Economy Spotlight: The Most Important Events and What's Coming 13-19/1/2025

Introduction:

The global economy witnessed many important economic events and indicators last week, which cast their shadows on the performance of various financial markets, which we will discuss in the current "Economy Spotlight" report, in addition to what the markets are waiting for this week, specifically in the American and European economies, which will eagerly await inflation data before the first meetings of the central banks of these economies for the year 2025, which will start at the end of January.

Economy Spotlight. Major Economies:

First. The US Economy:

The US economy had a date with many important economic indicators, data, news and statements that affected the performance of various markets and changed the course of many expectations, especially about the expected path of reducing interest rates.

As job growth in the United States accelerated unexpectedly in December, while the unemployment rate fell to 4.1% with the general labor market ending on a solid basis, which reinforced views that the Federal Reserve will keep interest rates unchanged this month. 

The labor market data reinforces what appeared in the minutes of the last Federal Reserve meeting in 2024, in which decision-makers at the Federal Reserve indicated the need to be patient and monitor the data very carefully before making any interest rate cuts, and some of them even expressed their openness to calming down monetary policy and monitoring unemployment data more carefully. 

Two of the Federal Reserve’s monetary and financial policymakers said this week, most notably Mary Daly, President of the Federal Reserve in San Francisco, that the task of combating inflation is not over, and that it is necessary to balance the issue of determining future benefits in order to protect the labor market, while Federal Reserve Governor Christopher Waller said on Wednesday that inflation is expected to continue to decline in 2025 in a way that allows the Federal Reserve to reduce interest rates further, even if at an uncertain pace.

In addition to the statements of the Federal Reserve members, the news came through the pages of the Washington Post, which said that some of Trump's aides indicated that what Trump intends to impose in terms of customs duties will be on selected goods, especially those that affect national security, which Trump was quick to deny through Truth Social, stressing that he is still determined to impose the customs duties that he pledged during his election campaign (China by about 60%, Europe by about 20%, and Canada and Mexico by about 25%).

The US economy witnessed many economic indicators that were issued last week, the most important of which were:

• The services purchasing managers index for December recorded a lower-than-expected increase, as it rose from 56.1 to 56.8 compared to expectations that indicated an increase to 58.5.
• Job opportunities in the United States rose unexpectedly in November to record more than 8 million job opportunities, indicating that the labor market continued to slow at a pace that may not require the Federal Reserve to be in a hurry to reduce interest rates.
• The unemployment claims index fell from 211 thousand to 201 thousand, compared to expectations of an increase, which indicates a stable labor market at the beginning of the year.
• The ADP National Employment Report showed that the US economy added 122 thousand jobs in the private sector last month, compared to economists’ estimates of an increase of 140 thousand jobs.
• The average hourly earnings index (monthly) (December) fell as expected from 0.4% to 0.3%, and the average work week also remained stable at 34.3 hours.
• The non-farm payrolls report (December) missed expectations and rose from 212 thousand jobs to 256 thousand jobs.
• The unemployment rate in America fell from 4.2% to 4.1%, contrary to expectations of a stable 4.2%.

Second. European Economy:

The European economy continues to experience turbulent economic conditions, as economic data and indicators released last week increased negative sentiment.

The European economy began the year with the inflation index (consumer price index) rising to its highest levels since August 2024, recording 2.4%, while the core inflation rate remained at 2.7%.

Analysts indicated that these rates will not prevent the European Central Bank from cutting interest rates, with expectations that inflation in the services sector will not continue to rise for a long time. The producer price index rose from 0.4% to 1.6% monthly.

The sentimental Commission also released preliminary data showing that the economic sentiment index fell by 1.7 points in the European Union and 1.9 points in the eurozone in December, with both scores remaining below their long-term averages.

Consumer confidence also declined in both the European Union and the eurozone, marking the second consecutive monthly decline in European consumer sentiment.

Third. Japanese Economy:

The Japan Center for Economic Research has compiled forecasts from 37 private sector economists for the fiscal year starting in April.

They expect average real growth of 1.1%, which is more optimistic than the current fiscal year forecast of 0.4%, based on hopes that wage growth will outpace prices, helping personal consumption recover.

As for the most prominent economic indicators issued by the Japanese side last week, they were as follows:

• The services purchasing managers index (December) rose slightly from 50.5 to 50.9, which is less than expected for a rise to 51.4.
• The Japanese household confidence index fell slightly from 36.4 to 36.2.
• Average wages (year-on-year) rose to 3% from 2.2%, higher than expectations of 2.7%.
• The deficit in the household spending index narrowed to 0.4% compared to the previous deficit of 1.3%, which is better than expectations for a decrease to 0.6%.

Fourth. Chinese Economy:

Last week, the Chinese economy witnessed several important economic events, the most prominent of which was the announcement by the Chinese government, according to official media, that it will launch 15 measures to support the development of its western provinces by building logistical infrastructure such as ports and aviation centers, noting that these provinces represent two-thirds of China’s area, which strengthens economic ties with Europe and South Asia.

As for China's readiness for potential tariffs by President-elect Donald Trump, Chinese stock exchanges said they had received orders from Chinese authorities to restrict stock sales at the beginning of 2025, in order to prevent a slide in Chinese stock markets, especially after the Chinese CSI300 index for leading stocks recorded its worst annual start since 2016, when it fell by 2.9% on the first trading day of 2025.

As for the most prominent economic indicators for the Chinese economy that were issued last week, they were as follows:

• The Caixin Services Purchasing Managers Index (December) rose from 51.2 to 52.2, higher than expected to rise to 5.17.
• China's foreign exchange reserves (US dollars) (December) fell less than expected, recording $3.202 trillion compared to about $5.266 trillion previously.
• China's inflation indicators varied, with monthly inflation falling to zero from negative, while year-on-year inflation fell to 0.1% from 0.2%, and the producer price index deficit narrowing slightly from 2.5% to 2.3%.

Economy Spotlight. What to expect next week:

Global markets will be waiting for the following economic data: