Riksbank and Banxico Cut Interest Rates, While Other Banks Hold Steady

At the end of Thursday, the Dow Jones Index (US30) was slightly up by 0.04%. The S&P 500 Index (US500) fell by 0.09%, while the Nasdaq Technology Index (US100) decreased by 0.47%. Stronger than expected economic reports from the US led to an increase in bond yields, reaching a six-month high, which put pressure on the stock indices.

Recent data showed that the US Q3 GDP was unexpectedly revised upward to 3.1% (quarter-over-quarter annualized), exceeding the initial expectation of 2.8%. Additionally, weekly initial jobless claims in the US fell by 22,000 to 220,000, indicating better labor market resilience than the anticipated figure of 230,000. Furthermore, US home sales for November increased by 4.8% month-over-month, hitting an eight-month high of 4.15 million, overshadowing expectations of 3.2% increase to 4.09 million.

As markets look ahead to Friday, attention is focused on key inflation data, specifically the PCE Core Price Index for November. This index, which is preferred by the Federal Reserve, is anticipated to rise to 2.9% year-over-year from 2.8% in October. Policymakers will be assessing whether ongoing interest rate cuts are feasible.

In Mexico, the peso trades above 20.3 per US dollar, near a one-month low. The Bank of Mexico (Banxico) recently cut its benchmark rate to 10% and indicated potential for further easing, depending on how quickly inflation declines.

In Europe, equity markets closed mostly lower on Thursday. Germany’s DAX (DE40) fell by 1.35%, France’s CAC 40 (FR40) declined by 1.22%, Spain’s IBEX 35 (ES35) dropped by 1.53%, and the UK’s FTSE 100 (UK100) saw a decrease of 1.14%. Notably, the GfK Consumer Confidence Index in Germany for January saw a slight improvement, increasing by 1.8 to minus 21.3, surpassing expectations.

The Bank of England (BoE) kept its key rate steady at 4.75%. Governor Bailey stated that the bank will likely maintain a gradual approach to future rate cuts, without indicating when those cuts might occur—potentially as late as 2025.

Norway's Norges Bank left its rate unchanged at 4.5% during its December meeting, aligning with market expectations. The bank has maintained this rate at a sixteen-year high since December 2023, aimed at cooling the economy and bringing down inflation. In Sweden, the Riksbank has cut its key rate by 25 basis points to 2.50%, marking the fifth such cut this year in response to a decline in inflation. Recent data indicated that core inflation in November was at 1.6%, which is below the central bank's target of 2% for four consecutive months.

In the commodities market, US natural gas prices surged to $3.5 per MMBtu, the highest in over a year, driven by increased demand for global LNG. The EIA data revealed significant withdrawals from storage for the second consecutive week, consistent with the expected seasonal trend. Concerns over Russian gas supplies to Europe have prompted a shift toward alternative gas sources.

Palladium prices have dipped below $900 an ounce, nearing their lowest point in four months due to decreasing industrial demand and tight monetary conditions influenced by the Fed.

Markets in Asia also faced downward pressure yesterday. Japan’s Nikkei 225 (JP225) fell by 0.69%, China's FTSE China A50 (CHA50) decreased by 0.41%, and Hong Kong’s Hang Seng (HK50) dropped by 0.56%. However, there was a rally in Chinese stocks on Friday following the People's Bank of China (PBoC) announcement that it would leave its one-year and five-year lending rates unchanged, aligning with market predictions.

Furthermore, Chinese officials have committed to adopting more active fiscal measures and modest monetary policy easing in the upcoming year to stimulate economic growth, signaling a departure from previous cautious strategies.

In Malaysia, annual inflation eased to 1.8% in November, down from 1.9% in the prior month, falling below market expectations of 2.1%. Core Consumer Prices, excluding volatile items, remained at a stable growth of 1.8% year-on-year, marking the slowest pace in six months.

Upcoming Economic Data

Several important economic indicators are set to be released, including Japan's National Core CPI, China’s PBoC Loan Prime Rate, UK Retail Sales, the US PCE Price Index, Canada's Retail Sales, and US Michigan Consumer Sentiment.

economy, inflation, interest