Manufacturing Weekly Economic Highlights | 6 January 2025
Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!
Hope you are enjoying our Around Asia section. Each week we share curated economic highlights for a different Asian country, providing a more rounded view of Asian economic data relevant to manufacturers.
In this edition, we focus on the economic conditions in America, Europe, China, and Japan, as well as updates on the commodity, energy, and logistics markets.
North America
“The DXY again closed moderately higher this week”
“USD starts strong in 2025, with trends and fundamentals pointing towards continued strength in 2025”
“2025 US inflation predicted at 2.5% to 2.6%, up from 2024”
“US credit card defaults surge to highest since 2010 . . ."
“. . . as US consumers struggle amid cumulative four years of inflation”
The USD Index (DXY) finished moderately higher again this past week, from 108.01 on 27 December 2024 to close at 108.92 on 3 January 2025. The DXY is up 0.86% for the week, up 2.70% for the month, up 0.41% YTD, and up 6.36% over the past 12 months.
Barron’s published an interesting summary of an interview with Quincy Institute for Responsible Statecraft Sr. Research Fellow in Geoeconomics Karthik Sankaran on 2 January 2025 discussing the current status of the USD and its near-term direction.
The USD began its current strong run in February 2022 with the European energy shock. Both the EUR and JPY weakened due to rising energy prices following Russia’s invasion of Ukraine.
The USD became both a financial safe haven and a geopolitical safe haven, with the EUR falling below USD parity in the summer of 2022.
Also, during this period, the US became a net energy exporter, resulting in the USD acquiring attributes of a commodity currency like the AUD or CAD. It now strengthens when commodity prices rise.
Looking forward, Trump’s trade policies will have the effect of boosting demand, and his tariff policies will have the price effect of reducing supply. The US is the world’s largest importer of manufactured goods, so reducing US imports reduces overseas economic growth. These effects lead to a stronger USD and tightening overseas financial conditions will raise overseas borrowing costs.
Reduced overseas growth will boost investment flows into the USD, and the resulting increased overseas financial instability will prompt a “flight to safe haven” further boosting investment flows into the USD in a virtuous cycle.
However, Trump has signaled that he also wants a weaker USD. The conventional Fed response to increased inflationary pressure would be to raise US policy rates, which promotes a stronger USD. For the USD to weaken, the US Fed would need to cut rates to promote a weaker USD. This is unlikely under Chairman Powell, whose term expires in May 2026 unless he departs prematurely.
On 31 December The Wall Street Journal also published an article that predicts continued USD strength, but also shared some contrarian predictions.
Investopedia reported on 31 December that despite moderating inflation since peaking in June 2022 at 7.25% YoY, the US Fed has scaled back its plans for 2025 policy rate cuts amid rising inflationary pressure. The US Fed noted that its median estimate for 2025 inflation is 2.5%, higher than the 2.4% YoY inflation recorded in November 2024. Wells Fargo economists predict 2025 inflation between 2.5% and 2.6%.
Meanwhile, the Daily Caller News Foundation reported on 31 December that US credit card defaults have soared to a 14-year high as Americans have struggled with the residual effects of cumulative inflation over the past 4 years.
Credit card lenders wrote off $46 billion USD in “seriously delinquent loan balances” during the first three quarters of 2024, an increase of 50% YoY and the highest level since 2010.
The bottom third of US consumers are “tapped out” with zero savings, with total US credit card debt climbing to $1.17 trillion USD during 3Q24. 3.5% of outstanding credit card debt is in some stage of delinquency, per the New York Fed.
Total US household debt increased in 3Q24 to $17.94 trillion USD with mortgage balances rising to $12.59 trillion USD.
President-elect Trump has proposed a temporary cap on credit card interest rates at 10%, receiving support from Sen. Bernie Sanders.
Europe
“The EUR closed moderately lower this week relative to the USD”
“EUR down 8% since late September, headed for USD parity”
“UK manufacturing PMI revised down to 4.7 in December, third month of contraction”
“Can the new French government reduce the ballooning budget deficit?”
The EUR moderately lower this week, from $1.043 per EUR on 27 December 2024 to close at $1.032 per EUR on 3 January 2025. The EUR is down 1.08% for the week, down 2.40% for the month, down 0.40% YTD, and down 5.71% over the past 12 months.
The EUR dipped this past week to its lowest level since November 2022, down 8% since late September, as reported on 2 January by Bloomberg.
Markets worry that the EU’s export-oriented economies will suffer under proposed US trade tariffs, along with expectations that the European Central Bank (ECB) will cut its policy rates more than the US Fed. Political instability in Germany and France are also dragging down the EUR.
