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Ifo flags structural risks as German economy faces subdued 0.4% growth next year

    By
    ActionForex
    -

    Germany’s economy is forecast to contract by -0.1% in 2024, according to the Ifo Institute. The economy has been “treading water for five years”, with growth stalled amid structural challenges.

    The institute presents two possible trajectories for 2025: sluggish growth of just 0.4% if structural issues persist, or a recovery to 1.1% if economic policy reforms support industrial revival.

    Timo Wollmershäuser, Head of Forecasts at Ifo, stated, “It is not yet clear whether the current phase of stagnation is a temporary weakness or one that is permanent and hence a painful change in the economy.”

    He noted that Germany’s export sector, once a key driver of growth, has become “increasingly decoupled from global economic development,” with competitiveness eroding, particularly in industrial goods outside Europe.

    In a pessimistic scenario, this weakness could lead to “creeping deindustrialization,” while an optimistic outcome would depend on supportive policies enabling manufacturing to expand production capacities. Such measures could, in turn, boost private consumption and reduce the high savings rate, providing further stimulus to the economy.

    Full ifo Economic Forecast Winter 2024 here.

    SNB cuts by 50bps, projects weaker inflation and modest growth in 2025

      By
      ActionForex
      -

      SNB took a decisive step by lowering its policy rate by 50 basis points to 0.50%. In its accompanying statement, the central bank highlighted that underlying inflationary pressures have “decreased again” this quarter, warranting the larger-than-expected rate cut. SNB reiterated its commitment to “monitor the situation closely” and stated that it would “adjust its monetary policy if necessary.”

      The latest conditional inflation forecasts reflect a significantly subdued outlook, even with interest rate down from 1.00% to 0.50%.

      For 2025, inflation is now projected at just 0.3%, a notable downgrade from the 0.6% forecast in September. However, the 2026 outlook saw a slight upward revision to 0.8%, from 0.7% previously.

      Looking at some details, inflation is expected to decline sharply from 0.7% in Q4 2024 to a low of 0.2% in Q2 2025, before gradually recovering to 0.8% in 2026 and 0.7% in 2027. These figures underscore the SNB’s view of persistent deflationary risks, necessitating its proactive policy stance.

      In terms of economic growth, SNB estimates GDP growth for 2024 to come in at around 1%, with a modest pickup to 1-1.5% expected in 2025. Despite this improvement, challenges remain, including slightly rising unemployment and declining utilization of production capacity.

      Full SNB statement here.

      SNB and ECB in spotlight as markets gauge depth of cuts and dovish signals

        By
        ActionForex
        -

        Today’s focus is firmly on the monetary policy decisions from SNB and ECB, with markets eager to gauge not just the magnitude of the expected rate cuts but also the tone of their forward guidance. Both central banks are expected to ease, but the precise depth of the cuts and their outlook on future policy will drive market reactions.

        SNB is widely anticipated to cut its policy rate by 25bps 1.00% to 0.75%. However, speculation of a more aggressive 50bps cut persists, with financial market pricing increasingly leaning toward this scenario.

        SNB has considerable room to maneuver, given Switzerland’s inflation rate of just 0.7%—the lowest among major economies. However, with rates already close to zero, SNB must balance immediate economic support with preserving policy ammunition for the future.

        After all, today’s move will not mark the end of the easing cycle of SNB, as economists project further reductions through 2025, driving the policy rate to 0.25% or even zero by the end of next year.

        For ECB, the debate has also revolved around the scale of its next move. Recent speculation about a 50bps cut has largely been dismissed following comments from ECB officials, leaving a 25bps reduction in the Deposit Rate to 3.00% as the more probable outcome.

        However, market participants are paying close attention to the tone of ECB’s statement and press conference. With inflation expected to settle earlier at target by mid-2025 amid weak economic activity, ECB would signal explicitly the need for sustained easing into next year.

        Investors currently expect a cut at every meeting until mid-2025, with the Deposit Rate potentially reaching 1.75% by year-end. However, such an aggressive pace could bring rates below the neutral level.

        In terms of market impact, EUR/CHF is the currency pair to watch. Outlook is clearly bearish with EUR/CHF staying well below falling 55 D EMA. However, in case of another dive, 0.9209 key support might continue to provide support for a bounce a second time, barring any drastic surprises. Meanwhile, there would be no clear confirmation of bullish reversal until decisive break of 55 D EMA (now at 0.9362).

        Australia’s employment data beats expectations, unemployment drops below to 3.9%

          By
          ActionForex
          -

          Australia’s labor market showed surprising resilience in November as employment grew by 35.6k, surpassing expectations of a 29.6k increase. The standout figure was the 52.6k gain in full-time jobs, offsetting a decline of -17k in part-time positions.

          Unemployment rate fell significantly, dropping from 4.1% to 3.9%, well below the anticipated 4.2%. However, a slight dip in the participation rate, from a record high of 67.1% to 67.0%, tempered the optimism.

          Employment-to-population ratio nudged up to 64.4%, matching levels from a year ago and maintaining its position 2.2% above pre-pandemic levels. Monthly hours worked showed no growth, indicating stability in workforce activity despite the overall gains in employment.

          David Taylor, Head of Labour Statistics at the ABS, noted that an unusually high number of unemployed individuals transitioned into employment during November. This dynamic contributed to both the rise in job creation and the sharp fall in unemployment. Taylor also highlighted the role of population growth, which has bolstered labor supply and helped maintain the balance between employment growth and demographic expansion.

          Full Australia employment release here.

          BoC eases 50bps but signals end to continuous rate reductions

            By
            ActionForex
            -

            BoC cut its overnight rate by 50 basis points to 3.25% as anticipated, but a notable shift in tone suggests a loosening of its easing bias. The central bank stated that interest rates have been reduced “substantially” since June, signaling that future cuts would be evaluated “one decision at a time.” This marks a clear pivot toward a more cautious, data-dependent approach, and rate reduction is no longer in auto-pilot.

            Also, in the accompanying statement, BoC highlights a number of factors that introduce uncertainty surrounding both growth and inflation outlook, including the array of policy measures introduced by the federal and provincial governments.

            The reduction in immigration targets is expected to dampen GDP growth next year. While this lower growth could temper inflationary pressures, the Bank noted that the effect would likely be “more muted” due to immigration’s impact on both demand and supply. Additional measures, such as the suspension of the GST on certain goods, direct payments to individuals, and adjustments to mortgage rules, are expected to create temporary fluctuations in demand and inflation.

            The statement also highlighted increased uncertainty surrounding trade. The possibility of new tariffs from the incoming US administration adds a layer of complexity to the economic outlook, particularly given Canada’s reliance on exports to its southern neighbor.

            Full BoC statement here.

            US CPI accelerates to 2.7% in Nov, core CPI unchanged at 3.3%

              By
              ActionForex
              -

              November’s US inflation data came in line with expectations, showing no significant progress toward easing price pressures further. Headline CPI rose 0.3% mom, supported by a 0.3% mom rise in the shelter index, which accounted for nearly 40% of the monthly increase. Food prices rose by 0.4% mom, while the energy index rose 0.2% mom. Core CPI, excluding volatile food and energy prices, also rose by 0.3% mom.

              On an annual basis, headline CPI ticked up from 2.6% yoy in October to 2.7% yoy in November, aligning with market forecasts. Core CPI, excluding the volatile food and energy components, remained steady at 3.3% yoy. Among key categories, food prices increased 2.4% yoy, while energy prices remained a deflationary force, falling -3.2% yoy.

              Full US CPI release here.

              RBA’s Hause: Australia more seriously affected by global trade war because of China reliance

                By
                ActionForex
                -

                RBA Deputy Governor Andrew Hauser addressed the implications of US President-elect Donald Trump’s proposed tariffs at an event today. He highlighted that while higher global tariffs could depress activity across supply chains, the full extent of the effects would depend on various factors, including currency adjustments and fiscal responses in affected economies.

                “Given this uncertainty, it is important that we don’t prejudge the implications of tariffs for policy but monitor developments closely and stand ready to respond appropriately as the facts emerge,” Hauser stated.

                Hauser pointed out Australia’s unique vulnerability due to its trade exposure, with over 80% of its iron ore exports destined for China, which accounts for three-quarters of global iron ore imports.

                This heavy reliance on China increases the risk of significant disruptions if Beijing becomes the target of punitive tariffs or if global trade realigns along geopolitical lines.

                “This seems to suggest that Australia could find itself more seriously affected by a global trade war than some of the average exposure data suggest,” Hauser noted.

                US CPI sets to drive EUR/USD for downside breakout

                  By
                  ActionForex
                  -

                  The spotlight today is firmly on the release of US CPI data for November. Expectations are for headline inflation to tick up from 2.6% to 2.7%, continuing its rebound from the September low of 2.4%. Meanwhile, core CPI is forecast to hold steady at 3.3%, staying in the 3.2%-3.2% range it has maintained since June.

                  Unless today’s data deviates significantly from expectations, it is unlikely to deter Fed from delivering a widely anticipated 25bps rate cut next week, bringing the federal funds rate to 4.25-4.50%. Fed fund futures currently reflect an 86% probability of this move.

                  But more critically, today’s readings could solidify the case for a pause in January, supported by futures pricing nearly 80% probability of such an outcome.

                  A pause would allow policymakers to digest the inflationary implications of upcoming fiscal and trade policies under President-elect Donald Trump. Current Treasury Secretary Janet Yellen cautioned that Trump’s tariffs pose a dual risk of “derail the progress” on inflation and have “adverse consequences on growth”, creating a potential headache for Fed as it balances these challenges.

                  Technically, EUR/USD would be a key to watch in reaction to US CPI. Recovery from 1.0330 short term bottom is seen as a corrective move, might could have completed at 1.0629 already. Break of 1.0471 support will suggest that fall from 1.1213 is ready to resume through 1.0330. Next target will be 61.8% projection of 1.0936 to 1.0330 from 1.0629 at 1.0254.

                  BoC to flash rates by 50bps again in quick path to neutral

                    By
                    ActionForex
                    -

                    BoC is widely anticipated to lower its overnight rate by another 50bps at today’s meeting, reducing the policy rate to 3.25%. This follows a similar move in October, aimed at addressing a cooling economy where inflation has been at or below 2% for three months already, and core measures remain slightly above target. Last week’s data showing unemployment rate jumping to 6.8% from 6.5% solidified expectations of a significant rate reduction.

                    A recent Reuters poll highlighted this expectation, with 21 of 27 respondents predicting a 50bps cut and the remainder forecasting a more modest 25bps reduction. The primary argument for aggressive easing centers on the need to return interest rates to a neutral range, estimated between 2.25% and 3.25%. Following today’s expected cut, rates would align with the upper bound of neutral, still potentially exerting a mildly restrictive effect on the economy.

                    However, there is an opposing view that recent resilience in consumer spending, inflation, and labor market data could justify a slower pace of easing. This argument suggests that BoC could take a more measured approach, affording time to assess the economy’s response to October’s 50bps cut before making further moves.

                    Regardless, the debate now shifts to determining the eventual terminal rate, with clarity likely, hopefully, to emerge only in January’s Monetary Policy Report.

                    Technically, similar to other Yen crosses, CAD/JPY’s corrective rebound from 101.63 should have completed with three waves up to 111.55. Further decline is expected as long as 55 D EMA (now at 108.65) holds. Break of last week’s low at 105.75 will resume the fall from 111.55 towards 101.63 low, and possibly through it to resume the larger decline from 118.85. However, the speed of the decline could more hinge on the development in Yen than Loonie.

                    China’s trade data highlights persistent import weakness amid export slowdown

                      By
                      ActionForex
                      -

                      China’s trade data for November showed weak signals as exports grew 6.7% yoy to USD 312.3B, down sharply from October’s 12.7% yoy expansion and missing expectations of 8.5% growth.

                      Export performance varied across key regions, with shipments to the US rising 8% yoy, to the EU up 7.2% yoy, and to ASEAN growing by 14.9% yoy. However, exports to Russia declined by -2.5% yoy.

                      On the import side, the picture was decidedly more negative. Imports fell by -3.9% yoy, marking the steepest decline since September 2023, and missing expectations of a slight 0.3% yoy increase.

                      Weakness was broad-based, with imports from ASEAN dropping -3% yoy, the US contracting by -11% yoy, and the EU and Russia both registering declines of -6.5% yoy. These numbers underscore persistent weak domestic demand, consistent with recent data showing subdued consumer inflation.

                      Trade balance widened from USD 95.7B to 97.4B, above expectation of USD 92.0B.

                      Australia’s NAB confidence turns negative to -3 as business conditions deteriorate

                        By
                        ActionForex
                        -

                        Australia’s NAB Business Confidence index slid sharply to -3 in November, down from 5 in October, returning to below average levels. Business conditions also weakened notably, dropping from 7 to 2, marking declines across trading, profitability, and employment metrics. Trading conditions fell to 5 from 13, profitability shifted into negative territory at -1 from 5, and employment conditions edged down to 2 from 3.

                        Cost pressures showed little relief, with input costs largely unchanged. Labor cost growth held steady at 1.4% in quarterly terms, while purchase cost growth edged slightly higher by 0.2 percentage points to 1.1%. On the pricing side, output price growth remained unchanged at 0.6% in quarterly terms, with retail price growth retreating to 0.6% and recreation and personal services easing slightly to 0.7%.

                        Full Australia NAB business confidence release here.

                        RBA holds rates steady, dovish shift raises odds of Feb cut

                          By
                          ActionForex
                          -

                          RBA held its cash rate steady at 4.35% as widely expected, but the accompanying statement marked a clear pivot towards a more dovish stance. While May remains the more likely timing for the first rate cut, February is now emerging as a real possibility, depending on upcoming Q4 jobs and inflation data from Australia.

                          The most striking change in the RBA’s statement was its removal of the phrase “not ruling anything in or out” regarding future monetary policy decisions. This change aligns with the board’s growing “confidence that inflationary pressures are declining.” RBA acknowledged that some upside risks to inflation have eased and noted the gap between aggregate demand and supply capacity is continuing to narrow.

                          Recent activity data, according to the RBA, has been “on balance softer than expected,” with the central bank pointing out risks of a slower-than-anticipated recovery in consumer spending. These factors collectively suggest a step away from inflation vigilance and a move closer to easing policy.

                          Governor Michele Bullock later emphasized that the wording adjustments in the statement were deliberate. While she clarified that a rate cut was not discussed during today’s meeting, she acknowledged uncertainty over whether one could occur as early as February.

                          Markets responded swiftly, with swaps traders raising the probability of a February rate cut to over 60%, up from 50% the previous day. Market expectations now fully price in two rate reductions by May.

                          Full RBA statement here.

                          Eurozone Sentix plunges to -17.5 amid economic and political turmoil

                            By
                            ActionForex
                            -

                            Investor sentiment in the Eurozone deteriorated sharply in December, with the Sentix Investor Confidence Index dropping to -17.5 from -12.8, significantly below expectations of -13.1. This marks the weakest reading since November 2023. Current Situation Index fell to -28.5, the lowest since November 2022, while Expectations Index slipped to -5.8 from -3.8. .

                            Germany remains a key drag, with its Current Situation Index sinking to -50.8, the lowest since June 2020, reflecting the persistence of recessionary pressures. The announcement of new Bundestag elections failed to inspire optimism, while France’s ongoing government crisis has added another layer of economic uncertainty. Sentix highlighted that “the two largest countries in the Eurozone are dragging down the EU economy.”

                            ECB faces increasing pressure as investors expect stronger monetary support for the faltering economy. However, inflation concerns persist, with Sentix’s inflation barometer holding at -12 points, signaling continued unease. This dual challenge highlights a conflict for ECB as it balances the need for economic stimulus with inflationary risks.

                            Full Eurozone Sentix release here.

                            China’s CPI falls to 0.2% yoy in Nov, PPI down -2.5% yoy, deflation pressures persist

                              By
                              ActionForex
                              -

                              China’s CPI decelerated from 0.3% yoy to 0.2% yoy in November, below market expectations of 0.5% yoy, and marking its lowest level in five months. Persistent deflationary pressures highlight the urgency for stronger fiscal measures to reinvigorate the economy.

                              Food prices was the primary driver of inflation, surging by 1% yoy, with notable increases in vegetable and pork prices at 10% yoy and 13.7% yoy, respectively. However, core inflation, which excludes volatile food and energy prices, edged up only marginally to 0.3% yoy from 0.2% yoy.

                              Meanwhile, PPI improved, registering a -2.5% yoy decline in November compared to -2.9% in October, beating expectations of -2.9% yoy. While this marked the 26th consecutive month of negative readings, the moderation was attributed to a combination of existing and incremental policy measures alongside a recovery in domestic demand for industrial goods.

                              Canada’s employment grows 51k in Nov, unemployment rate jumps to 6.8%

                                By
                                ActionForex
                                -

                                Canada’s employment grew 51k in November, above expectation of 25k. Employment gains were concentrated in full-time work (+54k).

                                Employment rate was unchanged at 60.6%. Unemployment rate jumped from 6.5% to 6.8%, as more people are looking for work. Labor force participation rate rose 0.3% to 65.1%.

                                Total hours worked was down slightly by -0.2% mom but up 1.9% yoy. Average hourly wages grew 4.1% yoy, slowed from 4.9% yoy in October.

                                Full Canada employment release here.

                                US NFP grows 227k in Nov, unemployment rate rises to 4.2%

                                  By
                                  ActionForex
                                  -

                                  US non-farm payroll employment grew 227k in November, close to expectation of 218k. That’s notably higher than the average of 186k monthly growth over the prior 12 months.

                                  Unemployment rate rose from 4.1% to 4.2%, above expectation of 4.1%. Labor force participation rate was at 62.5%, ticked down from 62.6%.

                                  Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over then past 12 months, average hourly earnings rose 4.0% yoy.

                                  Full US NFP release here.

                                  BoE’s Dhingra calls for more policy relief, labels current stance very restrictive

                                    By
                                    ActionForex
                                    -

                                    BoE MPC member Swati Dhingra, often viewed as the most dovish voice within the committee, reinforced her call for policy easing during an interview with Bloomberg TV today.

                                    Dhingra highlighted the “very restrictive stance” of current monetary policy, arguing that high interest rates are dampening consumption, investment, and supply capacity. She stressed, “We should be easing policy more” to alleviate the strain on living standards and pave the way for economic normalization.

                                    Dhingra pointed to easing wage pressures and declining service inflation as key indicators supporting a shift towards lower rates.

                                    She advocated for a “gradual” approach to rate cuts, suggesting the Bank Rate should eventually settle between 2.5% and 3.5%, her updated estimate of the “neutral rate.” Notably, she acknowledged that this estimate has risen since BoE’s 2018 estimate of 2%-3%.

                                    Turning to the potential fallout from a global trade war, Dhingra noted its indirect effects could significantly harm productivity and business adaptability. While she believes the direct impact on UK growth and inflation might be “limited,” she cautioned that secondary effects, such as supply chain disruptions and reallocation challenges, would be far more damaging.

                                    NFP’s role looms larger for January Fed pause while December cut looks set

                                      By
                                      ActionForex
                                      -

                                      The pivotal US non-farm payroll report today stands at the center of market focus, with its implications likely to influence both the Fed decision outlook, but probably more on January meeting than this month’s.

                                      Fed fund futures indicate a 70% probability of a 25bps rate cut this month, up from 66% a week ago. This reflects a growing expectation that recent economic data, including ISM services and manufacturing figures, ADP employment, and JOLTs openings, support further easing to 4.25%-4.50% at the December 18 meeting. This mounting confidence in Fed’s decision is unlikely to be deterred by today’s data, barring any drastic upside surprises.

                                      However, sentiment regarding January paints a different picture, with just a 20% likelihood of another 25bps cut to 4.00%-4.25%. A stronger-than-expected NFP report today, particularly one highlighting a significant rebound in job growth after October’s hurricane- and strike-induced distortions, could solidify expectations of a pause in January.

                                      Recent labor market indicators offer a mixed but steady backdrop. ISM Manufacturing Employment improved to 48.1 from 44.4, while ISM Services Employment softened to 52.1 from 56.0. ADP employment showed a moderation in net job additions at 146K, down from a revised 184K prior. Meanwhile, the 4-week average of initial unemployment claims fell to a strong 218K from 236K. These data points suggest no major red flags for today’s NFP release.

                                      In terms of market reactions, Dollar Index remains in a corrective phase after peaking at 108.07. While a recovery today is possible, near-term risks tilt to the downside as long as 106.72 resistance holds. Deeper pullback could extend to 38.2% retracement of 100.15 to 108.07 at 105.04 completion. Nevertheless, rise from 100.15 would remain in favor to resume at a later stage as long as 55 D EMA (now at 104.77) holds.

                                      Japan’s nominal wages growth hits multi-decade high, but real gains remain elusive

                                        By
                                        ActionForex
                                        -

                                        Japan’s labor market data for October showed nominal wages, or labor cash earnings, rose 2.6% yoy, in line with expectations. Regular pay, or base salary, grew 2.7% yoy, marking the fastest increase since November 1992. Full-time workers saw an even sharper wage rise at 2.8% yoy, the highest increase since comparable records began in 1994. Overtime pay also rebounded, registering a 1.4% yoy growth compared to a -0.9% decrease in the prior month.

                                        However, real wages—adjusted for inflation—was stagnant, showing no change from a year ago. This followed declines of -0.4% and -0.8% yoy in September and August, respectively. The inflation rate used by Japan’s labor ministry for these calculations, excluding owners’ equivalent rent, slowed to 2.6%, the lowest in nine months.

                                        On the household front, spending fell -1.3% yoy, better than the forecasted -2.6% yoy decline but still reflecting cautious consumer behavior. Food expenditures, comprising around 30% of total spending, dropped -0.8% yoy. Other categories faced sharper declines, including a -13.7% yoy plunge in clothing and shoes, a -10.7% yoy drop in housing-related expenditures, and a -14.0% yoy decrease in education spending, such as tuition fees.

                                        Canada’s trade deficit narrows to CAD – 0.9B as exports rebound in October

                                          By
                                          ActionForex
                                          -

                                          Canada’s merchandise trade deficit with the world narrowed to CAD -0.9B in October from September’s CAD -1.3B, driven by a 1.1% mom rise in exports. This marks a rebound following three consecutive monthly declines. Imports also increased, albeit at a slower pace, rising 0.5% mom.

                                          Despite the headline growth in exports, declines were recorded in 8 of the 11 product sections. The increase was partly attributed to higher prices, with export volumes rising modestly by 0.4% mom in real terms.

                                          Full Canada trade balance release here.

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