Fundamental updates by Solid ECN

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France's Manufacturing Sector: A Mixed Outlook for 2024

Solid ECN – In December 2023, France's manufacturing sector showed signs of positive change. The manufacturing climate indicator, a measure of the health of the industry, reached 100, the highest level since July. This increase, up from 99 in November, surpassed expectations of 98. Key factors behind this rise included a more positive view from industrialists about recent production, moving from a negative perception (-9) in the past to a neutral stance (0). Additionally, there was a slight improvement in the inventory of finished goods, with the index moving from 13 to 14.

However, not all aspects were upbeat. The overall order books didn't show any change, remaining at a low level (-17), though foreign orders saw a marginal improvement. Concerns emerged regarding the future, as manufacturers' expectations for their own production dropped slightly, and their outlook on selling prices also deteriorated.

An encouraging sign was the decrease in perceived economic uncertainty, which fell to 25 in December from 28 in November. This suggests that manufacturers are becoming slightly more confident about the economic environment.


France Manufacturing Sector: Economic Implication

Looking ahead, these mixed signals in France's manufacturing sector offer a nuanced view of the economic future. The improvement in the manufacturing climate indicator and the reduction in uncertainty are positive signs, indicating potential growth and stability in the industry. However, the stagnant order books and cautious outlook on production and pricing point to ongoing challenges. The sector might experience moderate growth but will likely continue facing hurdles, such as fluctuating demand and pricing pressures.

Overall, while the immediate future seems cautiously optimistic, the long-term outlook remains uncertain, dependent on both domestic and global economic conditions.​

 

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WTI Crude Dips Below $73.5

Solid ECN – On Thursday, WTI crude futures dropped below $73.5 a barrel. This broke a three-day rise. The fall happened because US crude stocks unexpectedly grew, which lessened worries about supply issues in the Middle East. US Energy Information Administration (EIA) data revealed a 2.9 million barrel increase in US crude inventories last week.

This was opposite to the forecasted 2.3 million barrel drop. The EIA also reported that US crude production hit a new high of 13.3 million barrels per day last week, up from the previous record of 13.2 million bpd. Investors are still watching the Red Sea, where Houthi attacks on ships are affecting global trade. But experts say the effect on oil supply has been small so far, as most Middle East crude goes through the Strait of Hormuz.

 

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Yen Holds Firm as Japan Sees Inflation Ease​

Solid ECN – In a recent update, the value of the Japanese yen remained stable at approximately 142.2 against the US dollar. This steadiness occurred despite new data indicating a decrease in Japan's inflation rates. November saw both the main and core inflation rates drop to the lowest they've been in 16 months, recording figures of 2.8% and 2.5%, respectively. Notably, the core inflation rate has been over the Bank of Japan's target of 2% for twenty consecutive months.

Earlier in the week, the yen faced some downward pressure. This was largely due to the Bank of Japan's decision to continue its very accommodative monetary policy. The bank did not hint at any potential shifts towards more standard policies in the upcoming year. The Bank's Governor, Kazuo Ueda, emphasized in a press conference that the bank is prepared to implement further easing measures if they become necessary.

In contrast, recent economic data from the United States has led to speculation that the Federal Reserve might begin to reduce interest rates next year. This expectation has lent some support to the yen.

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Economic Implication​

From an analytical perspective, the economic future appears to hinge on several factors. Japan's persistent core inflation above the target suggests an underlying economic resilience, possibly influencing the Bank of Japan's monetary policy decisions in the future. However, the bank's readiness to introduce further easing measures could signal a cautious approach towards economic uncertainties. Internationally, the US Federal Reserve's potential interest rate adjustments could impact the yen, either stabilizing or fluctuating its value against the dollar.

