IC Trading Asia Fundamental Forecast | 16 December 2024
What happened in the Asia session?
China’s industrial production grew at an annual rate of 5.4% in November, coming in line with market consensus as it edged slightly higher from October’s gain of 5.3%. Output was supported by faster increases in the manufacturing; electricity, heat, gas, and water production and supply activities; and mining sectors which highlights an improvement over the past three months. However, the robust industrial growth could not prevent crude oil prices from sliding lower as WTI oil slipped under $71 per barrel by midday Asia.
What does it mean for the Europe & US sessions?
The Euro Area continues to experience weak economic output and the flash PMI report for the month of December points to a fourth consecutive month of contraction. Strong overhead pressures drove the Euro under 1.0500 on Thursday and this currency pair could slide under this level once more as the day progresses.
The U.K.’s manufacturing sector is likely to remain in contraction while services activity is once again expected to lift overall PMI activity. A ‘soft’ report could continue to weigh on the pound and potentially drive the Cable under 1.2600 during the European trading hours.
The Dollar Index (DXY)
Key news events today
Empire State Manufacturing Index (1:30 pm GMT)
Composite PMI (2:45 pm GMT)
What can we expect from DXY today?
Reports for the Empire State Manufacturing and flash Composite PMI are due for release later today and they could continue to highlight the strength of the American economy. Demand for the greenback has picked up over the last couple of weeks and another robust set of macroeconomic data will likely keep the dollar elevated.
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
Empire State Manufacturing Index (1:30 pm GMT)
Composite PMI (2:45 pm GMT)
What can we expect from Gold today?
Reports for the Empire State Manufacturing and flash Composite PMI are due for release later today and they could continue to highlight the strength of the American economy. Demand for the greenback has picked up over the last couple of weeks and another robust set of macroeconomic data will likely keep the dollar elevated and potentially weigh on gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Composite PMI (10:00 pm GMT 15th December)
What can we expect from AUD today?
The flash Composite PMI results for December showed employment falling for the first time since August 2021 as PMI activity contracted for the second time in four months. Output fell to 49.9 – the lowest reading in three months – with new order growth softening while export business declined once more and slower services activity growth failed to offset a sharper downturn in manufacturing production. Despite a weak PMI report, the Aussie edged higher towards 0.6370 but overhead pressures remain.
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?
The Kiwi fell for the second successive week in a row as it plunged under 0.5800, falling nearly 2.7% over this period. This currency pair gapped slightly higher at today’s open to rise towards 0.5780 – 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
Composite PMI (12:30 am GMT)
What can we expect from JPY today?
Japan’s manufacturing sector is likely to remain in contraction while services activity is once again expected to lift overall PMI activity. A ‘soft’ report could continue to weigh on the yen and potentially keep USD/JPY elevated as this currency pair raced strongly towards 154 last week.
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
Weak Bearish
The Euro (EUR)
Key news events today
Composite PMI (9:00 am GMT)
What can we expect from EUR today?
The Euro Area continues to experience weak economic output and the flash PMI report for the month of December points to a fourth consecutive month of contraction. Strong overhead pressures drove the Euro under 1.0500 on Thursday and this currency pair could slide under this level once more as the day progresses.
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?
After posting two successive weeks of higher gains, the franc depreciated strongly last week causing USD/CHF to jump 1.6%. This currency pair surged towards 0.8950 last Friday and it could make another attempt to hit this level – 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
Composite PMI (9:30 am GMT)
What can we expect from GBP today?
The U.K.’s manufacturing sector is likely to remain in contraction while services activity is once again expected to lift overall PMI activity. A ‘soft’ report could continue to weigh on the pound and potentially drive the Cable under 1.2600 during 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
BoC Gov Macklem Speaks (8:20 pm GMT)
What can we expect from CAD today?
Bank of Canada (BoC) Governor Tiff Macklem is due to speak at the Greater Vancouver Board of Trade where audience questions are expected. Following last week’s jumbo rate cut of 50 basis points, traders will be looking for further clues on the outlook for future monetary policy action by this central bank. The Loonie has depreciated significantly over the past three weeks as USD/CAD surged past 1.4200, rising 1.75% over this period.
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
China Industrial Production (2:00 am GMT)
What can we expect from Oil today?
Crude oil prices rebounded strongly last week as WTI oil jumped almost 6.1% – its largest weekly gain since mid-November – hitting a high of $71.42 per barrel. Expectations that additional sanctions on Russia and Iran could tighten supplies while lower interest rates in Europe and the U.S. could boost fuel demand have acted as recent catalysts. In addition, the latest data showed China’s crude imports growing annually in November for the first time in seven months. Imports are set to stay elevated into early 2025 as the world’s largest importer opts to pull further supply from top exporter Saudi Arabia. China will also be releasing its industrial production figures for the month of November where higher output could create strong tailwinds for this commodity.
Next 24 Hours Bias
Medium Bullish
