Daily Money Talks 10/Dec/2024

📈 Market Report.

📅 U.S. inflation data is due on Wednesday, with rate decisions from the European Central Bank and the Swiss National Bank due on Thursday. The ECB is expected to cut 25 basis points, the Bank of Canada by 50 basis points, and Switzerland by 50 basis points due to restraint efforts. Australia's central bank ended its year with a dovish stance, indicating confidence in inflation returning to target.

🏛️ Having Donald Trump in the White House will mark the end of the EU's ongoing onslaught on American tech companies, such as Apple, Google, Meta, and Elon Musk's X platform. Numerous investigations could result in fines or divestiture orders of billions of dollars for the EU. The EU's role in regulating digital firms is still unclear, notwithstanding Trump's accusations that Big Tech is mistreating him. According to EU antitrust chief Teresa Ribera, the investigations are not directed at any one country.

📉 US wholesale inventories increased by 0.2% in October, with a slight rise in long-lasting manufactured goods stocks. The Commerce Department's Census Bureau reported that wholesale inventories fell 0.2% in September. Inventories rose 0.9% year-on-year in October. The increase could be due to businesses fearing higher tariffs, as President-elect Donald Trump plans to impose a 25% tariff on Mexican and Canadian products and an additional 10% tariff on Chinese goods. Durable goods inventories increased by 0.1%, while motor vehicle inventories fell 0.1% and electrical goods declined 1.0%. Private inventory investment dragged on GDP in the third quarter.

🇨🇳 China's exports grew at a slower pace in November compared to the previous month, while imports unexpectedly shrank, indicating worrying signs for the world's second-largest economy. There are some encouraging signs, such as higher coal and copper imports, pointing to an improving property sector. The slowdown in China's exports and imports reflects a broader global economic slowdown, with leading indicators like South Korea's exports to China also showing signs of weakening.

📉 China's consumer inflation hit a five-month low in November, as fresh food prices pulled back while factory deflation persisted, suggesting Beijing's recent efforts to shore up faltering economic demand are having only limited impact. Core inflation, excluding volatile food and fuel prices, edged up slightly, but economists expect overcapacity will keep inflation low into 2025. Fitch Ratings lowering its forecasts on China growth for 2025 and 2026 due to the risks of even higher U.S. tariffs on Chinese goods.

💰 China is set to adopt a loose monetary policy for the first time in 14 years, focusing on expanding domestic demand and boosting consumption. This marks the first easing of the stance since late 2010, signaling strong fiscal stimulus, rate cuts, and asset buying in 2025. Government advisers recommend keeping growth targets unchanged but calling for more fiscal stimulus to mitigate the impact of expected U.S. tariffs under a Trump presidency.

🛩️ Chinese manufacturers reportedly limiting sales to the US and Europe of key components used to build unmanned aerial vehicles. This is seen as a prelude to broader export restrictions on drone parts.

🇯🇵 Japan's economy expanded faster than initially reported in July-September due to upward revisions in capital investment and exports. This supports market expectations for a near-term interest rate hike by the Bank of Japan (BOJ). However, a downward revision on consumption highlights the fragile nature of the economic recovery and leaves uncertainty on when the BOJ could raise interest rates again. The revised GDP data will be scrutinized at its next policy meeting on December 18-19, with some analysts expecting a short-term interest rate hike. The BOJ is cautious on the timing of the next rate hike due to soft consumption, cautious decision-making, and US economic policy concerns.

🇬🇧 The British government bond market, which experienced a meltdown in 2022 due to unfunded tax cuts by Liz Truss, is now functioning normally. However, vulnerabilities remain in the leverage of hedge funds and market concentration. The Bank of England (BoE) has introduced the Contingent Non-Bank Financial Institution Repo Facility (CNRF) to help insurers and pension funds during turbulence in the gilt market. The BoE will use a mix of quantitative and qualitative information to assess if conditions are met, as market dysfunction can arise in various ways.

📊 Market View:

📈 Mini S&P 500 futures remain calm after last Friday's highs above 6,100 points. They are currently trading above 6,060 points. The Nasdaq 100, however, reached a new all-time high yesterday, trading above 21,700 points, from where it has retreated to the current 21,460 points.

💹 The dollar index, although it has shown strength since last week, does not lose a bearish chart pattern that could precipitate it. However, it is currently above 106 points, showing signs of recovery. Conversely, the EUR/USD is leaving a possible bullish pattern that could bring the euro/dollar closer to levels near 1.0750. However, for the moment, the euro/dollar is trading above 1.0550.

📈 In the European market, the DAX 40 broke another record yesterday, momentarily surpassing 20,500 points, from where it has retreated to the current 20,315 points. The EuroStoxx 50, meanwhile, managed to break above 5,000 points, but subsequently fell back and now stands at 4,975 points.

🛢️ In commodities, the crude oil market continues to show declining highs, with Brent crude oil getting weaker, starting the session at 71.75 dollars per barrel. Gold, after a series of interferences that broke the wedge pattern formed since November, seems to be trading higher; yesterday it reached $2,700 per ounce, and today it is trading slightly lower, but very close to this level.

💸 Bitcoin continues to move sideways after breaking above $100,000 last week. It is currently trading at $97,115.

🌍 Geopolitics:

🇸🇾 Syrian President Bashar al-Assad's government has collapsed due to territorial advances by opposition groups. Assad and his family fled to Moscow, where they were granted asylum by the Russian government. Hayat Tahrir Al-Sham (HTS), a terrorist organization, entered Damascus and captured Homs. The US and Israel are watching the situation warily, as HTS is designated a terrorist organization by the US and other Western countries. Germany and France have called for an inclusive political solution to prevent the country from falling into radical hands.

🇪🇺 UK-EU defense accord is gaining momentum, with Prime Minister Keir Starmer and EU leaders discussing ways to enhance security. The UK is exploring common weapon procurement and joint military exercises. Despite the EU being the largest aid provider to Ukraine, Kyiv relies on the US for military resources. EU diplomats believe the security pact is feasible, making it a top priority for UK-EU relations.

🇫🇷 With a new stopgap budget package due before the end of the year, Emmanuel Macron is facing mounting pressure from his own supporters to appoint a new prime minister. A seasoned centrist politician who has been mentioned as a potential premier, Francois Bayrou, issued a warning over the weekend that "we can't continue like this." Macron signaled an aggressive approach to the far-right and left forces that brought down the government, saying they "voted for disorder" and "voted not to create but to break down."

🇫🇷 To establish common ground and come together around a possible program, the president of France will meet today with leaders of a wide range of political parties. The leader of the far-right National Rally, the most voted party, with more than 10 million votes, (the ruling coalition party got barely 6 million), Marine Le Pen, will not be joining. She joined a left-wing coalition to force Barnier out of office in a no-confidence vote over his 2025 budget proposals. According to her office, her party was not invited to the discussions today.