Market Today

2024-12-26

Review of December Monetary Policies in the World’s Six Largest Economies

Since the second half of the year, major global economies have faced varying degrees of inflationary pressure, geopolitical uncertainties, and slowing economic growth. Central banks worldwide have responded by adjusting their monetary policies. Below are the highlights and future outlooks of monetary policy decisions from the six largest economies in December: United States The Federal Reserve (Fed) lowered the federal funds rate by 25 basis points (bps) to a target range of 4.25%-4.50% in its December meeting, aligning with market expectations. In its statement, the Fed maintained the narrative from its September rate cuts but introduced the terms "extent and timing" regarding future rate reductions. This signals a slower pace of easing in 2024, with decisions likely dependent on economic data. Economic forecasts were revised upward, with GDP growth projections for 2024 and 2025 raised to 2.5% (previously 2.0%) and 2.1% (previously 2.0%), respectively. However, the Fed also raised its core inflation forecasts for 2024-2026, citing persistent inflationary pressures and uncertainties stemming from policies introduced by former President Trump. Core inflation is now expected at 2.8% (previously 2.6%) in 2024, 2.5% (previously 2.2%) in 2025, and 2.2% (previously 2.0%) in 2026, with inflation returning to the 2% target only by 2027. The Fed’s dot plot indicates that interest rates will decrease to 3.75%-4.0% in 2025 (previously 3.25%-3.5%), with a further reduction to 3.25%-3.5% in 2026 (previously 2.75%-3.0%). The long-term neutral rate was also revised downward to 3.0%-3.25%. These projections align with market expectations for narrower rate cuts next year. Additionally, the Fed adjusted the overnight reverse repo rate to the lower bound of the federal funds rate, signaling a faster depletion of excess market liquidity. Discussions about ending balance sheet reduction are expected to intensify by Q1 2025. Read more at Datatrack China The People’s Bank of China (PBOC) maintained the 7-day reverse repo rate at 1.5% in December, with the one-year and five-year loan prime rates (LPR) unchanged at 3.1% and 3.6%, respectively, meeting market expectations. Despite the introduction of fiscal policies in May and a comprehensive easing package in September, including cuts to the reserve requirement ratio (RRR), interest rates, and mortgage rates, the impact on consumer and business confidence has been limited. Domestic demand and investment have shown little improvement, with deflationary risks persisting. In response to sluggish demand, the government announced at the annual Central Economic Work Conference that it will adopt more proactive fiscal policies in 2025, raising the fiscal deficit ratio (expected to increase by 1 percentage point to 4%). The government also indicated a shift to "moderately loose" monetary policy, hinting at larger RRR and interest rate cuts next year. Specific policy details remain unclear and are expected to be disclosed during the National People's Congress in March when the 2025 economic growth target is unveiled. Read more at Datatrack Japan The Bank of Japan (BoJ) kept its benchmark interest rate (overnight unsecured rate) unchanged at 0.25% in December. The central bank reiterated its view of moderate economic growth, supported by improved corporate profits, consumer confidence, and steady consumption. Inflation driven by import prices is expected to ease, while a virtuous cycle of wage and consumption growth should lead to moderate inflation increases. The decision to hold rates reflects uncertainties in wage and inflation growth as well as global economic and price outlooks. However, dissent emerged within the BoJ, with one member advocating for a 50-bps rate hike, citing heightened inflation risks, highlighting internal divisions on the inflation outlook. At the press conference, BoJ Governor Kazuo Ueda stated that the central bank would wait for more data on domestic wage growth before considering a rate hike. Ueda noted that clarity on wage trends is unlikely until after spring wage negotiations in March-April, dampening expectations for a January rate hike. Read more at Datatrack Euro Area The European Central Bank (ECB) lowered its deposit facility rate, main refinancing rate, and marginal lending rate by 25 bps to 3.0%, 3.15%, and 3.4%, respectively, in December, aligning with market expectations. The ECB highlighted stronger-than-expected Q3 growth driven by consumer recovery, tourism from the Summer Olympics, and inventory restocking. However, manufacturing weakness, slowing services growth, and increased competition in certain industries have curbed investment and exports. Facing these challenges, the ECB downgraded its GDP growth forecasts for 2024-2026 to 0.7% (previously 0.8%), 1.1% (previously 1.6%), and 1.3% (previously 1.4%). The central bank also removed the phrase "keeping policy rates restrictive" from its statement, signaling potential further easing if growth weakens further. Read more at Datatrack Canada The Bank of Canada (BoC) cut its policy rate by 50 bps to 3.25% in December, marking a cumulative reduction of 175 bps this year, the largest among major central banks. While rate cuts have supported consumer spending and housing activity, business investment, inventories, and exports remain sluggish. Economic growth for Q3 fell below expectations, with a weak outlook for Q4. Additionally, potential tariffs under Trump’s administration heighten economic uncertainty for 2024. Despite these challenges, the BoC emphasized a cautious approach to future rate cuts, suggesting a slower pace of easing next year. Read more at Datatrack Australia The Reserve Bank of Australia (RBA) maintained its cash target rate at 3.25% in December, one of the few central banks to hold rates steady this year. The RBA noted mixed economic activity, with Q3 GDP growth at just 0.8%, the slowest pace since 1990 (excluding the COVID-19 period). However, the RBA expressed confidence in inflation easing, signaling that a rate cut may be imminent. Markets expect the RBA to initiate rate cuts as early as February 2024. Read more at Datatrack Summary In December, global central banks demonstrated cautious approaches to economic outlooks and policy adjustments. The Fed slowed its pace of rate cuts while raising inflation and growth forecasts, reflecting concerns over core inflation and policy uncertainty. China maintained monetary stability amid weak domestic demand and deflationary risks, signaling more aggressive fiscal and monetary measures ahead. The BoJ held rates steady amid internal divisions and wage growth uncertainties. The ECB cut rates and hinted at further easing amid slowing growth. The BoC continued its easing cycle but suggested a slower pace for future cuts, while the RBA held rates steady, with markets anticipating a rate cut next year.

By TrendForce

2024-12-25

Beijing and Shanghai Retail Sales Tumble in November, Easing Policies Fail to Boost Demand

China's November retail sales indicate a sharp decline in consumer demand in Beijing and Shanghai, underscoring the challenges of boosting domestic consumption despite recent easing measures. China's overall retail sales grew by 3.0% year-on-year in November, a deceleration of 1.8 percentage points from the previous month, according to National Bureau of Statistics of China (NBS). However, the first-tier cities of Beijing and Shanghai experienced even steeper declines. Retail sales in Beijing fell by 14.1% year-on-year (prior: +0.7%), while Shanghai saw a similar drop of 13.5% (prior: +10.9%). While part of the decline can be attributed to the pull-forward effect of consumption during the "Double 11" shopping festival, which boosted October’s figures, the November slowdown remains pronounced, even when compared to September, revealing a broader trend of weakening consumer activity. In addition to the dampening effect on consumer confidence caused by the weak real estate market, some economic experts have pointed out that the withdrawal of foreign capital has also impacted consumption momentum in first-tier cities. With many senior executives from foreign companies concentrated in Beijing and Shanghai, the departure of this high-spending demographic has inevitably had a significant impact on overall local consumption demand. The mobility of the younger population may also play a crucial role. During periods of stable economic growth, younger demographics tend to exhibit higher consumption capacity than older age groups. However, as economic growth slows and job opportunities in first-tier cities diminish, some younger individuals are opting to leave these cities in search of opportunities elsewhere, further exacerbating the downward pressure on consumption. Despite the introduction of a series of easing policies since September, domestic demand has yet to show substantial improvement, raising concerns about China's ability to achieve its 5% GDP growth target for the year. In response to mounting economic pressures, the Chinese government pledged at the recent Central Economic Work Conference and Politburo meeting to adopt more proactive fiscal policies and moderately accommodative monetary policies in the coming year. While specific measures and their scale have yet to be announced, Reuters reports suggest that the government may issue RMB 3 trillion in special sovereign bonds next year to stimulate domestic demand, support corporate equipment upgrades, and provide funding for investments. Read more at Datatrack