Overall, careful monitoring of these domestic and international economic indicators will be crucial in forecasting the yen's trajectory and Japan's economic health.​

 

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UK Pound Rises Amid Economic Shifts​

Solid ECN – The UK pound recently surged past $1.27, driven by investor reactions to fresh economic data and predictions about future monetary policies. Recent reports have painted a mixed picture of the UK's economic health. The third quarter showed a shrinkage in the economy, a downturn further emphasized by revised figures from the second quarter, signaling a looming recession risk. On a brighter note, retail sales in November surpassed expectations.

Inflation trends are also shifting. The latest Consumer Price Index (CPI) report indicates a drop in UK inflation to 3.8%, significantly lower than the anticipated 4.4%. Additionally, core inflation has fallen to 5.1%, which is below the forecasted 5.6%. These changes have led traders to strongly anticipate interest rate cuts by the Bank of England (BOE) in the coming year. Market expectations suggest a total decrease of 143 basis points, translating to five quarter-point reductions and a 70% likelihood of a sixth cut. However, this contrasts with BOE Governor Andrew Bailey's insistence on keeping rates higher for a longer duration.

Despite the recent slowdown, inflation in the UK remains nearly double the BOE’s 2% target and is the highest among the Group of Seven nations. This situation poses a delicate balance for policymakers, who must navigate between supporting growth and controlling inflation.

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Economic Implication​

In a fundamental analysis, the future of the UK economy hinges on several factors. The anticipated interest rate cuts could stimulate spending and investments, potentially aiding in recession recovery. However, persistent high inflation remains a challenge. If inflation continues to outpace targets, the BOE may need to reconsider its stance on rate cuts to prevent further devaluation of the pound and manage cost-of-living increases. The economic outlook will largely depend on the BOE’s ability to balance these competing priorities and the government's measures to support economic growth.​

 

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Japanese Inflation and Yen Outlook​

Solid ECN – The Japanese yen stabilized at around 142.2 against the dollar, showing little reaction to new data indicating a slowdown in Japan's inflation for November. The country's headline and core inflation rates dropped to 16-month lows of 2.8% and 2.5%, respectively. Notably, core inflation remains above the Bank of Japan's (BOJ) 2% target for the 20th consecutive month.

Earlier in the week, the yen faced some pressure. This was due to the BOJ's decision to continue its highly accommodative monetary policy, without hinting at any policy shifts for the coming year. BOJ Governor Kazuo Ueda expressed a surprisingly cautious stance in his press conference remarks. He emphasized the central bank's readiness to implement further easing measures if needed.

Internationally, recent U.S. economic data has led to speculation that the Federal Reserve might reduce interest rates next year. This development could potentially bolster the yen.

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Economy Implication​

From a fundamental analysis standpoint, the Japanese economy faces a delicate balance. On one hand, persistently high inflation above the BOJ's target suggests underlying economic pressures. On the other, the BOJ's commitment to an ultra-loose monetary policy, coupled with potential easing measures, could weaken the yen further. However, potential rate cuts by the Federal Reserve might provide some support to the yen, counteracting internal pressures. The economic future of Japan and the performance of the yen will likely hinge on the BOJ's ability to manage inflation without excessively weakening its currency, and on global economic shifts, particularly in the U.S.​

 

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US PCE Inflation Eases in November​

In November 2023, the US personal consumption expenditure (PCE) price index is expected to remain unchanged from October, while its annual rate may cool down to 2.8% from 3%, marking the lowest since March 2021. The annual core PCE inflation, which excludes food and energy, is also projected to slow to 3.3% from 3.5%, reaching its lowest point since mid-2021. The monthly rate is anticipated to stay stable at 0.2%.

The PCE inflation is the Federal Reserve's favored measure of inflation, and the November data is likely to indicate a gradual easing of inflationary pressures. The Federal Reserve's forecast for PCE inflation is 2.8%, with core PCE inflation at 3.2% for 2023. Both are expected to decrease to 2.4% in the subsequent year.

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Implication on Economy​

Fundamental analysis suggests a continuing trend of moderate inflationary pressures, which could influence the Federal Reserve's monetary policy decisions. If inflation continues to moderate, it may lead to a more dovish stance from the Fed, potentially resulting in a slower pace of interest rate hikes or even cuts in the future.