The GBP fell by 1% to $1.239 per GBP, its lowest level since May 2024.
Weak UK growth, which was near 0% YoY in 3Q24 and expected to remain near 0% in 4Q24, is raising expectations that the Bank of England will also be more aggressive with policy rate cuts.
The GBP was also negatively impacted when S&P Global reported on 2 January that it revised its December Purchasing Managers Index (PMI) manufacturing index to 47 from its earlier estimate of 47.3. The manufacturing PMI has been in contraction for three consecutive months.
Meanwhile, the new French government under recently appointed PM Francois Bayrou met to consider new policies to reduce France’s ballooning budget deficit, as reported on 3 January by Bloomberg.
Previous PM Michel Barnier was deposed in early December in a no-confidence vote by opposition members who argued that his proposed fiscal plans were “too painful for households.”
The new Finance Minister Eric Lombard said that the budget deficit should be reduced from over 6% in 2024 to around 5% in 2025.
China
“The CNY closed moderately lower again this week”
“China allows the CNY to fall through the psychological 7.3 level . . .”
“ . . . and will likely continue to fall through 2025”
“IMF predicts Chinese 2025 GDP to slow to 4.5%”
“We grow in the wind and rain, and we get stronger through hard times”
The CNY ended moderately lower again this week, from 7.299 per USD on 27 December 2024 to close at 7.321 per USD on 3 January 2025. The CNY is down 0.30% for the week, down 0.69% for the month, down 0.31% YTD, and down 2.67% over the past 12 months.
The CNY devalued below the psychological level of 7.3 per USD this week for the first time since late 2023, as reported on 3 January by Bloomberg.
The Chinese Central Bank had been defending the CNY throughout December as the country is buffeted by concerns over its ongoing economic conditions and a growing bond yield discount compared to the US.
The CNY faces ongoing depreciation pressure amid the strong USD, with the benchmark stock index closing at its lowest level since September and sovereign bond yields sank to new record lows as China braces for the impact of the proposed Trump tariff and trade policies.
BNP Paribas SA has predicted the CNY to fall to 7.45 by year end 2025, with Nomura forecasting that the CNY might devalue to 7.6 in May. JPMorgan Chase is predicting the CNY to hit 7.5 in 2Q25.
Meanwhile, Chinese President Xi Jinping gave his annual New Year address and during his ten-minute speech said that the Chinese economy is on “an upward trajectory” and that the government can offset its challenges using its extensive international relationships.
“The Chinese economy faces some new conditions, including challenges of uncertainties in the external environment and pressure of transformation from old growth drivers into new ones. But we can prevail with our hard work. As always, we grow in the wind and rain, and we get stronger through hard times. We must be confident.”
Xi also reiterated China’s intent on taking Taiwan, saying “no one can ever stop China’s reunification, a trend of the times.”
Xi predicted that China’s GDP will exceed CNY 130 trillion, equivalent to $18.08 trillion USD.
However, the IMF continues to project a slowing Chinese economy, with 2025 GDP growing 4.5%.
Around Asia: Japan
“The JPY closed moderately higher this week”
“Japanese economy 2025 GDP predicted at 1.8%”
“Japanese inflation trending towards BOJ target of 2%”
“Labor market remains tight with unemployment at 2.5%”
“Competition for scarce labor amid declining population could boost productivity”
The JPY ended moderately higher this week, from 157.8 per USD on 27 December 2024 to close at 157.2 per USD on 3 January 2025. The JPY is up 0.41% for the week, down 4.79% over the past month, up 0.01% YTD, and down 8.69% over the past 12 months.
The Japanese economic growth is increasing, but with uneven momentum, as reported on 26 December by The Wall Street Journal.
Consumer inflation in the Tokyo metropolitan area, excluding fresh food, increased to 2.4% YoY in December from 2.2% YoY in November. Tokyo prices are considered as a leading economic indicator of national trends.
Consumer inflation nationwide has been trending close to the Bank of Japan’s target of 2%, supporting market expectations for policy rate increases.
Retail sales increased 2.8% YoY in November, up from 1.3% YoY in October, boosted by holiday shopping and cooler weather boosting demand for winter clothes and goods.
The Japanese labor market remains tight with 2.5% unemployment in November, unchanged from October.
However, Japan’s industrial production in November fell 2.3% MoM compared with an increase of 2.8% MoM in October. Company surveys predict industrial output to increase 2.1% MoM in December and 1.3% MoM in January.
The Bank of Japan held policy rates steady in December due in part to uncertainties about overseas economies and the policies of president-elect Trump. Trump’s tariff and trade policies could affect Japan’s exports and production.
Bloomberg reported on 27 December that its Bloomberg Economics Senior Japan Economist Taro Kimura expects that the Japanese economy “will probably grow a brisk 1.8%.” He expects to see increased incomes and growing consumption as the Japanese government pursues policies to ease a cost-of-living crunch.
Japan is ramping up investment in its Technology sector, including major semiconductor facilities in the north and south of the country.
Japan’s labor productivity could rise as competition for scarce labor amid a shrinking population could cause companies to exit inefficient businesses.
Japanese inflation “looks increasingly secure” as service providers pass on higher labor costs.
President-elect Trump’s tariff and trade policies could pose headwinds for the Japanese economy. Trump has frequently complained about Japanese trade surpluses with the US. However, Japan has dropped out of the top five countries having trade surpluses with the US.
Commodities
“GSCI Commodity Index climbed moderately higher again this week”
“The GSCI Industrial Metals retreated moderately lower this week”
“Biden administration blocks Nippon Steel acquisition of U.S Steel”
“Can U.S. Steel be saved?”
The GSCI Commodity Index finished moderately higher again this week, from 543.15 on 27 December 2024 to close at 553.64 on 3 January 2025. This index is a weighted index based on world-production of each commodity in the index, with energy and industrial metals comprising the bulk of the index weighting. The GSCI is up 0.73% YTD. Trading Economics has increased its GSCI forecast this week to 556 by the end of 1Q25 and 577in 12 months.
The GSCI Industrial Metals index finished moderately lower this week, from 444.25 on 27 December 2024 to close at 434.65 on 3 January 2025. The Industrial Metals Index is up 5.70% over the past 12 months.
The Biden administration blocked Nippon Steel’s friendly $15 billion USD acquisition of U.S. Steel, as reported on 3 January by The Wall Street Journal.
Nippon Stel had promised to inject $2.7 billion of capital into U.S. Steel to modernize its aging plants, offered workers $5,000 bonuses, made job guarantees and committed to honor collective-bargaining agreements, and agreed to let the US Committee on Foreign Investments in the United States (CFIUS) to block production capacity reductions at U.S Steel plants.
As reported by the Daily Caller News Foundation on 3 January, Nippon announced its acquisition plans on 5 January 2024 to help consolidate the global steel industry to be more competitive against China’s Baowu Steel Group.
Baowu produces 13,184 tons of crude steel annually, with Nippon and U.S Steel combined producing just under 6,000 tons in 2022.
Nippon Steel outbid U.S. Steel competitor Cleveland-Cliffs, though the United Steelworkers Union came out in favor of the Cleveland-Cliffs acquisition. If Cleveland-Cliffs acquired U.S. Steel, the combined entity would control 100% of US blast furnace production, 100% of domestic steel used in EV motors, and 65% to 90% of other domestic steel used in vehicle manufacturing. However, Cleveland-Cliffs is currently valued at only $4.7 billion USD and has $3.8 billion USD of outstanding debt, so it is unclear if it could fund its acquisition of U.S Steel, not to mention modernizing the combined factories and resources.
U.S. Steel executives have previously warned that it could close plans if the Nippon acquisition deal fails, and investors worry that the company could fall into bankruptcy with its assets divested piecemeal.
Energy
“Crude gushed moderately higher again this week”
“Henry Hub eased moderately lower again this week”
“EU Natural Gas climbed moderately higher again this week”
“Oil prices rise in anticipation of Trump’s enforcement of sanctions . . .”
“ . . . however OPEC continues to withhold supplies far exceeding volume facing sanctions”
“Ukraine pipeline gas deliveries to Europe ceased as expected, with limited impact”
Brent Crude finished moderately higher again this week, from $74.00 USD per barrel on 27 December 2024 to close at $76.69 USD per barrel on 3 January 2025.
Henry Hub finished moderately lower again this week, from $3.64 USD per MMBTU on 27 December 2024 to close at $3.37 USD per MMBTU on 3 January 2025.
EU Natural Gas finished moderately higher again this week, from €47.78 per MWh on 27 December 2024 to close at €49.61 per MWh on 3 January 2025, equivalent to $14.10 USD per MMBTU. EU Natural Gas is up 1.68% YTD. Trading Economics raised its EU Natural Gas TTF forecast this week to €52.46 per MWH by the end of 1Q25 and €58.72 per MWh in 12 months.
Oil prices closed at their highest level since October amid market expectations that President-elect Trump will enhance and enforce sanctions on Iran, Venezuela, and Russia, as reported on 3 January by Barron’s.
Iran has been exporting more than 1.5 million bpd in 2024, double its exports in 2019. Analysts predict that sanctions on Iran and other countries could remove 1 million bpd from the global market.