By TrendForce

2024-12-24

U.S. Consumer Confidence Halts Three-Month Uptrend in December Amid Tariff Concerns

The U.S. Conference Board consumer confidence halted its three-month uptrend due to uncertainties surrounding President Trump’s policies, According to the Conference Board on December 23. The Consumer Confidence Index (CCI) for December stood at 104.7, a decline of 8.1 points from the previous month and significantly below market expectations of 112.9. The Present Situation Index, which measures current business conditions and the labor market, edged slightly lower to 140.2 (prior: 141.4). Meanwhile, the Expectations Index, reflecting short-term outlooks, fell sharply to 81.1 (prior: 93.7). The report indicated that although consumers showed optimism regarding recent and future labor market conditions, their expectations for business conditions and income growth deteriorated significantly. This decline largely reflects concerns that Trump’s future tariff policies could raise living costs. Written responses from consumers showed that mentions of "politics" and "tariffs" increased in December compared to November. Notably, 46% of consumers anticipated that tariff policies would increase their living costs, while 21% believed the policies could create more jobs in the U.S. In terms of household spending plans, despite the Federal Reserve initiating a rate-cut cycle in September, the 30-year fixed mortgage rate remains near a 20-year high. As a result, plans to purchase homes declined slightly in December. However, car-buying plans continued to increase, driven by recent dealer discounts, tariff concerns, and the elimination of electric vehicle subsidies, which boosted automotive demand. Read more at Datatrack Separately, the University of Michigan’s Consumer Sentiment Index showed confidence rising for the fifth consecutive month, though the increase was attributed to strong present situation data, while the expectations component declined. The survey revealed that consumers widely expect living costs to rise, with one-year inflation expectations climbing from 2.6% in November to 2.8% in December. Additionally, a growing proportion of consumers indicated they would purchase durable goods now to avoid future price increases driven by tariff policies. From a partisan perspective, Republican supporters remained optimistic about future prospects, while confidence among Democrats further deteriorated. Neutral respondents showed expectations for personal finances and business conditions remained unchanged from the previous month. Read more at Datatrack Overall, December’s consumer confidence data highlights the pressures stemming from policy uncertainty, particularly concerns about tariffs potentially raising future living costs. While some consumers have accelerated durable goods purchases to hedge against anticipated price increases, this behavior could dampen durable goods consumption next year and further constrain business investment spending.

By TrendForce

2024-12-23

Key Focus This Week: U.S. New Home Sales & China Industrial Profit

Last week, the Federal Reserve's hawkish rate cut led to noticeable declines across U.S. equity sectors, with the S&P 500 index falling 2%, closing at 5930.85 points. In the bond market, the 10-year U.S. Treasury yield climbed back to approximately 4.53%, reflecting a narrower rate-cut trajectory. Simultaneously, the U.S. Dollar Index surged, nearing the 108 threshold, supported by rising Treasury yields. Key Economic Data from Last Week U.S. Federal Reserve Rate Decision: The Federal Reserve announced a 25-basis-point rate cut, lowering the target range to 4.25%–4.5%. The accompanying statement introduced the phrase "extent and timing" of future rate cuts, signaling a slower pace of monetary easing. In its latest Summary of Economic Projections, the Federal Reserve revised upward its U.S. GDP growth forecasts for this year and next, reflecting the robust performance of recent economic data. The GDP growth projection for 2024 was raised to 2.5% (prior: 2.0%), while the 2025 forecast was increased to 2.1% (prior: 2.0%). However, the slow decline in core services inflation and uncertainties stemming from Trump-era tariff policies prompted the Federal Reserve to revise its core inflation projections for 2024–2026 upward. Core inflation is now expected to reach 2.8% (prior: 2.6%) in 2024, 2.5% (prior: 2.2%) in 2025, and 2.2% (prior: 2.0%) in 2026, with inflation projected to return to the 2% target range by 2027. The latest Dot Plot indicates that the policy rate for 2025 is projected to decrease by 50 basis points to a range of 3.75%–4.00% (prior: 3.25%–3.50%), while the rate for 2026 is expected to be further reduced by 50 basis points to 3.25%–3.50% (prior: 2.75%–3.00%). Additionally, the long-term neutral rate has been lowered by 25 basis points, now falling within a range of 3.00%–3.25% (prior: 2.75%–3.00%). The overall rate path has narrowed by 50 basis points compared to the September projection, reflecting the anticipated decline in core inflation and uncertainties associated with Trump-era policies. This adjustment highlights a more hawkish stance by the Federal Reserve, aiming to preemptively temper market expectations for future rate cuts. Read more at Datatrack Japan Rate Decision: The Bank of Japan (BOJ) decided to keep its interest rate unchanged at 0.25% during its December meeting. The BOJ stated that domestic wage growth and uncertainties surrounding the outlook for the global economy were the primary reasons for maintaining the current rate. BOJ Governor Kazuo Ueda noted that the central bank aims to gather more information on domestic wage growth before considering the next rate hike. Additionally, policies under the next U.S. president, Donald Trump, were also highlighted as a factor in the BOJ’s deliberations. Governor Ueda further explained that the trajectory of wage growth would likely become clearer after the preliminary negotiations during the "Shunto" spring wage discussions in March and April. Consequently, markets have adjusted their expectations, now anticipating the BOJ's next rate hike to occur after March. Read more at Datatrack U.S. Retail Sales: U.S. retail sales in November increased by 3.8% year-over-year (prior: 2.9%) and 0.7% month-over-month (prior: 0.5%), both exceeding market expectations of 3.6% and 0.6%, respectively. The growth in retail sales was primarily driven by a 6.5% increase in automotive-related sales (prior: 3.7%) and a 9.8% surge in online store sales (prior: 6.9%). Excluding automobiles and gasoline stations, core retail sales rose by 3.9% year-over-year (prior: 3.8%) and 0.2% month-over-month (unchanged from the prior figure). Further excluding food services and building materials, the control group core retail sales grew by 4.3% year-over-year (prior: 3.7%) and 0.4% month-over-month (prior:-0.1%), indicating that overall consumer spending remains resilient. Read more at Datatrack Key Economic Data for This Week U.S. Conference Board Consumer Confidence Index (12/23): The U.S. Consumer Confidence Index rose to 111.7 in November (prior: 109.6), marking the second consecutive month of improvement, driven by better assessments of current labor market conditions and future expectations. The market anticipates the index will further increase to 112.9 in December. Read more at Datatrack U.S. New Home Sales (12/24): New home sales in October fell short of market expectations, impacted by hurricane disruptions. As these short-term effects subside, the market expects U.S. new home sales to rebound to 666,000 units in November (prior: 610,000 units). Read more at Datatrack China Industrial Profits (12/27): Weakened domestic demand dragged cumulative industrial profit growth in China down to -4.3% year-over-year in October. The Producer Price Index (PPI), reflecting corporate pricing, showed no significant improvement, with November PPI declining by 2.5% year-over-year, a 0.4 percentage point drop from the prior month. The market expects cumulative industrial profit growth in November to decline further. Read more at Datatrack Japan Tokyo Core CPI（12/27）：With the gradual phase-out of energy subsidy policies starting in November, electricity and city gas prices are expected to drive further increases in energy-related costs. The market forecasts Tokyo's core CPI to rise to 2.5% year-over-year in December (prior: 2.2%). Read more at Datatrack

By TrendForce

2024-12-20

Japan's Core Inflation Rises in November, Setting the Stage for the BoJ's Next Rate Hike