This moderation in inflation could support consumer spending and economic growth but could also lead to adjustments in investment strategies and financial markets. Investors and policymakers will need to closely monitor these trends to adapt to the evolving economic landscape.​

 

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Japan's Economic Index: A Fragile Uptick in 2023​

Solid ECN – In October 2023, Japan's main economic forecast tool (the Leading Economic Index), saw a slight increase to 108.9 from an initial 108.7. However, this was still not as high as the previous month's 109.3, showing that Japan's economic recovery is still weak.

The country is dealing with rising prices and lots of outside uncertainties. During the third quarter of 2023, Japan's economy went down by 0.7%, marking its first drop in a year. This downturn was caused by reduced spending by both people and businesses, and trade issues also played a part in lowering the country's overall economic performance. Additionally, people's confidence in the economy in October was almost at its lowest in six months.​

 

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A Simple Guide to the Nikkei 225’s Recent Rise​

Solid ECN – On Monday, the Nikkei 225 index rose by 85.05 points or 0.26%, ending at 33,254.03. This continued the gains from the previous session. Investors were encouraged by Wall Street’s year-end rally on Friday, especially after the US Federal Reserve’s preferred inflation measure for November was lower than expected and closer to the central bank’s 2% target.

Meanwhile, both overall and core inflation in Japan dropped to a 16-month low last month. On a quiet Christmas day, investors paid attention to a speech by Kazuo Ueda, the governor of the Bank of Japan. He suggested that the central bank might change its monetary policy if wages and prices start moving in the right direction. He also repeated that the board was keeping its very supportive monetary policy to protect the delicate economic recovery.

The healthcare sector led the increase, followed by property, tech, and consumer sectors. The top performers of the day included Nexon Co. (5.4%), NTT Data Group (4.5%), Lasertec Co. (2.8%), NH Foods (2.5%), and Takashimaya Co. (2.4%).​

 

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Dollar Index: A Holiday Trading Tale

On Tuesday, amidst holiday trading, the dollar index lingered around 101.6. This was near its five-month low, due to signs of slowing US inflation. This has led to predictions that the Federal Reserve will begin to lower interest rates next year. Data from Friday revealed that the core PCE index, the Federal Reserve’s favored inflation measure, dropped to 3.2% in November from 3.4% in October.

This was lower than the projected 3.3%. Furthermore, figures from Thursday showed a weaker than expected US economic growth in Q3 and a minor rise in unemployment benefit claims recently. The dollar was trading near multi-month lows against other major currencies. It is at risk of further depreciation against the yen, as BOJ Governor Kazuo Ueda stated on Monday that the chances of reaching the 2% inflation target were “gradually rising.”

 

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Aussie Dollar Strong Amid US Data​

Solid ECN – The Australian dollar stays near $0.68, its highest in five months. This is due to US data hinting at Federal Reserve rate cuts next year. Analysts think the Reserve Bank of Australia will cut rates later than others. It hasn't raised rates as much as other banks. Australian inflation is sticking around longer. RBA Governor Michele Bullock said last month that lowering inflation from around 5.5% to below 3% will take time. It's mostly due to local demand. Markets expect the RBA to cut rates only by late 2024.

 

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Japanese Yen Strengthens Amid Inflation Progress

Solid ECN – The Japanese yen has recently seen an uptick, reaching approximately 142.2 against the dollar. This boost is largely due to comments made by Kazuo Ueda, the Governor of the Bank of Japan, hinting at improvements in inflation. Ueda expressed that Japan’s economy is slowly but surely moving away from a low-inflation state and inching towards the price stability target. However, he also noted that the chances of this happening are not yet high enough.

Ueda further stated that if the positive feedback loop between wages and prices strengthens and the likelihood of sustainably achieving the 2% inflation target increases enough, the board may contemplate altering its monetary policy. Earlier in the month, the BOJ decided to stick with its ultra-accommodative monetary policy and refrained from making any statements about potential adjustments towards policy normalization in the coming year.