However, OPEC is currently withholding more than 5 million bpd of supply from the market, much more than the supply at risk for sanctions. Chinese oil demand continues to fall amid its ongoing economic downturn and increasing use of EV’s.
Eurasia Group Director Henning Gloystein said, “increasing supply in 2025 amid ongoing weak demand growth will probably create downward crude price pressure, especially once OPEC starts to taper its supply cuts.”
Meanwhile, Bloomberg reported on 3 January that the outgoing Biden administration will announce on 6 January an order banning new offshore oil and gas development across 625 acres of US coastal territory, effectively stopping the sale of new oil and gas drilling rights in the Atlantic and Pacific oceans and the eastern Gulf of Mexico.
New oil and gas leases will still be available in the central and western Gulf of Mexico, which produces 14% of US output.
The Biden administration is using a 72-year-old federal law providing presidents with broad discretion to exempt areas of American waters from oil leasing without explicitly authorizing revocations.
President Obama previously ordered more limited offshore leasing bans which Trump sought to reverse during his first administration, but a Federal District Court rejected the order reversal, and the court order has never been considered by an appeals court.
As expected and previously reported, Russia halted natural gas deliveries via Ukraine pipelines early on 1 January as the pipeline transit agreement expired, as reported on 1 January by The Wall Street Journal.
Russian gas exporter Gasprom said, “due to the Ukrainian side’s repeated and explicit refusal to extend these agreements, Gazprom was deprived of the technical and legal opportunity to supply gas for transit.”
Europe has long been preparing for the end of gas supply via Ukraine, including by reducing gas demand and by diversifying its natural gas suppliers. The EU’s gas demand has fallen by 18% since Russia’s invasion of Ukraine, and its natural gas storage level exceeded 95% as of 1 November.
The EU announced, “the impact of the end of transit via Ukraine on the EU’s security of supply is limited in both volume and scope, affecting only a few countries.”
Bloomberg reported on 30 December that global LNG exports in 2024 grew at their slowest pace since 2015, rising 0.4% YoY. Delays to US LNG projects and sanctions against Russia’s newest LNG facility curbed new supply entering the market.
The global LNG market has been “finely balanced” since Russia’s 2022 invasion of Ukraine forced Europe to depend more heavily on imported LNG. The precarious supply demand balance has made the LNG market susceptible to price spikes in Europe and Asian markets.
New LNG supply is expected in 2025 as new US projects ramp up production and a new Canadian LNG facility begins production.
The US remained the world’s leading LNG exporter, shipping a record 87 million tons in 2024, slightly up from 2023.
China remained the leading LNG buyer, importing 78 million tons, up 8.5% YoY. In 2021 China imported 80 million tons.
Logistics
“The BDI floated moderately higher again this week”
“The CFI rose moderately higher again this week”
“Shippers brace for US East and Gulf Coast port strike, round 2”
“US again attacks Houthi targets in Yemen following attacks on US warships”
Baltic Dry Index finished modestly higher again this week, from 997 on 27 December 2024 to close at 1,072 on 3 January 2025. The BDI is up 7.52% YTD. Trading Economics has reduced its BDI forecast this week to 957 by the end of 1Q25 and 846 in 12 months.
The Containerized Freight Index finished moderately higher again this week, from 2,460.3 on 27 December 2024 to close at 2,505.2 on 3 January 2025. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 1.82% YTD. Trading Economics has raised its CFI forecast this week to 2,551 by the end of 1Q25 and 2,845 in 12 months.
US East Coast and Gulf Coast dock workers appear increasingly likely to strike on 16 January as the conditional labor agreement expires on 15 January with talks stalled with no progress or optimism, as reported on 3 January by the Daily Caller News Foundation.
Labor negotiations are set to resume on 7 January.
JP Morgan estimated that the earlier 3-day strike in October cost up to $5 billion USD per day.
Bloomberg reported on 31 December that Maersk, the world’s second largest container carrier, advised its customers to remove cargo from US ports along the East and Gulf Coasts before a 15 January deadline.
Meanwhile, CBS News reported on 31 December that the US had “conducted multiple precision strikes” hitting Houthi targets in Yemen’s capital city.
The attacks started on 30 December and continued into 31 December following Houthi attacks on American warships.
For more information on any of the topics and data discussed in this newsletter, including details of the source articles cited in this newsletter, contact Tractus via its LinkedIn page or visit the Tractus website at www.tractus-asia.com.
#Tractus #EconomicHighlights #Manufacturing #Europe #America #China #Japan #BDI #BrentCrude #HenryHub #Logistics #Commodities