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Markets in holiday lull as Dollar holds firm
Markets see subdued activity in the final week of the year as investors weigh diverging economic signals, steady U.S. dollar strength, and global growth forecasts.
European markets to close early Tuesday and remain closed on New Year’s Day.
EUR/USD holds above 1.04; GBP/USD resists at 1.26; USD/JPY tests 158 amid policy debates.
Global markets entered the final trading week of the year with subdued activity, as thin volumes and holiday closures dominated. European markets will close early on Tuesday and remain shut for New Year’s Day, adding to the quiet tone.
In currency markets, the U.S. dollar maintained a steady footing, buoyed by rising Treasury yields. The greenback’s resilience underscores a broader divergence in monetary policies, with the Federal Reserve leading its global peers in hiking rates to combat inflation.
The Bank of England has trailed behind, lowering its key borrowing rate by just 50 basis points this year, compared to the 100-basis-point cuts delivered by the European Central Bank and the Fed. Even more aggressive easing was seen from the Bank of Canada and Swiss National Bank as they navigated inflation risks.
The euro hovered above $1.04, supported by stronger December inflation readings that dampened expectations of deep rate cuts from the ECB. Meanwhile, sterling faced selling pressure near $1.26, while the yen continued to battle resistance at 158 per dollar amid heightened policy debates in Japan.
Stocks: Mixed signals across regions
Last week ended on contrasting notes for equities. The S&P 500 fell more than 1% on Friday, capping a lackluster week for U.S. stocks, while Europe’s Stoxx 600 rose 0.67%.
Asian markets opened the week on a negative note. Japan’s Nikkei index and Australian equities declined, with trading volumes down 20% and 55%, respectively, according to Bloomberg data. Futures signal a weak start for European and U.S. markets, with low liquidity likely to amplify moves.
World Bank raises China outlook amid caution
China’s growth narrative took center stage after the World Bank revised its 2024 GDP growth forecast to 4.9%, up from a prior estimate of 4.8%. The 2025 outlook also saw an upgrade to 4.5%. However, the bank flagged persistent challenges, including slower household income growth and falling home prices, which could dampen consumption.
Japan’s manufacturing sector shows little positive
In Japan, December’s final PMI manufacturing reading improved to 49.6, edging closer to stabilization. Firms boosted hiring in anticipation of a demand recovery, though cost pressures remained elevated. Input costs rose at their fastest pace since August, driven by higher raw material and labor expenses, exacerbated by a weaker yen. To manage margins, manufacturers passed on higher costs to clients, leading to the sharpest output price increases in five months.
