Weekly Analysis By zForex Research Team

Commercial Content Analysts
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Weekly Analysis By zForex Research Team (23-27 December 2024)

Fed Signals, Inflation Data, and Global Trends Reshape Market Dynamics
The dollar index hit a two-year high of 108.5 on hawkish Fed signals but eased after core PCE prices rose just 0.1% in November, sparking hopes for disinflation.

The euro dropped to $1.0340 on weak Eurozone data, and the pound fell below $1.25 amid rising UK inflation. The yen rebounded slightly after Japan’s inflation data fueled hawkish BOJ expectations but stayed pressured by a strong dollar.

Gold fell to around $2,600, weighed down by the Fed’s hawkish stance and limited 2025 rate cuts, while silver dropped to $29 on weak industrial demand from China. Both metals remain up for the year on safe-haven demand and central bank purchases.

U.S. Treasury yields rose, with the 10-year yield hitting 4.50%, while the 2-year yield ended at 4.27% after an early-week surge.

S&P Global US Manufacturing PMI
The US Manufacturing PMI fell to 48.3 in December, marking the sixth consecutive contraction. Output dropped to its lowest since August 2009, excluding the pandemic slump, as new orders continued to decline. Inflationary pressures persisted due to rising raw material costs, while tariff concerns under the Trump administration added to uncertainty.

S&P Global US Services PMI
The Services PMI climbed to 58.5 in December, the strongest growth since October 2021. New orders rose at their fastest pace since March 2022, and employment grew for the first time since July. Cost growth slowed to its lowest in four and a half years, supported by weaker wage growth. Optimism surged on expectations of a business-friendly environment under the Trump administration.

U.S. Retail Sales (Nov)
Retail sales grew 0.7% in November, surpassing expectations of 0.5%. Gains were led by motor vehicles (+2.6%) and nonstore retailers (+1.8%), while declines were seen in miscellaneous retail (-3.5%) and food services (-0.4%). Excluding autos, food services, building materials, and gas, sales rose 0.4%, reflecting strong consumer spending during the holiday season.

UK CPI
UK inflation climbed to 2.6% in November, its highest in eight months, driven by higher recreation and housing costs. Services inflation held steady at 5%, and core CPI rose by 3.5% YoY. Monthly CPI growth slowed to 0.1%, matching forecasts, while core prices were flat.

EU CPI
Eurozone inflation edged up to 2.2% in November, below preliminary estimates of 2.3%. Energy prices declined at a slower pace (-2%), while service inflation eased to 3.9%. Core inflation remained stable at 2.7%, with the monthly CPI falling by 0.3%.

FED Interest Rate Decision
The Fed cut rates by 25bps to 4.25%-4.5%, its third cut this year. Projections for 2025 were revised to just 50bps in cuts, down from 100bps. GDP forecasts for 2024 and 2025 were raised, while inflation expectations for core PCE were increased to 2.8% in 2024.

BOJ Interest Rate Decision
The BoJ kept rates at 0.25%, citing uncertainties over wage growth and global policies. Inflation ranged between 2%-2.5%, with core CPI expected to rise gradually. Despite weak exports, private consumption and business spending supported economic recovery.

BOE Interest Rate Decision
The BoE maintained its benchmark rate at 4.75%, as inflation and wage growth increased risks of persistent inflation. Three MPC members supported a 25bps rate cut, citing weak demand. The Bank emphasized the need for a gradual approach to easing.

U.S. GDP Growth Rate
The US economy expanded by 3.1% in Q3, exceeding estimates. Consumer spending rose 3.7%, driven by goods consumption and services. Fixed investment grew by 2.1%, while government spending was revised up to 5.1%.

Initial Jobless Claims
Jobless claims fell to 220,000 in the first week of December, beating expectations of 230,000. Ongoing claims also declined to 1.874 million. The data alleviated concerns of labor market weakness, aligning with the Fed’s projections.

Core PCE Price Index
Core PCE prices rose 0.1% in November, marking the smallest increase since May. Year-over-year, core PCE grew 2.8%, while overall PCE inflation stood at 2.4%. Disposable personal income and consumption rose 0.2% and 0.3%, respectively.