In terms of economic data, Japan’s unemployment rate for November remained steady at 2.5%, which was in line with market predictions.​

 

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Iron Ore Prices Hit 18-Month High in Tianjin

At the end of December, iron ore prices soared past $140 per tonne in Tianjin. This is the highest in 18 months. Prices are expected to end the year 20% higher. This surge is driven by strong demand for industrial metals. Chinese government support has been a key factor since reopening from pandemic lockdowns. A notable move was in August when China suspended its annual steel production cap. This boosted the demand for iron ore. The People's Bank of China (PBoC) introduced several stimulus and monetary easing policies. These efforts are in line with Beijing's commitment to boost infrastructure and manufacturing in 2024. This price hike in iron ore comes even as China faces reduced property demand and lower construction activities due to major developer defaults.​

 

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WTI Crude Nears $75 Amid Global Trade Concerns​

WTI crude futures experienced a rise, approaching $75 per barrel on Tuesday. This increase builds on a 2.5% gain from the previous week. However, it's important to note that trading volumes might be lower than usual due to the ongoing holiday season in some markets. Investors are keeping a close eye on the Middle East, particularly after recent Houthi attacks on ships, which have caused disruptions in global trade. In response to these events, Denmark's Maersk announced on Sunday its plans to restart operations in the Red Sea and the Gulf of Aden. This decision comes as a multinational maritime task force is being set up to safeguard commercial vessels in these regions.

In another development, OPEC countries swiftly reassured their commitment to their output policy. This move followed Angola's departure from the group last Friday, which was primarily due to disagreements over production quotas. On the demand front, there are increasing signs that US inflation is easing. This trend is fueling expectations that the Federal Reserve will begin reducing interest rates next year. Such a move is likely to support global economic growth and, consequently, boost demand for energy.​

 

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Yen Dips as BOJ Ponders Stimulus Exit

Solid ECN – The value of the Japanese yen fell to 142.5 against the US dollar. This happened when the Bank of Japan's meeting summary revealed discussions. They discussed when to end their extensive stimulus program. While some board members aren't in a hurry to act. One member believes the bank has enough room to assess if a positive wage-inflation cycle is in place. BOJ Governor Kazuo Ueda recently said Japan's economy may soon overcome low inflation. He said it may also reach its price stability goal. Yet, he believes this chance is still not very high. Ueda said if wages and prices get better and hitting the 2% inflation goal looks possible, the board may change its money policy.​

 

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UK Gilt Yield Dips Below 3.5% Amid Rate Cuts​

The yield on the UK's 10-year Gilt has taken a further dip, now falling below 3.5% - a low not seen since early April. This drop is fueled by growing optimism about potential rate cuts in 2024 by both the Federal Reserve and the Bank of England. Recent figures show a decrease in inflation pressures and a slower economic growth, coupled with the increasing possibility of a UK recession.

These factors are leading central banks to slow down on rate hikes. As a result, investors are anticipating significant rate cuts next year – about 150 basis points by the Fed and 140 by the BOE, even as UK policymakers remain cautious.​

 

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NZX 50’s Remarkable Climb: A Four-Month High​

Solid ECN –The NZX 50, New Zealand’s benchmark index, experienced a significant surge, gaining 90.25 points or 0.77% to close at 11,768.68 last Thursday. This marked the fourth consecutive session of growth, pushing the index to its highest point in over four months. This upward trend was observed amidst a relatively calm trading environment as the holiday season approached, with most sectors witnessing gains.

The positive sentiment was largely driven by the recent global stock market rally, with expectations of interest rate cuts in 2024 by major central banks, including the US Federal Reserve. Additionally, there is growing optimism that the Reserve Bank of New Zealand (RBNZ), known for its hawkish stance, might adopt a more dovish approach in the coming year. This could potentially involve a significant rate cut aimed at stimulating the sluggish economy, a move that could occur earlier than the central bank’s late 2025 projection.

