMI reading of 47.3 for the month of December confirms the third consecutive month of contraction for this sector – a result that could weigh heavily on the pound during the European trading hours.

Manufacturing activity in Canada has expanded over the last three consecutive months with November’s PMI reading hitting 52.0, the highest since February 2023. The growth in factory output was led by categories such as new orders, employment and inventories. December’s estimate of 51.9 points to the fourth successive month of steady output and this result could strengthen the Loonie later today.

The Dollar Index (DXY)

Key news events today

Unemployment Claims (1:30 pm GMT)

S&P Global Manufacturing PMI (2:45 pm GMT)

What can we expect from DXY today?

Unemployment claims have eased over the last couple of weeks which typically indicates some signs of resilience in the U.S. labour market. Claims are expected to remain somewhat unchanged in the latest reading, with the estimate showing a figure of 222K. Meanwhile, manufacturing activity has contracted over the last six months as new orders recorded another month of contraction, driving output to sink to its lowest level since August of 2009. The final PMI reading of 48.3 for December highlights the ongoing depressed levels of activity for this sector. Whatever the outcome, the dollar will likely face higher volatility later today.

Central Bank Notes:

The Board of Governors of the Federal Reserve System voted by a majority to lower the Federal Funds Rate target range by 25 basis points to 4.25 to 4.50% on 18 December. Voting against the action was Beth M. Hammack, who preferred to maintain the target range at 4.5 to 4.75%.
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.
The Summary of Economic Projections (SEP) now indicates just two rate cuts in 2025 totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter.
GDP growth forecasts were revised upward for 2024 (2.5% vs to 2% in the September projection) and 2025 (2.1% vs 2%), while remaining steady at 2% for 2026. Similarly, PCE inflation projections have been adjusted higher for 2024 (2.4% vs 2.3%), 2025 (2.5% vs 2.1%), and 2026 (2.1% vs 2%).
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 28 to 29 January 2025.

Next 24 Hours Bias

Weak Bullish

Gold (XAU)

Key news events today

Unemployment Claims (1:30 pm GMT)

S&P Global Manufacturing PMI (2:45 pm GMT)

What can we expect from Gold today?

Unemployment claims have eased over the last couple of weeks which typically indicates some signs of resilience in the U.S. labour market. Claims are expected to remain somewhat unchanged in the latest reading, with the estimate showing a figure of 222K. Meanwhile, manufacturing activity has contracted over the last six months as new orders recorded another month of contraction, driving output to sink to its lowest level since August of 2009. The final PMI reading of 48.3 for December highlights the ongoing depressed levels of activity for this sector. Whatever the outcome, gold will likely face higher volatility later today.

Next 24 Hours Bias

Weak Bearish

The Australian Dollar (AUD)

Key news events today

S&P Global Manufacturing PMI (10:00 pm GMT 1st January)

What can we expect from AUD today?

Central Bank Notes:

The RBA kept the cash rate target unchanged at 4.35% on 10 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 Bearish

The Kiwi Dollar (NZD)

Key news events today

Second New Year’s Day (All Day)

What can we expect from NZD today?

New Zealand banks will be closed in observance of Second New Year’s Day. As such, traders should expect low liquidity and irregular volatility for the Kiwi on Thursday.

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 Bearish

The Japanese Yen (JPY)

Key news events today

Bank Holiday (All Day)

What can we expect from JPY today?

Japanese banks will be closed in observance of the 4-day bank holiday running from 31st December 2024 to 2nd January 2025 – traders should expect low liquidity and irregular volatility over this period.

Central Bank Notes:

The Policy Board of the Bank of Japan decided on 19 December, by a 8-1 majority vote, to set the following guideline for money market operations for the intermeeting period:
1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
2. 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.
Japan’s economy has recovered moderately, although some weakness has been seen in part. Exports and industrial production have been more or less flat while corporate profits have been on an improving trend and business sentiment has stayed at a favourable level.
The employment and income situation has improved moderately while private consumption has been on a moderate increasing trend despite the impact of price rises and other factors.
On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned; inflation expectations have risen moderately.
With regard to the CPI (all items less fresh food), while the effects of the 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.
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 24 January 2025.

Next 24 Hours Bias

Weak Bullish

The Euro (EUR)

Key news events today

S&P Global Manufacturing PMI (9:00 am GMT)

What can we expect from EUR today?

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 Bearish

The Swiss Franc (CHF)

Key news events today

Second New Year’s Day (All Day)

What can we expect from CHF today?

Most Swiss banks will be closed in observance of Second New Year’s Day. As such, traders should expect low liquidity and irregular volatility for the franc on Thursday.

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 Bullish

The Pound (GBP)

Key news events today

S&P Global Manufacturing PMI (9:30 am GMT)

What can we expect from GBP today?

Central Bank Notes:

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.75% on 19 December 2024 – three members preferred to reduce the Bank rate by 25 basis points, bringing it down to 4.50%.
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. On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655B.
Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September, slightly higher than previous expectations while services consumer price inflation had remained elevated, at 5.0%, while core goods price inflation had risen to 1.1%.
Headline CPI inflation was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food, and is expected to continue to rise slightly in the near term.
Most indicators of UK near-term activity have declined with Bank staff expecting GDP growth to be weaker at the end of the year than originally projected in the November Monetary Policy Report.
Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report, broadly consistent with the latest combined steer from business surveys and the available official data.
The Committee now judges that the labour market is broadly in balance as annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October but there remains significant uncertainty around developments in the labour market.
Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.
The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation; a gradual approach to removing monetary policy restraint remains appropriate.
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 and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
The next meeting is on 6 February 2025.

Next 24 Hours Bias

Weak Bearish

The Canadian Dollar (CAD)

Key news events today

S&P Global Manufacturing PMI (2:30 pm GMT)

What can we expect from CAD today?

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 Bullish

Oil

Key news events today

Caixin Manufacturing PMI (1:45 am GMT)

EIA Crude Oil Inventories (4:00 pm GMT)

What can we expect from Oil today?

Moving over to U.S. inventories, the API stockpiles recorded a third consecutive week of drawdowns but this latest data was much less than the market forecast of a 3M-decline. Just 1.4M barrels of crude were removed from storage, significantly lower than the average of 4M barrels over the previous two weeks. Should the EIA inventories register a second successive week of higher draws, crude prices could receive a much-needed lift especially after falling 3% in 2024, slipping for the second successive year.

Next 24 Hours Bias

Medium Bullish

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