Currencies
The dollar index reached a two-year high of 108.5 but eased slightly on disinflation hopes. Core PCE prices increased by 0.1%, raising expectations for more rate cuts in 2025. The euro fell to $1.0340, pressured by weak Eurozone data and political instability. The pound dipped below $1.25 as UK inflation rose to 2.6%, while the yen dropped to a five-month low after the BoJ left rates unchanged. The Australian dollar hit its lowest since October 2022 amid expectations of RBA rate cuts.

Commodities
Gold fell to $2,600 per ounce this week, weighed down by the Fed’s hawkish stance and weaker physical demand in India. Silver dropped to $29 per ounce, pressured by weak industrial demand and concerns over China’s looser monetary policy.

Equities
U.S. indices mostly closed the week lower. The S&P 500 finished the week down by approximately 1.5%, while the Dow Jones also dropped by 1.5%, marking its third consecutive week of losses. The Nasdaq ended the week with a modest gain.

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Dollar Index Rises as Rate Cut Expectations Drop (30 Dec - 03 Jan)

The Dollar Index rose slightly as 2025 rate cut expectations dropped to 35 basis points. EUR/USD fell on Lagarde’s dovish remarks, while GBP/USD declined due to BoE rate cut votes and weak Q3 GDP. The yen weakened as mixed data and BoJ caution on rate hikes outweighed higher Tokyo inflation.

Gold traded steadily amid light data and geopolitical calm, pressured by the Fed’s hawkish stance and limited 2025 rate cut outlook. Silver struggled due to China’s economic slowdown, solar sector overcapacity, and yuan devaluation risks.

Fixed Income: Last week, 2-year U.S. Treasury yields remained steady at 4.32%, while 10-year yields increased slightly to 4.58%.

Initial Jobless Claims

US initial jobless claims fell by 1,000 to 219,000 in mid-December, below expectations of 224,000, signaling a tight labor market. However, outstanding unemployment claims rose to 1.91 million, the highest in three years, indicating longer job search periods. The four-week moving average increased slightly to 226,000, with notable state-level increases in New Jersey and Tennessee.

U.K. GDP

The British economy stagnated in Q3 2024, with GDP growth revised to 0% from an initial 0.1%. Services showed no growth, while production fell 0.4%, driven by declines in energy supply. Construction grew by 0.7%, and business investment rose by 1.9%, but lower government spending and trade revisions contributed to overall weakness.

Durable Goods Orders (Nov)

US durable goods orders fell 1.1% in November to $285.1 billion, worse than the expected 0.4% drop. Transportation equipment led the decline, down 2.9%, while non-defense capital goods excluding aircraft, a business investment measure, rose 0.7%, the largest gain since August 2023.

New Home Sales (Nov)

US new home sales rose 5.9% in November to an annual rate of 664,000, beating expectations. Gains were led by the South and Midwest, while sales fell in the West and Northeast. The median home price stood at $402,600, with an inventory equivalent to 8.9 months of supply.

Currencies

The Dollar Index edged higher, supported by lowered expectations for 2025 rate cuts and US policy shifts under Trump. EUR/USD weakened after Lagarde’s dovish comments on service inflation. GBP/USD declined due to BoE rate cut votes and weak Q3 GDP. The yen fell on mixed BoJ signals, despite higher Tokyo inflation. USD/CAD rose as Canada’s GDP revision fueled speculation of further rate cuts. The yuan weakened following a large liquidity withdrawal by the People’s Bank of China amid a shift to a “moderately loose” monetary policy.

Commodities

Gold traded steadily, pressured by the Fed’s hawkish stance and limited 2025 rate cut expectations. Silver struggled due to China’s economic slowdown, solar sector issues, and yuan devaluation risks.

Equities

US stocks rebounded this week, with the Nasdaq up 2%, the S&P 500 gaining 1.5%, and the Dow Jones rising 1.1%. Apple and Nvidia led the rally, while Meta and Microsoft lagged with a 1% decline.

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Dollar Hits 2022 Highs as Growth Outlook Lifts Markets (06 - 10 Jan)

The dollar index rose to 109.4, its highest since October 2022, driven by strong U.S. growth expectations, elevated rates, and Trump’s pro-growth policies. The euro fell to $1.0220, weakened by Europe’s weak outlook and a dovish ECB, while the pound dropped on UK economic stagnation and BoE rate cut signals.

Gold ended the week positively, supported by strong Chinese manufacturing PMI data and weaker U.S. PMI figures, which increased demand for safe-haven assets. Silver also gained, following gold’s trend, as signs of growth in the Chinese economy offset weaker PMI data.

U.S. Treasury yields declined last week, with 10-year and 2-year yields pulling back. China’s 10-year bond yields also fell by approximately 7%, reflecting easing in global bond markets.

Initial Jobless Claims

For the week ending December 28, initial jobless claims fell by 9,000 to 211,000, the lowest since a seven-month low of 213,000. The four-week moving average dropped by 3,500 to 223,250.

Chicago PMI

The Chicago Business Barometer fell 3.3 points to 36.9 in December, marking its lowest since May 2024. Declines in New Orders and Production offset gains in Employment, Supplier Deliveries, and Order Backlogs. Prices Paid fell to the lowest since July 2024, while Inventories hit the lowest since October 2009.

SP Global Manufacturing PMI

The S&P Global U.S. Manufacturing PMI declined to 49.4 in December, marking the sixth consecutive contraction in factory activity. Output fell fastest in 18 months due to reduced demand and weaker export orders. Firms cut purchasing but increased hiring, while input cost pressures surged, leading to higher output prices.

China Manufacturing PMI

China’s Caixin Manufacturing PMI dropped to 50.5 in December from 51.5, reflecting slower growth in output and new orders. Foreign orders declined, employment fell, and business confidence reached a three-month low. Selling prices dipped while input costs rose modestly.

ISM Manufacturing PMI

The ISM Manufacturing PMI rose to 49.3 in December, indicating the slowest contraction since March. New Orders reached an 11-month high, while Production expanded for the first time in six months. Prices rose, reflecting persistent inflation concerns amid improved supplier deliveries.

Currencies

The dollar index hit 109.4, its highest since October 2022, driven by robust U.S. economic growth and expectations for elevated rates under Trump’s policies. The euro fell to $1.0220 amid weak European growth and a dovish ECB, while the pound dropped to $1.239 due to the BoE’s dovish stance and stagnant UK growth. The yen gained slightly, with BoJ minutes hinting at possible rate hikes, though concerns over yen weakness persist. The offshore yuan weakened despite PBoC support, pressured by abundant liquidity and a strong dollar.

Commodities

Gold rose 1.3% to $2,654 per ounce, driven by monetary easing, geopolitical tensions, and record central bank purchases. The outlook remains mixed as Fed caution on rate cuts weighs on demand, though central bank buying may sustain prices. Silver followed gold’s trend, supported by signs of economic growth despite weaker Chinese PMI data.

Equities

U.S. indices posted losses this week. The S&P 500 and Dow Jones fell 1.5%, while the Nasdaq dropped 2.5%, driven by a strong dollar and low trading volumes. Tech giants like Microsoft, Netflix, and Apple declined by 5%, while Starbucks and Uber gained 3% and 2%, respectively.

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Gold’s Best Week Since November as Dollar Gains Amid Fed and Trump Policy (13 - 17 Jan)

The US Dollar Index ended the week higher, bolstered by hawkish FOMC minutes and inflation data. Despite positive PMI data and inflation figures supporting a less aggressive ECB stance, the euro weakened against the stronger dollar. The pound also fell, pressured by rising yields and capital outflows linked to inflation and fiscal instability.

Gold had its best week since mid-November, despite hawkish Fed comments. Silver posted its second consecutive weekly gain, supported by positive developments in China.

U.S. 10-year yields hit a 9-month high of 4.72%, driven by inflation concerns, while 2-year yields remained steady. Chinese 10-year yields recovered slightly to 1.67% after the PBOC paused bond purchases.

German CPI

Germany’s inflation rose for the third month to 2.6% in December, up from 2.2% in November, exceeding forecasts of 2.4%. This marks an 11-month high, driven by faster price increases in services (4.1%) and food (2%), while energy prices declined at a slower pace (-1.7%). Monthly CPI rose 0.4%, beating expectations of 0.3%. EU-harmonized CPI increased by 2.8% annually and 0.7% monthly, both above forecasts.

U.S. Service PMI

The S&P Global US Services PMI for December was revised to 56.8 from 58.5, still above November’s 56.1, showing the fastest sector growth since March 2022. Improved client demand and accelerating new business drove growth, while inflation eased for the third month. Business confidence surged to an 18-month high, with optimism about the incoming administration.

Eurozone CPI

Euro Area inflation rose to 2.4% in December, the highest since July, driven by energy price increases (0.1%) and rising service inflation (4%). Germany and Spain saw inflation rise to 2.8%, while Italy’s slowed to 1.4%. Core inflation held steady at 2.7%, with the ECB expecting inflation to reach its 2% target by year-end.

U.S. Services PMI

ISM Services PMI rose to 54.1 in December, up from 52.1, exceeding expectations of 53.3, marking consistent sector expansion.

U.S. Services Prices

The ISM Services PMI Prices Index climbed to 64.4% in December, the highest since January 2024, signaling persistent inflation as prices rose for the 91st consecutive month.

U.S. JOLTS Job Openings

Job openings increased by 259,000 to 8.1 million in November, surpassing forecasts. Gains were seen in professional services, finance, and education, while information jobs declined. Quits fell by 218,000 to 3.1 million, with layoffs steady at 1.8 million.

U.S. ADP Employment Change

Private businesses added 122,000 jobs in December, the smallest increase in four months. The service sector led gains, particularly in healthcare, while manufacturing lost 11,000 jobs. Wage growth for job-stayers slowed to 4.6%, the lowest since July 2021.

Initial Jobless Claims

Initial claims fell by 10,000 to 201,000 for the week ending January 4, the lowest in 11 months. The 4-week moving average decreased to 213,000 while continuing claims rose slightly to 1.867 million.

U.S. Nonfarm Payroll

The US added 256,000 jobs in December, beating forecasts of 160,000. Gains were led by healthcare, government, and social assistance. Annual payroll growth slowed to 2.2 million jobs, below the 3 million increase in 2023.

U.S. Average Hourly Earnings

Average hourly earnings rose 0.3% to $35.69 in December, with annual growth at 3.9%, slightly below forecasts. Non-supervisory worker earnings remained flat at $30.62.

U.S. Unemployment Rate: The unemployment rate dropped to 4.1% in December from 4.2%, with 235,000 fewer unemployed individuals and 478,000 more employed.

Currencies

The Dollar Index rose after Fed minutes hinted at slower policy easing amid inflation concerns and Trump administration uncertainties. The euro weakened despite strong PMI data, while the pound fell due to UK inflation and fiscal instability. The yuan was stable after the PBOC paused bond purchases, citing market conditions. The Canadian dollar strengthened slightly but remains near 2016 lows amid trade concerns tied to Trump’s tariff plans and Trudeau’s resignation.

Commodities

Gold had its best week since mid-November, despite hawkish comments from Fed members and the FOMC meeting minutes. Meanwhile, silver closed the second consecutive week in the green, driven by positive news from China.

Equities

On the indices front, US indices ended the week lower. The S&P 500 declined by about 0.50%, while the Dow Jones lost around 0.2%. The worst performer, the Nasdaq, ended the week down by approximately 0.8%.

On the stocks front, Apple led the declines with a weekly drop of nearly 3.8%, while Tesla followed closely with a decrease of around 7%.

The most notable stocks that gained value last week were Meta, Nvidia, and Google. Meta rose by around 3%, while both Nvidia and Google increased by approximately 1.5%.