Japan's November Consumer Price Index (CPI) data revealed a sharp rise in core inflation as energy subsidies were gradually phased out, paving the way for the Bank of Japan's (BoJ) next rate hike. Japan's CPI rose 2.9% year-on-year in November, an increase of 0.6 percentage points from the previous month, according to Japan's Ministry of Internal Affairs and Communications on December 20, This increase was primarily driven by former Prime Minister Fumio Kishida's decision to gradually phase out energy subsidies starting in November. This policy shift resulted in higher electricity and gas prices, pushing overall energy prices up by 6.0% year-on-year (compared to 2.3% in the prior month). Excluding fresh food, core CPI rose 2.7% year-on-year, up 0.4 percentage points from the previous month. Meanwhile, double-core CPI, which excludes both fresh food and energy, increased by 2.4% year-on-year, up 0.1 percentage points. This marks the fourth consecutive monthly increase since it fell below 2% in July, indicating sustained upward pressure on inflation. Read more at Datatrack Yesterday, the BoJ voted 8-1 to maintain its policy rate at 0.25%. According to the BoJ's statement, the decision to hold rates steady was primarily due to high uncertainty surrounding Japan's economic activity and price trends, particularly regarding the global economic outlook and domestic wage and price developments. Read more at Datatrack BoJ Governor Kazuo Ueda stated that the central bank aims to see more data on domestic wage growth before proceeding with another rate hike. Additionally, he highlighted the ongoing uncertainty in the oversea economic outlook, especially concerning U.S. policies under incoming President Donald Trump. Ueda further added that trends in overall wage growth are unlikely to become clear until after the initial results of the spring wage negotiations (Shunto) in March and April. His dovish remarks have dampened market expectations for a BoJ rate hike in January, with most now anticipating the next hike to occur in March or later. The yen also depreciated further on December 19, breaking below the 157 level. Overall, the recent rise in inflation is likely in line with the BoJ's expectations for price trends. This may provide the central bank with greater confidence to implement its next rate hike in the coming months, once more clarity is gained on domestic wage growth and U.S. policy developments.

By TrendForce

2024-12-19

Latest Fed Meeting Keys: Monetary Policy and Economic Impact

The Federal Reserve announced a 25 basis point rate cut during its monetary policy meeting on December 18, bringing the target range to 4.25%-4.50%. Additionally, the Fed narrowed its projected rate cuts for 2025 to just 50 basis points. While these outcomes aligned with market expectations, the Fed's hawkish pivot from a neutral stance caused significant declines in U.S. equity markets and Treasuries, while the U.S. dollar index surged. Read more at Datatrack Statement: Slower Pace of Rate Cuts Signaled, One Member Dissents In its statement, the Fed reaffirmed its views on "sustained economic expansion," a "cooling labor market," and "balanced dual risks between inflation and employment," consistent with its September stance of easing monetary policy constraints. However, the addition of the terms "timing and extent" in the language about "further rate adjustments" strongly suggests a slower pace of rate cuts going forward. The Fed also reaffirmed its commitment to reducing holdings of Treasury securities, agency debt, and mortgage-backed securities to achieve its dual mandate of maximum employment and inflation returning to the 2% target. Unlike November, when all members supported the 25 basis point cut, this meeting saw one dissenting vote from Cleveland Fed President Beth M. Hammack, reflecting diverging views amid growing economic uncertainties. Economic Projections: Upward Revisions to GDP and Inflation, Narrowed Rate Cuts in 2025 The Fed's Summary of Economic Projections (SEP) raised growth forecasts for 2024 and 2025 to 2.5% (previously 2.0%) and 2.1% (previously 2.0%), reflecting stronger-than-expected recent economic performance. Concurrently, unemployment rate projections for 2024-2027 were slightly lowered to a range of 4.2%-4.3% (previously 4.2%-4.4%), reflecting diminished downside risks in the labor market. Inflation forecasts were also adjusted upward, with core inflation now expected to decline more gradually. The Fed raised its projections for core inflation to 2.8% (from 2.6%) in 2024, 2.5% (from 2.2%) in 2025, and 2.2% (from 2.0%) in 2026, with the 2% target only anticipated to be reached by 2027. (Source: Fed) Market attention was particularly drawn to the Fed's revised rate path. The median dot plot now projects a reduction in rates to 3.75%-4.00% in 2025 (previously 3.25%-3.50%), with a further cut to 3.25%-3.50% in 2026 (previously 2.75%-3.00%). The long-term neutral rate was lowered by 25 basis points to 3.00%-3.25% (previously 2.75%-3.00%), indicating a more gradual pace of rate normalization compared to September. (Source: Fed) Overall, the Fed's latest rate decision and projections reveal a hawkish shift compared to November's neutral stance. The return of Donald Trump as president and Republican control of Congress have also introduced new fiscal policy uncertainties, which appear to have influenced the Fed's economic outlook and policy direction. According to FedWatch data, market expectations for rate cuts next year have narrowed to just one 25 basis point reduction. The heightened uncertainty caused U.S. equities to plunge by 2%-4%, with the 10-year Treasury yield climbing to approximately 4.52%. Meanwhile, the U.S. dollar index surged above 108, reflecting increased market doubts about the pace of rate cuts in 2024. (Source: CME FedWatch Tool) Post-Meeting Press Conference Q&A Highlights Q: Why officials think it’s appropriate to cut rates at all in 2025 if inflation is expected to remain firm throughout the year. And what would you expect at this point the timing might look like? A: Today’s decision was a closer call, but we believe it is the right call to support maximum employment and price stability. The Fed continues to balance two-sided risks, with downside risks to the labor market now reduced. Moreover, inflation’s decline does not require further labor market cooling. Inflation has made significant progress; while current inflation appears flat due to low base effects, housing services inflation is steadily decreasing. The slower pace of rate cuts projected for 2025 primarily reflects higher inflation expectations and increased uncertainty for next year. However, actual rate cuts will depend on incoming data. Further rate reductions will hinge on the progress of inflation improvements and the continued strength of the labor market. Economic Growth Q: Even though you’ve cut rates by a hundred basis points this year, we haven’t seen much change in mortgages, auto loan rates, or credit card rates. You say you’re significantly restrictive. Are you running a risk that the markets are fighting against you and the economy could be more at risk of a slowdown than you anticipate? A: The rates that you talked about are really longer-run rates, and they’re affected—they are affected to some extent by Fed policy but they’re also affected by many other things. And longer rates have actually gone up quite a bit since September, as you well know, and those are the things that drive, for example, mortgage rates more than short-term rates do. Most forecasters have been calling for a slowdown in growth for a very long time, and it keeps not happening. The U.S. economy is just performing very, very well, substantially better than our global peer group, and there’s no reason to think a downturn is any more likely than it usually is. So the outlook is pretty bright for our economy. Trump Policies Q: Is the current situation similar to the dynamic in 2016 during the last transition to a Trump administration, where the committee saw slightly tighter policy in part in expected anticipation of the fiscal policy stance that was seen evolving over the year. Some of it was a data mark-to-market exercise and some of it was the anticipation of fiscal. What’s the split on this one? How much of this was accounting for inflation data that was coming in and how much of it is expecting that there will be inflationary fiscal policy next year? A: The slower pace of rate cuts next year can be attributed to several factors. 1)Stronger-than-expected economic growth 2)Reduced downside risks and uncertainty in the labor market 3) Higher inflation expectations for next year. 4)Greater caution as rates approach the neutral level. Some officials have already factored the potential impact of new fiscal policies into their projections during this meeting. Policy uncertainty remains a key contributor to inflation uncertainty. When future paths become less clear, slowing down is a prudent approach. Q: In September 2018 the Fed staff in the teal book discussed a policy of looking through any new tariffs as long as there were one-time increases and inflation expectations remained anchored. Could you comment on if that analysis remains effective, and any other thinking on tariffs generally that you can share? A: The teal book’s simulations provide a good starting point, outlining two scenarios: one that ignores and one that incorporates tariff impacts on inflation. However, this is currently not a question the Fed can fully address because many uncertainties remain, such as which products will be tariffed, for how long, the scale of tariffs, and whether there will be retaliatory measures. For now, the Fed’s focus is on carefully evaluating and contemplating these issues, but it is too early to provide definitive answers. Comparison of the December and November FOMC Statements Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee 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. In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 4-1/2 to 4-3/4 percent. In considering the extent and timing of additional 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. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against the action was Beth M. Hammack, who preferred to maintain the target range for the federal funds rate at 4-1/2 to 4-3/4 percent. ▶ Read More Fed FOMC Minutes Fed’s Reverse Repo Shrinks Significantly: Is Market Liquidity at Risk? Trump Policy Quick Guide: How Will It Impact the U.S. Economy?

By TrendForce

2024-12-18

U.S. November Retail Sales Beat Expectations, Market Delays Fed Rate Cut Expectations Again

The U.S. retail sales exceeded market expectations in November, demonstrating the resilience of U.S. consumer spending. This has led the market to further postpone its expectations for the Federal Reserve (Fed) to lower interest rates next year. The U.S retail sales grew by 3.8% year-on-year (prior: 2.9%) and 0.7% month-on-month (prior 0.5%) in November, according to U.S. Census Bureau on December 17, both outperforming market forecasts of 3.6% and 0.6%, respectively. Among 13 major retail categories, seven showed growth, with the increase primarily driven by automotive-related sales and e-commerce: Automotive-related sales: Up 6.5% year-on-year (previously 3.7%) and 2.6% month-on-month (previously 1.8%). This reflects promotional discounts from car dealerships that spurred purchases. Additionally, vehicle damage caused by October's hurricanes and concerns about potential tariffs under Trump’s policies may have further boosted sales. E-commerce sales: Up 9.8% year-on-year (previously 6.9%) and 1.8% month-on-month (previously 0.1%). This growth was largely driven by Thanksgiving and Black Friday promotions. However, it may also indicate that some consumers, constrained by limited purchasing power, shifted toward discounted goods. This aligns with a decline in food services and bar sales, which fell 0.4% month-on-month (previously up 0.9%). Excluding automotive and gasoline station sales, core retail sales grew 3.9% year-on-year (previously 3.8%) and 0.2% month-on-month (unchanged). Further excluding food services and building materials, control group core retail sales increased 4.3% year-on-year (previously 3.7%) and 0.4% month-on-month (previously down 0.1%). Read more at Datatrack Overall, while e-commerce and dining-out data may suggest weakening spending capacity, particularly among lower-income groups, consumer spending as a whole remains resilient. It continues to provide strong support for fourth-quarter GDP growth. The latest forecast from the Atlanta Fed projects U.S. real GDP growth of 3.1% in Q4, up 0.3 percentage points from Q3. Later today, the Federal Reserve is set to announce its final rate decision and Summary of Economic Projections for the year. While strong consumer growth persists, downside risks in the labor market remain. The market expects the Fed to cut rates by 25 basis points in December but anticipates a slower pace of rate cuts in 2025. According to FedWatch, the Fed is now expected to cut rates by 25 basis points in March and October 2025 (previously March and June). (Fed Rate Cut Expection in 2025, Source: CME FedWatch Tool)

By TrendForce

2024-12-17

China's November Financial Institution Loan Growth Hits Lowest Pace in Nearly 23 Years

