IC Markets Europe Fundamental Forecast | 27 November 2024
IC Markets Asia Fundamental Forecast | 27 November 2024
What happened in the Asia session?
During the Asian trading session, the Reserve Bank of New Zealand (RBNZ) announced a 50 basis point reduction in the Official Cash Rate (OCR), lowering it from 4.75% to 4.25%.
This decision aligns with the central bank’s objective to maintain low and stable inflation while avoiding economic instability.
Key Highlights:
RBNZ Monetary Policy Statement: The RBNZ indicated that further rate cuts are anticipated, though not as aggressive as some market predictions. The central bank forecasts the cash rate to decrease to 3.8% by the second quarter and 3.6% by the fourth quarter of 2025.
Inflation Data: Inflation in New Zealand slowed to 2.2% in the third quarter, within the RBNZ’s target range of 1% to 3%.
Market Reaction: Following the rate cut, the New Zealand dollar experienced a rise, and the two-year swap rate increased, as the market had anticipated a higher probability of a 75 basis point cut.
Bank Responses: Major banks, including BNZ, ASB Bank, and Kiwibank, responded to the OCR reduction by lowering their interest rates, and providing relief to borrowers.
What does it mean for the Europe & US sessions?
The RBNZ’s rate cut and dovish outlook could influence the Europe and U.S. sessions by reinforcing risk-off sentiment, supporting safe-haven currencies like the U.S. dollar and Swiss franc. NZD/USD may face pressure, especially if U.S. data like Preliminary GDP or Core PCE Price Index exceed expectations. While the euro and pound may not be directly impacted, broader risk trends could affect their movements. Lower borrowing costs in New Zealand might boost equities, while a stronger dollar could weigh on commodities. Traders will closely monitor U.S. economic data, which could amplify the RBNZ’s impact on global currency and asset flows.
The Dollar Index (DXY)
Key news events today
Prelim GDP q/q (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
Core PCE Price Index m/m (3:00 pm GMT)
What can we expect from DXY today?
The U.S. Dollar Index (DXY) may see volatility today due to key economic data releases. A stronger-than-expected Preliminary GDP would signal robust growth, likely boosting the dollar, while a weaker figure may pressure it.
Lower Unemployment Claims would support dollar strength, indicating a resilient labor market, whereas higher claims could weaken it.
The Core PCE Price Index, the Fed’s preferred inflation gauge, is crucial; a higher reading would reinforce rate hike expectations, strengthening the dollar, while a lower figure could signal potential rate cuts, softening the DXY.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to lower the Federal Funds Rate target range by 25 basis points to 4.50% to 4.75% on 7th November.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while labour market conditions have generally eased, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 17 to 18 December 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Prelim GDP q/q (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
Core PCE Price Index m/m (3:00 pm GMT)
What can we expect from Gold today?
Gold is set for volatility today, driven by key U.S. data releases. A stronger-than-expected Preliminary GDP could boost the dollar, pressuring gold, while weaker GDP may support gold prices.
Lower Unemployment Claims would signal a strong labor market, likely weighing on gold, whereas higher claims could boost gold as a safe-haven asset.
The Core PCE Price Index is crucial; a higher reading may strengthen the dollar, pressuring gold, while a lower figure could support gold. Geopolitical tensions and sentiment will also play a role in influencing gold’s movement today.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
CPI y/y (12:30 am GMT)
What can we expect from AUD today?
Australia’s Consumer Price Index (CPI) rose by 2.1% year-over-year in September 2024, below the forecast of 2.4%, marking the lowest inflation rate since July 2021. The decline was influenced by government rebates and easing energy prices. However, trimmed mean inflation, a key metric for the Reserve Bank of Australia (RBA), remains elevated at 3.5%, signaling persistent underlying inflation pressures. This discrepancy suggests the RBA will likely maintain its restrictive monetary policies, delaying rate cuts until at least mid-2025. The CPI’s drop within the 2-3% target range aligns with economic stabilization but highlights ongoing inflationary challenges.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 5th November, marking the eighth consecutive pause.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but the forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.
- Headline inflation was 2.8% over the year to the September quarter, down from 3.8% over the year to the June quarter; this was as expected due to declines in fuel and electricity prices in the September quarter.
- However, this decline reflects a temporary cost of living relief; abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5% over the year to the September quarter and is still some way from the 2.5% midpoint of the inflation target.
