Economy Spotlight: The Most Important Events and What's Coming 16-22/12/2024

Introduction:

In the current issue of the "Economy Spotlight" report, we discuss many indicators that were of great importance, especially since they coincide with a period crowded with meetings of major central banks.

This week, the Swedish, British, Japanese, and American central banks will meet, after the Canadian, Swiss, and European Central Banks met.

We will also point out in the current report the most important news and events that cast their shadows in one way or another on the global economic arena.

Economy Spotlight. Major Economies:

First. The US Economy:

The general markets were waiting for the data that would be issued by the American side, specifically regarding the inflation indicators (the Consumer Price Index and the Producer Price Index), before heading to the eighth and final meeting that the Federal Reserve will hold for the year 2024, specifically on December 18 next week.

Although the consumer price index rose for the second straight month as expected, and at the fastest pace in seven months, the components of inflation showed some positive signs; rents, one of the most stable components of inflation, rose at the slowest pace in about three and a half years, in addition to a slowdown in the rise in motor vehicle insurance, which in turn slowed the services component as an important component of the trading index, which maintained optimism that the Federal Reserve will cut interest rates for the third time in a row to support the labor market, which has begun to slow relatively. The producer price index was released, which rose at the fastest pace in five months, and with the rise in egg prices amid the bird flu outbreak responsible for most of the higher-than-expected increase in producer price inflation last month, some labor market data was favorable enough that some analysts lowered their estimates for the personal consumption expenditures index, which is the Fed’s preferred indicator when monitoring inflation in general. As for the most important economic indicators issued by the US side last week, they were as follows:

• The Consumer Price Index rose as expected from 2.6% to 2.7% on an annual basis, and from 0.2% to 0.3% monthly, while the Core CPI reading stabilized on both the monthly and annual levels.

Second. European Economy:

The European economy began last week with the issuance of the Eurogroup statement on the draft financial plan for 2025, which indicated the flexibility of the Eurozone economy despite the difficult environment, with expectations of resuming economic growth at a moderate pace supported by employment, lower financing rates, and relatively improved consumption and investment, while noting that the region is affected by the potential financial policies of trading partners, specifically America under Trump, which may negatively affect the debt ratio and the continuation of the deficit.

Last week, the European Central Bank held its last meeting for 2024, and reduced interest rates for the fourth time this year, and for the third time in a row, to reach 3%, with the aim of working to spare the European economy the risk of recession in light of the environment of political uncertainty, specifically on the French and German sides.

The bank also kept the door open for further easing in the future as inflation approaches its target and the economy continues to weaken, when it indicated the possibility of making further cuts by removing the reference to keeping prices "sufficiently restrained", which is the economic term for the level of borrowing costs that limits economic growth.

Regarding the most important European indicators issued last week, the most prominent was the rise in the industrial production index on a monthly and annual basis, which improved relatively in a way that reduces expectations of a deep recession in the European region, as it improved better than expected on an annual basis from -2.2% to -1.2%, while it was stable as expected on a monthly basis. This indicator is important for the European economy, as it is the economic activity in the Eurozone, and production reacts quickly to fluctuations in the business cycle, and industrial production is linked to consumer conditions such as employment levels and profits.

Third. The Japanese economy:

The Japanese side issued many economic indicators last week, as the Japanese economy showed a modest recovery, with an annual growth rate of 1.2% in the third quarter of 2024, and although it was higher than expected, it was lower than it was in the second quarter of the same year when it was at 2.9% on an annual basis.

Business investment (capital spending in GDP) also fell from 1.1% to -0.1%, suggesting that companies are cautiously maintaining their capital expenditure despite the challenging environment.

Consumer spending remains a key driver of Japanese economic performance, accounting for more than half of GDP, with private consumption in GDP rising from 0.6% to 0.7% in Q3.

However, markets will be awaiting the Bank of Japan’s meeting as the last major central bank meeting of 2024, along with the Bank of England and the Swedish Riksbank.

The future of interest rates on the Japanese yen remains one of the most important issues that markets are following, as the Bank of Japan has remained cautious about announcing any details regarding interest rates, although there is some news indicating that the central bank is leaning towards keeping interest rates steady, monitoring economic data, external risks and indicators of wage expectations for next year.

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

• The annual adjusted current account rose from $1.27 trillion to $2.41 trillion in October.

• Bank loans grew from 2.6% to 3%.

• The deficit in crude oil inventories decreased from 5.073 million barrels to 1.425 million barrels.

• The Producer Price Index rose at a stronger than expected pace in November, from 2.6% to 3%, and on the Core PPI level, it rose from 3.2% to 3.4%, and on a monthly basis from 0.3% to 0.4%.

• The unemployment claims rate rose to 242 thousand applications compared to an expected decrease to 221 thousand applications, and higher than the previous revised reading of 225 thousand applications.

• The continuing unemployment claims index rose from 1,871,000 to 1,886,000 people/jobs, as the rise in so-called continuing claims is a sign that some laid-off people are experiencing longer spells of unemployment.

• GDP for the third quarter fell on a quarterly basis from 0.5% to 0.3% and on an annual basis from 2.9% to 1.2%.

• Foreign investment in Japanese stocks rose for the first time in two months, from negative range -607.7 billion US dollars to 482.3 billion US dollars.

• Industrial production (monthly) rebounded, approaching expectations from 1.6% to 2.8%.

Fourth. Chinese economy:

Chinese markets started last week with news from the Politburo of the Communist Party indicating that China will adopt an appropriately easy monetary policy next year, along with a more proactive fiscal policy to stimulate economic growth, and to meet the potential tariffs of US President-elect Donald Trump.

This news coincided with several important economic indicators and events, as the inflation rate in China fell to its lowest level in five months as the economy slowed, both on a monthly and annual basis.

Meanwhile, China’s producer price index, or wholesale inflation, fell for the 26th straight month, falling 2.5% in November.

The yuan, in turn, came under renewed pressure against the dollar, giving up some initial gains as markets reflected on a Reuters report that China may weaken the yuan to counter the threat of U.S. trade tariffs.

The Commerce Ministry said on Thursday that China is open to engaging and communicating with the Trump administration’s economic and trade team.

Fifth. OPEC:

OPEC cut its forecast for oil demand growth this year and next, highlighting weakness in China, India and other regions in the producer group’s fifth straight downward revision.

The weaker outlook underscored the challenge facing OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, as OPEC+ earlier this month delayed its plan to start increasing output until April 2025 on the back of lower prices.

OPEC also said it expects global oil demand to rise by 1.61 million barrels per day in 2024, down from 1.82 million barrels per day last month, citing concerns in China in particular, India and an Asian country, and ongoing tensions in the Middle East. OPEC lowered its 2025 forecast for global oil demand growth to 1.45 million barrels per day from 1.54 million barrels per day.

Economy Spotlight. What to expect next week:

Global markets will be awaiting the following economic data: