Economy Spotlight: The Most Important Events and What's Coming 23-30/12/2024

Introduction:

In the current issue of the "Financial Markets" report, we discuss the latest data and news related to the major economies, specifically with regard to the news of the major central banks that met for the last time in 2024.

Economy Spotlight. Major Economies:

First. The US Economy:

The US Federal Reserve meeting was the most prominent thing that global markets in general and the US in particular were waiting for; as the meeting came after important economic data, most notably the industrial and services purchasing managers' index, retail sales, and before the statement of the latest inflation index for 2024, which is the private consumption price index, which is the preferred indicator by the US Federal Reserve.

In terms of the services purchasing managers' index specifically, it was noted that it rose to its highest levels in three years, which indicates that business is flourishing remarkably in the US services sector, which explains the US economy's retention of positive growth momentum and supports the possibility of its improvement in the coming quarters.

As for the industrial purchasing managers' index, it did not enjoy the same momentum, as it is still below the standard point for prosperity, which is 50, which analysts interpreted as being due to weak demand for exports.

Retail sales rose more than expected in November, driven by households intensifying their purchases as the year ended, particularly online purchases.

Despite this economic data, the Federal Reserve cut interest rates for the third time in a row by a quarter of a percentage point, clearly indicating that the rate cut will slow down over the coming year, after it identified inflation as the most prominent risk it will address in the coming periods, which had a negative impact on financial markets and gold, and a significant positive impact on the US dollar, which rose in general foreign exchange markets.

As for the private consumption price index, it fell better than expected on a monthly basis, and stabilized on an annual basis, contrary to expectations. In a context unrelated to economic data, some lawmakers said that Congress is scheduled to vote on legislation restricting American investments in China as part of a bill to fund government operations through mid-March. It is noteworthy that last October, the Treasury Department finalized rules that will go into effect on January 2 next year, which will limit American investments in artificial intelligence and other sectors in China, on the grounds that they threaten American national security. As for the most important economic indicators issued by the American side last week, they were as follows:

• The manufacturing purchasing managers index for December fell from 49.7 to 48.3, less than expectations for a decline to 49.4.

• The services purchasing managers index rose to 58.5 from 56.1, contrary to expectations for a decline to 55.7.

• Retail sales rose on a monthly basis for November from 0.5% after the adjustment to 0.7%, which is higher than expectations for a rise to 0.6%, while core retail sales stabilized on a monthly basis at 0.2% compared to expectations for a rise to 0.4%.

• Industrial production contraction decreased for November from -0.4% to -0.1%, while the contraction on an annual basis increased, contrary to expectations for an improvement, rising from -0.45% to -0.90%.

• US crude oil inventories witnessed a decline in contraction to a deficit of 930 thousand barrels compared to expectations for a rise in the deficit.

• The US Federal Reserve cut interest rates by a quarter of a percentage point, bringing the interest rate on the dollar to 4.5%.

• The Fed lowered its expectations for interest rate cuts for the coming years, by two cuts in 2025 and 2026 and once in 2027.

• The rate of complaints from drummers decreased significantly from 242 thousand complaints to 220 thousand complaints, which is from expectations of a decrease to 229 thousand complaints.

• The Philadelphia manufacturing index declined from September to the negative range instead of improving to the positive range, which indicates a decline in optimism about the level of business sector activity.

• The core PCE price index improved on a monthly basis to 0.1% and stabilized on an annual basis at 2.8%, while the core PCE price index rose less than expected to reach 2.4%.

• The third-quarter GDP improved significantly to 3.1%, the highest since the fourth quarter of 2023.

Second. European Economy:

European Central Bank President Christine Lagarde indicated that the European economy is very close to declaring victory over inflation, when she recently said that she expects interest rates to be cut further, in addition to reassuring markets that the risks that could bring inflation back up are calmer than before, and also warned of the consequences of the tariffs that the US side may impose under Trump, on the sidelines of the meeting of the European Central Bank's Board of Governors in Frankfurt in the middle of last week.

Lagarde's statements come at a time when many economic data were issued that make the issue of interest rate cuts a largely uncertain matter, which was indicated by the European Central Bank's Chief Economist Philip Lane when he said that there are remaining risks in the global economy that could lead to a change in the outlook for inflation.

The European economy was also on a date with the statements of US President-elect Donald Trump, who stressed that the European Union must increase its imports of American oil and gas, or face customs duties on the bloc's exports, which include goods such as cars and machinery.

As for the inflation index, it rose to levels above the target level (2%), even if the increase was less than expected on an annual basis and declined significantly on a monthly basis. In a related context in the European continent, inflation in Britain witnessed its highest levels in seven months when it recorded 2.6%, which prompted the Bank of England to keep interest rates unchanged at 4.75%, while the Swedish Central Bank reduced interest rates to 2.5% in its last meeting this year.

The most prominent economic indicators for the European continent last week were as follows:

• The services PMI (December) returned above 50 for the first time in three months, while the manufacturing PMI stabilized at the same level of 45.2.

• The labor cost index for the third quarter decreased on an annual basis from 5.20% to 4.60%.

• The trade deficit decreased from $11.6 billion to $6.8 billion in October.

• The inflation index (consumer price index) increased on an annual basis from 2% to 2.2%, less than expectations of an increase to 2.3%, while the core CPI stabilized at 2.7%, and fell sharply monthly to -0.3%.

• The core CPI stabilized on an annual basis.

Third. Japanese Economy:

The Bank of Japan was one of the last two major central banks to make an interest rate decision, as the Bank of Japan kept the interest rate at 0.25% by a majority of 8-1 of the central bank members who preferred to move cautiously amid uncertainty about the economic plans of the incoming US President Donald Trump.

The Governor of the Bank of Japan, Kazuo Ueda, said that if the economy and prices move in line with our expectations, we will continue to raise our interest rates, without specifying a date for that increase.

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

• The services purchasing managers index (December) rose from 50.5 to 51.4.

• The trade balance improved for the month of November from $462.1 billion to a deficit of $117.6 billion, with the trade deficit increasing annually but less than expected to reach $380 billion.

• The national core consumer price index rose from 2.3% to 2.7% on an annual basis.

Fourth. Chinese Economy:

The talk about the Chinese economy is still revolving around potential stimulus measures by the Chinese authorities to stimulate the economy, which is still showing mixed signals.

Industrial output growth in China accelerated slightly in November, retail sales were disappointing, and unemployment rates remained unchanged.

These mixed data confirm how difficult it will be for China's leaders to achieve a sustainable economic recovery before 2025, especially in light of concerns about the possibility of deteriorating trade relations with the United States, which is China's largest export market, while domestic consumption also remains weak.

As for the latest news about the Chinese authorities' efforts to stimulate and stimulate the economy to achieve the targeted growth, some sources said last week that Chinese leaders agreed to raise the budget deficit from 3% to 4% of GDP next year, which is the highest level ever, while maintaining the growth target of about 5%. It is worth noting that the percentage point of GDP in Chinese spending is about 179.4 billion US dollars, which explains the size of the increase that the Chinese authorities intend to take regarding the deficit, which is an increase in public spending in general.

The Chinese economy ended last week with an important statement regarding the main lending rate which stabilized at 3.1% and the marginal lending rate stabilized at 3.6%.

Economy Spotlight. What to expect next week:

Global markets will be waiting for the following economic data: