Daily Money Talks 17/Dec/2024

📉 Market Report.

🇩🇪 The German parliament rejected a vote of confidence in Chancellor Olaf Scholz and his government, paving the way for early elections on 23 February. Scholz has proposed measures that could pass with opposition support, such as tax cuts and an increase in child benefits. The debate has intensified campaigning for the election, with Scholz and his conservative challenger Friedrich Merz critiquing each other over competence, vision, and economic policies. The conservatives have a comfortable lead of over 10 points in opinion polls.The conservatives have a comfortable lead of over 10 points in opinion polls, with the far-right Alternative for Germany (AfD) slightly ahead of Scholz's SPD. The AfD leader Alice Weidel called for all Syrian refugees in Germany to be sent back following the collapse of Bashar al-Assad's regime.

🇫🇷 The Bank of France has revised its economic growth forecast for France, predicting a slower growth of 0.9% in 2025 compared to its previous estimate of 1.2%. The bank attributed the country's political turmoil to global volatility, and political uncertainty over public finances could offset any potential growth boost from the new government's proposed budget bill. Governor Francois Villeroy de Galhau warns that France's "budget denial" due to political friction could lead to further economic decline compared to other European countries. Inflation is expected to remain below the 2% target for the next three years, but the public debt burden is expected to rise to 117% of GDP by 2027.

📈 Despite the government's struggles, Germany's stock market has been booming this year, up 21% so far and surpassing the 7% gain of the pan-European STOXX 600 index.

🏦 Most traders will be looking for hints about what might happen next following the anticipated 25 basis-point decrease this week, so the Fed will be their primary focus.

💷 The year-on-year average weekly wage in the UK rose by 5.2%, exceeding the forecast of 4.6% and the previous data of 4.3% (revised to 4.4%).

🇨🇦 Canadian Finance Minister Chrystia Freeland resigned following a disagreement with Prime Minister Justin Trudeau over potential U.S. tariffs and government spending. Trudeau requested a lesser post, but Freeland declined, leading to her resignation. This is seen as a major crisis for Trudeau's government. Dominic LeBlanc, a member of Trudeau's inner circle, has been appointed as the new finance minister. The resignation comes just before Freeland presented a fall economic update, and opposition parties have threatened Trudeau's government with a non-confidence vote unless he resigns.

🇨🇳 Chinese leaders have agreed to raise the budget deficit target to 4% of GDP for 2024, the highest on record, compared to an initial target of 3%. The additional 1 percentage point of GDP in spending, around 1.3 trillion yuan ($179.4 billion), will be funded through issuing off-budget special bonds. This proactive fiscal policy is part of China's preparations to counter the expected impact of increased U.S. tariffs on Chinese imports. China will maintain an unchanged GDP growth target of around 5% in 2025. The Chinese government is expected to rely heavily on fiscal stimulus next year to support the struggling economy, which has been affected by a property crisis, high local government debt, and weak consumer demand.

🏭 US manufacturing activity contracted in December, with the S&P Global flash manufacturing PMI dropping to 48.3, the lowest level since May 2020. Factory production fell to 46.0, the lowest level since May 2020. However, the services sector flash PMI rose to 58.5, the highest level since March 2022. Businesses anticipate fewer regulations and tax cuts from the Trump administration, but concerns about tariffs' impact on inflation remain. Suppliers raised prices and shipping costs increased.

🇪🇺 In Europe the manufacturing PMIs also showed economic contraction especially low in Germany with 42.5. However, its services PMI managed to reach above 50. The UK was also not spared from the contraction in production activity with a manufacturing PMI of 47.3.

🏦 Pierre Wunsch, a member of the European Central Bank's governing council, said that investor wagers on the amount that interest rates must drop are in line with the opinions of policymakers. The precise amount will be decided by trial and error, he stated, but "the ECB is likely to remove restrictions and move towards a neutral interest rate."

📊 Market View:

📈 US futures have risen sharply, indicating a possible contango situation. Mini futures contracts have seen a marked increase in prices.

💵 The dollar index remains stable near, but not above, 107 points. Yesterday's German government's downgrade weakened the euro, leaving the EUR/USD struggling to stay above the 1.05 level.

📉 In Europe, markets show slight declines. The DAX 40 is retreating towards the 20,300 support, while the EuroStoxx 50 seems to be losing ground, approaching the 4,945 level.

🛢️ In commodities, crude oil is unchanged, with Brent crude oil trading at 74.10 dollars. Gold remains under pressure after falling more than 3.5% last week, now trading at $2,670 per ounce.

💰 Finally, Bitcoin continues its upward momentum; a few hours ago it reached a new high above $107,000 and is currently trading very close to those levels, maintaining upward pressure.

🌍 Geopolitics:

🛰️ A satellite system that will offer encrypted worldwide internet services and lessen reliance on private businesses like Elon Musk's Starlink has received a €6 billion commitment from the EU. The IRIS2 program is expected to be operational by 2030 and benefit European governments, military forces, and private clients, according to the bloc. The bloc, however, is late to the game. IRIS2 aims for 290 satellites, while Starlink boasts almost 6,000.

🌱 Eastern European states are rebelling against the EU's green agenda. Poland's deputy climate minister, Krzysztof Bolesta, suggests the European Union should delay the implementation of its new Emissions Trading System 2 (ETS2) for transport and heating fuels, starting in 2027. Bolesta believes this would allow consumers more time to transition to green alternatives and reduce the financial burden of transitioning to green alternatives. Other EU member states also support this proposal.

🔫 Ukrainian prosecutors have charged Lieutenant General Igor Kirillov, chief of Russia's Nuclear, Biological and Chemical Protection Troops, in absentia for alleged use of banned chemical weapons in Ukraine. Kirillov and his assistant were killed in an electric scooter explosion yesterday. Britain also sanctioned Kirillov and the forces for using riot control agents and chloropicrin on the battlefield.

🇮🇱 Israel has agreed to double its population on the Golan Heights, captured from Syria in the 1967 Six-Day War and annexed in 1981. The Israeli government plans to invest over $11 million to encourage demographic growth in the area, which currently houses 31,000 Israeli settlers and 24,000 Druze. Arab countries, including Saudi Arabia, the UAE, and Jordan, have condemned Israel's decision as a deliberate effort to expand the Golan occupation. Syria's de facto leader, Ahmad al-Sharaa, has achieved his victory with Israel's support.