- Growth in output has been weak as past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption.
- However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.
- A range of indicators suggest that labour market conditions remain tight, and while conditions have been easing gradually, some indicators have recently stabilised.
- Employment grew strongly over the three months to September, by an average of 0.4% per month but the unemployment rate was 4.1% in September, up from the trough of 3.5% in late 2022.
- While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high while the November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.
- This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
- Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and it will continue to rely upon the data and the evolving assessment of risks to guide its decisions.
- Next meeting is on 10 December 2024.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
Official Cash Rate (1:00 am GMT)
RBNZ Monetary Policy Statement (1:00 am GMT)
RBNZ Rate Statement (1:00 am GMT)
RBNZ Press Conference (2:00 am GMT)
What can we expect from NZD today?
The Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) by 50 basis points to 4.25%, marking the third rate cut in 4 months. This decision aligns with the RBNZ’s objective to maintain low, stable inflation and avoid unnecessary economic instability.
Key Highlights:
Monetary Policy Statement: The RBNZ indicated the possibility of further rate cuts, forecasting the OCR to decrease to 3.8% by Q2 2025 and 3.6% by Q4 2025.
Inflation and Economic Outlook: Inflation has slowed to 2.2% in Q3, within the RBNZ’s target range. Economic growth is projected to recover in 2025, though employment growth is expected to remain weak until mid-2025.
Market Reaction: The New Zealand dollar appreciated following the announcement, as markets had anticipated a more aggressive 75 basis point cut. Major banks, including ANZ, responded by lowering floating mortgage rates, providing relief to borrowers.
Central Bank Notes:
- The Monetary Policy Committee agreed to reduce the OCR by 50 basis points, bringing it down to 4.25% in November, as inflation aligns with the target range of 1 to 3%
- The Committee assesses that annual consumer price inflation has slowed to 2.2%, converging towards the 2% midpoint of the target range, reflecting the effects of restrictive monetary policy and easing global commodity prices.
- Economic activity in New Zealand remains subdued, with weak business investment and consumer spending. Employment growth has softened, and the labor market shows signs of slack, with filled jobs and advertised vacancies continuing to decline.
- The economy is operating below capacity, facilitating a transition to a low-inflation environment. Falling import prices have supported disinflationary pressures, contributing to a slowdown in inflationary expectations.
- High-frequency indicators point to modest growth in the near term, as constrained household budgets and cautious business sentiment limit economic momentum. The Committee anticipates further weakness in the labor market.
- The Committee confirmed that future OCR adjustments would depend on its evolving assessment of inflation, employment, and broader economic conditions.
- Next meeting is on 27 February 2025.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
JPY is expected to trade within 152.08 –154.24 today, influenced by key economic events. The U.S. Core PCE Price Index release could drive movements; a higher reading may strengthen the U.S. dollar, pushing USD/JPY higher, while a lower result could weaken it.
Speculation over the Bank of Japan’s potential hawkish shift may support the yen, exerting downward pressure on the pair. The Federal Reserve’s cautious approach to rate cuts supports dollar stability. Technical analysis suggests a possible bearish breakout toward 150, with the pair forming a risky wedge pattern. Traders should watch U.S. inflation data and BoJ policy cues.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 31st October, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 19 December 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The pair is trading around 1.0525 Today’s movement will be influenced by key U.S. influenced by key U.S. economic data today.
Strong Preliminary GDP or lower Unemployment Claims could strengthen the U.S. dollar, pressuring EUR/USD, while weaker GDP or higher claims may support the euro.
The Core PCE Price Index is critical; higher inflation could bolster the dollar, while a lower reading may support EUR/USD. Market sentiment and geopolitical factors will also play a role in driving the pair’s volatility.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 17th October to mark the second successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.40%, 3.65% and 3.25% respectively.
- The incoming information on inflation shows that the disinflationary process is well on track while the inflation outlook is also affected by recent downside surprises in indicators of economic activity.
- Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 December 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The pair is trading near 0.8868 is poised for potential volatility today due to key U.S. economic data. Strong Preliminary GDP or lower Unemployment Claims could strengthen the U.S. dollar, pushing USD/CHF higher. Conversely, weaker GDP or higher claims may support the Swiss franc. The Core PCE Price Index is critical; higher-than-expected inflation could bolster the dollar, while a lower reading may weaken the USD/CHF.
