American Economic Exceptionalism
Market Analysis for Week Number 06 2024
DERBYSHIRE UK, Feb 05, 2024, Week 6. Welcome to Monday.
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United States: Economic Growth Expected to Slow in 2024
Economic Indicators: The Federal Reserve kept interest rates unchanged in January 2024, indicating rates will remain elevated until inflation moves closer to the 2% target. GDP growth is expected to slow from 2.8% in 2023 to 0.7% in 2024 according to J.P. Morgan forecasts. Inflation eased but remains high at 3.4% in December 2023. The labour market remains tight with the unemployment rate holding at 3.7%.
Monetary Policy: The Fed is projected to begin reducing rates in 2024 once inflation moves sustainably toward 2%, but the central bank will continue deciding on a meeting-by-meeting basis. Markets expect rate cuts to begin in the second half of 2024. The benchmark rate is forecasted to trend around 3.75% by 2025 according to Trading Economics models.
Geopolitical Landscape: Elevated geopolitical risks globally could impact economic growth and supply chains. Key situations to monitor include Russia's war in Ukraine, tensions between China and Taiwan, Iran's nuclear program, and conflict in the Middle East.
Technical Analysis: The US Dollar Index (DXY) rallied to 104 in February 2024, reaching the highest level in 7 weeks, as strong jobs data dampened expectations of imminent Fed rate cuts. The DXY is expected to trade around 104 by end of Q1 2024 and 106 by early 2025 according to forecasts. Price could find support around 103 and resistance around 105 in coming weeks.
Key Economic Events:
8 days until the - US Inflation Rate
10 days until the - US Retail Sales MoM
23 days until the - US Monthly GDP MoM
32 days until the - US Non-Farm Payrolls
32 days until the - US Unemployment Rate
44 days until the - US Interest Rate
Canada: Gradual Recovery Amid Persistent Headwinds
Economic Indicators: The Canadian economy is showing signs of slowing down as the impact of restrictive monetary policy aimed at taming inflation starts to take effect. GDP contracted in Q3 2023, marking the first decline since Q2 2021, while inflation remains stubbornly high at 3.4% as of December. However, some positive signals are emerging. Manufacturing PMI recovered to 48.3 in January from 45.4 in December. Unemployment held steady at 5.8% in December. The economy is expected to recover gradually in 2024, with GDP growth forecast at 0.5% by year end. Inflation is projected to ease to 2.7% by Q4 2024.
Monetary Policy: The Bank of Canada has kept its key overnight rate unchanged at 5% in January 2024, marking the 4th consecutive hold after a rapid tightening cycle in 2022-23. The central bank notes risks remain to the inflation outlook and further hikes may be warranted. Markets expect rates to remain elevated near 5% through early 2024 before easing begins around mid-year as growth slows and inflation pressures fade. The overnight rate is forecast to end 2024 at 4.5%.
Geopolitical Landscape: Trade negotiations between the UK and Canada were paused in January 2024 after eight unsuccessful rounds of talks. This could negatively impact trade flows between the two countries in the near term.
Technical Analysis: The USD/CAD pair recently bounced off support around 1.33 and has risen back toward resistance around 1.35. The Canadian dollar remains sensitive to oil price fluctuations, which have eased recently on supply outlook improvements. USD/CAD is expected to trade in a range between 1.33-1.35 over the coming weeks. The pair is forecast to end Q1 2024 around 1.35.
Key Economic Events:
4 days until the - CA Unemployment Rate
15 days until the - CA Inflation Rate
24 days until the - CAP Monthly GDP MoM
30 days until the - CA Interest Rate
Euro-Area: Cautiously Optimistic Outlook Amid Slowing Inflation and Growth Concerns
Economic Indicators: The European Central Bank (ECB) left interest rates unchanged at 4.5% during its first meeting of 2024, pledging to keep rates at restrictive levels as long as necessary to return inflation to the 2% target. The ECB remains concerned about persistent underlying price pressures and geopolitical uncertainties. The Euro Area economy stalled in Q4 2023, avoiding a technical recession following better than expected growth in some countries. However, the outlook for 2024 remains challenging amid high borrowing costs, softer demand, and a subdued manufacturing sector.
Monetary Policy: The ECB concluded its rapid rate-hiking cycle in September 2022 but has maintained a hawkish stance due to still-elevated inflation. Markets expect rates to remain around current levels through early 2024 before potential cuts later in the year. The ECB stresses keeping rates restrictive to firmly anchor inflation expectations.
Geopolitical Landscape: Key geopolitical risks facing the Euro Area economy include the Russia-Ukraine war, tensions over migration flows from Africa, and potential impacts on trade and supply chains from increased scrutiny on economic ties with China. However, the EU recently unlocked new financial aid for Ukraine and migration flows from Tunisia are declining.
Technical Analysis: The EUR/USD exchange rate has traded in a range between 1.05 and 1.10 over the past month. Inflation data and ECB policymaker commentary point to earlier than expected rate cuts, exerting downward pressure on the US Dollar. However, resilient US labor market data has lifted the greenback. The EUR/USD rate is expected to trade around 1.07 by end of Q1 2024 before potentially rising toward 1.10 later in the year if the Fed embarks on rate cuts.
Key Economic Events:
1 days until the - EA Retail Sales MoM
9 days until the - EA Monthly GDP MoM
17 days until the - EA Inflation Rate
25 days until the - EA Unemployment Rate
31 days until the - EA Interest Rate
United-Kingdom: Economic Outlook Remains Challenging Despite Some Positive Signs
Economic Indicators: The Bank of England kept interest rates unchanged at 5.25% in its February meeting, in line with expectations. Policymakers dropped references to further tightening and acknowledged more balanced risks for inflation, which is projected to temporarily fall to 2% in Q2 2024 before rising again. However, key indicators like wage growth and services inflation remain elevated. GDP contracted 0.1% in Q3 2023 and is expected to gradually pick up over the forecast period as the drag from higher interest rates wanes.
Monetary Policy: The BoE maintained its restrictive monetary policy stance but opened the door to potential rate cuts further ahead once inflation sustainably returns to target. Markets still expect some policy easing this year, though less than before. The central bank expects inflation to temporarily dip to 2% in Q2 2024 before increasing again, so any rate cuts are unlikely in the near-term.
Geopolitical Landscape: Key geopolitical risks facing the UK economy include ongoing post-Brexit tensions with the EU over Northern Ireland, UK relations with China, the Russia-Ukraine war, and instability in the Middle East. The UK is also seeking to strengthen defence ties with allies like Australia and New Zealand. Domestically, calls are growing from activist investors and others for BP to halt new oil and gas projects.
Technical Analysis: GBP/USD fell to an over one-month low of 1.2630, extending losses after the BoE meeting. The British Pound remains stuck in a range, with the BoE dropping tightening bias but still far from cutting rates. Bears see room for more downside towards 1.2499 support. Bulls look for a move back above 1.2784 to resume the uptrend. The FTSE 100 ended the week little changed while the 10-year Gilt yield spiked close to 3.9%.
Key Economic Events:
8 days until the - UK Unemployment Rate
9 days until the - UK Inflation Rate
10 days until the - UK Monthly GDP MoM
11 days until the - UK Retail Sales MoM
45 days until the - UK Interest Rate
Switzerland: Cautious Growth Ahead
Economic Indicators: The Swiss economy is expected to see weak growth in 2023 and 2024. GDP growth is forecast to be around 1% in 2023 and between 0.5-1% in 2024, according to the Swiss National Bank. Inflation has come down from peak levels but is expected to pick up again due to higher electricity prices, rents, and VAT. The central bank forecasts average annual inflation at 2.1% in 2023 and 1.9% in 2024.
Monetary Policy: The Swiss National Bank has kept interest rates unchanged at 1.75% in December 2023 after a series of hikes, noting that uncertainty remains high. Markets do not expect further rate hikes in the near term. The central bank stands ready to tighten policy further if needed to ensure price stability over the medium term.
Geopolitical Landscape: Risks from the conflict in the Middle East have increased, which could lead to higher oil prices and inflation. This may prompt further monetary policy tightening globally. However, no major geopolitical events are projected to directly impact Switzerland.
Technical Analysis: The USD/CHF currency pair stands at 0.8666 as of February 2, 2024. Sentiment is bullish, with the pair expected to trade around 0.87 by end of this quarter. The Swiss Franc faces downside risks from rising Treasury yields and a stronger dollar following upbeat US jobs data. Gold prices have also come under pressure.
Key Economic Events:
2 days until the - CH Unemployment Rate
8 days until the - CH Inflation Rate
24 days until the - CH Monthly GDP MoM
45 days until the - CH Interest Rate
Japan: Signs of Economic Renaissance
Economic Indicators: The Bank of Japan maintained its ultra-loose monetary policy in late 2023 even as inflation exceeded the 2% target for over a year. However, there are signs of economic improvement such as rising wages and robust exports. The BOJ slashed its 2024 CPI forecast to 2.4% from 2.8% while revising GDP growth higher to 1.2%. If these trends continue, the bank may normalise policy to support the economy while minimising disruptions.
Monetary Policy: Markets widely expect the BOJ to end negative interest rates in 2024 as Japan makes progress toward the 2% inflation goal. Any rate hikes would likely start small to support growth, but global shifts toward easing may complicate the timing. Still, Governor Ueda says confidence is increasing that projections can be achieved. The benchmark rate should trend higher to 0.10% by 2025.
Geopolitical Landscape: Japan faces some political uncertainty with growing internal LDP discord and scandals. However, Prime Minister Kishida should retain leadership through 2024 and win the general election, though he may refrain from calling an early vote. This political stability should support continued economic policy priorities like defence spending hikes.
Technical Analysis: The USDJPY rallied through early 2024 due to dollar strength and BOJ policy divergence, hitting near 149. But expectations for Fed cuts sparked a pullback toward 146. The pair may consolidate with support around 146 and resistance around 148 in coming weeks. Trading Economics forecasts USDJPY at 148.32 by quarter-end and 152.90 in a year.
Key Economic Events:
9 days until the - JP Monthly GDP MoM
21 days until the - JP Inflation Rate
24 days until the - JP Unemployment Rate
43 days until the - JP Interest Rate
Australia: Economic Growth Expected to Slow in 2024
Economic Indicators: The Reserve Bank of Australia maintained its benchmark interest rate at 4.35% in December, assessing the impact of previous hikes. Inflation is forecasted to be above the 2-3% target range in the near term, but expected to moderate over 2024. GDP growth is projected to slow from 2.1% in 2023 to 1.3% in 2024 due to weak global demand and lagged effects of policy tightening. The unemployment rate is forecasted to edge up to 4.2% by end-2024.
Monetary Policy: Markets expect two 25 bps rate cuts by the RBA in H2 2024 as inflationary pressures ease amid slowing growth. The RBA is likely to remain data-dependent, closely tracking inflation, labour market trends, and global developments. Further tightening cannot be ruled out if underlying inflation remains sticky.
Geopolitical Landscape: Key risks stem from a potential global recession, China's reopening and recovery, and rising geopolitical tensions involving major trading partners. However, strong population growth from immigration provides a buffer.
Technical Analysis: The AUD/USD dropped to a 2-month low of 0.65 in early February on strong US jobs data before recovering to 0.66. The pair is expected to trade in a range of 0.62 to 0.67 over the next 3-6 months. Upside is limited by slowing domestic growth and hawkish Fed policy. But downside is cushioned by China's reopening and Australia's resilient labour market.
Key Economic Events:
1 days until the - AU Interest Rate
10 days until the - AU Unemployment Rate
30 days until the - AU Monthly GDP MoM
79 days until the - AU Inflation Rate
New Zealand: Cautious Optimism Amid Global Uncertainty
Economic Indicators: The Reserve Bank of New Zealand recently kept interest rates unchanged at 5.5%, matching market expectations. While excess demand and cost pressures remain a concern, the RBNZ sees signs that monetary policy tightening is having an effect. GDP contracted 0.3% in Q3 2023, but is forecast to return to modest growth in 2024. Inflation has also started trending down, easing to 4.7% in Q4 2023. Unemployment ticked up to 3.9% but is still near historic lows.
Monetary Policy: Markets are pricing in a two-thirds chance of a 25 basis point rate cut by May 2024. However, the RBNZ maintains rates will need to stay restrictive for some time to ensure inflation returns sustainably to the 1-3% target range. Most analysts see the cash rate remaining at 5.5% through late 2024 before potentially declining.
Geopolitical Landscape: New Zealand faces external risks from global growth concerns, trade tensions between major economies, and financial stability shocks. Domestically, persistently high inflation or wage growth could force the RBNZ into further tightening, with implications for growth and household balance sheets.
Technical Analysis: After testing the 0.65 level in early February, the NZD/USD pulled back sharply on broad USD strength tied to upbeat US labour data. The pair may find near-term support around 0.60. However, the downtrend is likely to continue with the NZD/USD potentially declining to 0.58 over the next 12 months as the RBNZ maintains tight monetary policy while the Fed cuts rates. The Trading Economics forecast sees the pair at 0.60 by end of Q1 2024.
Key Economic Events:
1 days until the - NZ Unemployment Rate
23 days until the - NZ Interest Rate
44 days until the - NZ Monthly GDP MoM
71 days until the - NZ Inflation Rate
Gavin Pearson
Retail trader since 2008
Specialises in forex
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