China financial institution loans growth fell to its lowest level in nearly 23 years in November, highlighting the limited impact of stimulus measures introduced since September and the continued weakness in consumer and business confidence. Read more at Datatrack In term of monetary supply, broad money (M2) grew 7.1% year-on-year in November, down 0.4 percentage points from the prior period. Meanwhile, narrow money (M1) contracted 3.7%, though it improved by 2.4 percentage points, marking the second consecutive month of recovery. The M1-M2 gap narrowed further to -10.8%, suggesting slight improvement in financing demand from consumers and businesses, though overall demand remains insufficient. Read more at Datatrack Since September, the Chinese government has implemented a series of stimulus measures, including "trade-in" programs to boost automobile and home appliance consumption, as well as strengthened support for high-tech manufacturing. However, the latest monthly economic data suggest that domestic demand recovery remains limited. On the consumption front, retail sales grew 3.0% year-on-year in November (down from 4.8% previously), falling well short of the 5% market expectation. Sales of non-essential goods, such as apparel, jewelry, and cosmetics, remained weak. While the sharp decline in growth was partially attributed to the "Double 11" shopping festival being brought forward to October, the growth rate still underperformed September’s 3.2%. Read more at Datatrack In terms of investment and production, fixed asset investment grew 3.3% cumulatively (down from 3.4%). Manufacturing investment remained stable at 9.3% year-to-date, supported by government policies targeting high-tech sectors. Industrial production maintained growth at 5.4%. However, the property sector showed no significant improvement, with cumulative real estate investment contracting by 10.4%, a 0.1 percentage point decline from the previous period. Infrastructure investment also slipped by 0.1 percentage points to 4.2%. Read more at Datatrack Overall, November's financial and economic data reaffirm that China’s stimulus measures since September have struggled to boost market confidence and consumption demand effectively. Sluggish loan growth, weak retail sales, and decelerating investment underscore the limited transmission of policies to the real economy, with domestic demand recovery remaining fragile. In light of insufficient domestic demand and weakened confidence, the Chinese government may need to further expand monetary easing and adopt more proactive fiscal measures. This includes ensuring more effective capital flows into the real economy, stimulating domestic demand, and providing stronger support for economic growth in 2025.

By TrendForce

2024-12-16

China's Retail Sales Weaken Unexpectedly in November, Prompting Urgent Policy Stimulus

China's retail sales in November showed an unexpected slowdown, with growth falling significantly short of market expectations, highlighting the pressing need for the Chinese government to strengthen measures aimed at boosting consumption. China's retail sales grew by 3.0% year-on-year in November, a decline of 1.6 percentage points from the previous month, according to data released by the National Bureau of Statistics (NBS) on December 16, falling well below market expectations of 5.0%. The slower growth primarily reflects declines in the sales of non-essential goods, including apparel, jewelry, beverages, and tobacco. Among these, cosmetics sales saw a sharp contraction, with annual growth plummeting to -26.4% from 40.1% in the prior period. In contrast, automobiles (6.6%) and household appliances (22.2%), supported by the "trade-in" policy, continued to grow. Excluding automobile sales, retail sales of other consumer goods grew by only 2.5%, down 2.4 percentage points from the prior month, indicating that consumer spending and confidence have not broadly recovered despite stimulus measures. Read more at Datatrack In terms of industrial production, China's industrial output grew by 5.4% year-on-year in November, slightly exceeding the previous month and market expectations of 5.3%, reflecting continued support for high-tech manufacturing. However, the growth in industrial production outpaced retail sales, highlighting persistent domestic oversupply issues. Read more at Datatrack In recent years, China has typically relied on exports to alleviate oversupply and drive economic growth. However, with Donald Trump set to assume the U.S. presidency, the export-driven growth model—accounting for 20–30% of GDP growth—may face challenges, necessitating a faster pivot toward domestic consumption as the primary growth driver. Last week, the Central Economic Work Conference revealed significant adjustments to China's economic priorities for the coming year. For the first time, consumer demand was elevated to the top priority among the nine key tasks (previously ranked second for the past two years). In monetary policy, the government reintroduced terms like "moderate easing" the first such language since 2014 and pledged to "adjust reserve requirement ratios and interest rates at appropriate times". Fiscal policy is also set to become more proactive, with explicit mentions of "raising the deficit ratio" and "moderately increasing central budgetary investment." While these announcements reflect the government's determination to improve economic growth and domestic demand in 2024, the communiqué lacked specifics on the scale and implementation of these measures, leading to a muted market reaction.

By TrendForce