Geopolitical tensions and market sentiment will also play a role in influencing the pair’s movement
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the third consecutive meeting, going from 1.25% to 1.00% in September.
- Inflationary pressure has again decreased significantly compared to the previous quarter, reflecting the appreciation of the Swiss franc over the last three months.
- Inflation in the period since the last monetary policy assessment was lower than expected, standing at 1.1% in August compared to 1.4% in May.
- The new conditional inflation forecast is significantly lower than that of June: 1.2% for 2024, 0.6% for 2025 and 0.7% for 2026, based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon.
- Swiss GDP growth was solid in the second quarter of 2024 as momentum in the chemicals/pharmaceuticals industry was particularly strong.
- However, growth is likely to remain rather modest in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
- Next meeting is on 12 December 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
GBP/USD pair is trading near 1.2590, will be influenced by key U.S. data today. Strong Preliminary GDP or lower Unemployment Claims could strengthen the U.S. dollar, pressuring GBP/USD, while weaker GDP or higher claims may support the pound.
The Core PCE Price Index is critical; higher-than-expected inflation could bolster the dollar, pushing GBP/USD lower, while a weaker reading may support the pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to reduce the Bank Rate by 25 basis points, to 4.75% on 7th November 2024 – one member preferred to maintain the Bank rate at 5.0%.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024.
- Twelve-month CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison; services consumer price inflation has declined to 4.9%.
- CPI inflation is expected to increase to around 2.75% by the second half of 2025 as weakness in energy prices falls out of the annual comparison, revealing more clearly the continuing persistence of domestic inflationary pressures.
- The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report; this forecast is based on the second case where CPI inflation is projected to fall back to around the 2% target in the medium term as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages.
- GDP had grown by 0.5% in 2024 Q2, 0.2% weaker than had been expected in the August Report, and 0.1% weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2 – headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year.
- The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around 0.75% at their peak in a year’s time, relative to the August projections, while the Budget is provisionally expected to boost CPI inflation by just under 0.5% at the peak.
- Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August; the MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.
- Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate but monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- Next meeting is on 19 December 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CAD pair is trading near 1.4083. against the U.S. dollar, will be influenced by key U.S. data today. Strong Preliminary GDP or lower Unemployment Claims could strengthen the U.S. dollar, pushing USD/CAD higher, while weaker GDP or higher claims may support the CAD.
The Core PCE Price Index is critical; higher-than-expected inflation could bolster the dollar, pressuring USD/CAD upward, while a weaker reading may support the CAD. Geopolitical tensions and market sentiment will also play a role
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.75% while continuing its policy of balance sheet normalization on 23rd October; this marked the fourth consecutive meeting where rates were reduced.
- Canada’s economy grew at around 2% in the first half of the year and growth of 1.75% is expected in the second half; consumption has continued to grow but is declining on a per person basis while exports have been boosted by the opening of the Trans Mountain Expansion pipeline.
- Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 – as the economy strengthens, excess supply is gradually absorbed.
- The labour market remains soft with unemployment at 6.5% in September while wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.
- Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
- Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services while the drop in global oil prices has led to lower gasoline prices – these factors have all combined to bring inflation down.
- The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out; the upward pressure from shelter and other services gradually diminishes, and the downward pressure on inflation recedes as excess supply in the economy is absorbed.
- With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range.
- If the economy evolves broadly in line with the latest forecast, further reduction of the policy rate can be expected but the timing and pace of additional reductions in the policy rate will be guided by incoming information and assessment of its implications for the inflation outlook.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- Next meeting is on 11 December 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices are stable today, with Brent crude around $72.79 and WTI at $68.73. The Israel-Hezbollah ceasefire has reduced immediate geopolitical risks, supporting price stabilization. OPEC+ is deliberating on delaying a planned production increase due to weak global demand and higher non-OPEC+ output, which could affect future supply.
U.S. economic data, including Preliminary GDP and Core PCE Price Index, may influence oil prices; stronger growth or inflation could boost the U.S. dollar, pressuring oil prices. Prices are expected to remain range-bound unless significant geopolitical or supply-demand changes occur.
Next 24 Hours Bias
Medium Bearish
The post IC Markets Europe Fundamental Forecast | 27 November 2024 first appeared on IC Markets | Official Blog.
Leave a Reply