In China, New Zealand’s primary trading partner, the two largest cities, Beijing and Shanghai, have recently lowered downpayment ratios and relaxed some housing qualifications for lower mortgages. This move has had a positive impact on the NZX 50.

Among the companies listed on the NZX 50, Restaurant Brands NZ saw a substantial increase of 5.3%, while Seeka Ltd. rose by 3.7%. Other notable performers included Delegat Group Ltd., Gentrack Group Ltd., and Winton Land Ltd., which gained 3.2%, 2.6%, and 1.9% respectively.​

 

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US Stock Futures Analysis: Steady End to Strong Year​

Solid ECN – US stock futures remained stable on Thursday, as investors reflected on a year marked by robust gains in equities. The previous trading day saw the Dow increase by 0.3%, while the Nasdaq Composite rose slightly by 0.16%. The S&P 500 also saw a modest gain of 0.14%, approaching record levels. In this upward trend, eight out of the 11 S&P sectors closed higher, with real estate, healthcare, and consumer staples leading the charge.

The market's upward momentum is largely driven by the anticipation that the Federal Reserve will reduce interest rates next year. Bit Digital, an American bitcoin mining company, experienced an 18.6% surge in its shares. This followed its announcement to double its mining operations by 2024. Coherus BioSciences also enjoyed a significant 23.4% jump in its stock value after receiving US FDA approval for its new drug delivery device to fight infections.

Looking forward, both the Dow and S&P 500 are set to conclude the year with substantial gains, over 13% and 24% respectively. Meanwhile, the Nasdaq Composite has impressively rallied by 44.3% this year. This steady performance in US stock futures analysis reflects a year of consistent growth in the stock market.​

 

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Canadian Dollar Peaks on Inflation, BoC Outlook​

Solid ECN – The Canadian dollar rose past 1.33 against the USD in December, reaching its highest level since early August. This increase is due to ongoing high inflation in Canada, leading to expectations that the Bank of Canada might take a more aggressive approach in its monetary policy. In November, the main inflation rate was at 3.1%, higher than the expected 2.9%. The closely watched core rate, which removes certain items, was at 3.5%, also higher than predicted.

This data supports the central bank's concern about continuing high inflation, suggesting they might keep their strict monetary policy and possibly raise interest rates. This is different from the more cautious approach of the Federal Reserve, which helped the Canadian dollar gain value against the US dollar.

Early reports for November show that Canada's economy grew compared to the previous month. However, updated figures for October indicate the economy didn't grow much, which is in line with the Bank of Canada's predictions for the economy.​

 

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Russia Manufacturing Growth at Near 7-Year High​

Solid ECN – The S&P Global Russia Manufacturing PMI rose to 54.6 in December 2023, up from 53.8 in November. This increase marks the sector's quickest expansion since January 2017, driven by continued improvements in output and new order growth. The rate of job creation accelerated, reaching its highest point in three months. Additionally, backlogs of work decreased for the second consecutive month. Purchasing activity grew at a substantial rate, the second-strongest since August 2006.

In terms of pricing, input cost inflation slowed to a six-month low. This was due to increased supplier prices and unfavorable exchange rate movements. However, output cost inflation remained relatively stable and was among the weakest in the past six months. Finally, business sentiment weakened, falling to a three-month low.​

 

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Australia Commodity Prices Drop 10.7% in Dec 2023​

The Reserve Bank of Australia's Index of Commodity Prices dropped by 10.7 percent year-on-year in December 2023, easing from an upwardly revised 12.8 percent fall in the previous month. It was the tenth consecutive month of contraction but the softest pace since March, mainly due to lower thermal coal and liquid natural gas. The index decreased by 9.5 percent in Australian dollar terms.

On a monthly basis, commodity prices increased by 2.5 percent, decelerating from an upwardly revised 4.1% rise in the previous month, with sub-indices for base metals decreasing. However, sub-indices for non-rural increased, while remained unchanged for rural.​