🌍 Market Report.
🏦 The European Central Bank (ECB) has reaffirmed its commitment to reducing inflation by easing policy rates and predicting a 2% target. However, ECB chief Christine Lagarde’s cautious remarks on the “neutral rate” and high services inflation have been criticized. The bank’s growth forecasts for 2025 and 2026 were higher than a recent Reuters poll, suggesting overly optimistic economic outlook. Policymakers initially wanted a larger interest-rate cut due to concerns about U.S. tariffs.
🇺🇸 The US producer price index (PPI) increased by 0.4% in November, exceeding the expected 0.2% rise, indicating higher wholesale prices than last month. Services costs also rose by 0.2%, driven by a 0.8% increase in trade. The PPI data follows a higher CPI, raising concerns about the pace of disinflation. Markets anticipate the Federal Reserve to lower its key interest rate by 0.25 percentage points at its next meeting. First-time unemployment insurance claims reached 242,000, indicating potential layoff increases.
🇯🇵 Japan’s industrial production released early this morning came in lower than expected at 2.8% vs. 3%. However, it is up from 1.6% in the previous period.
🇬🇧 UK manufacturing output also weakens, contracting -0.6% this month against expectations for a 0.2% expansion. Likewise, GDP, which was expected at 0.1% has also contracted this month to -0.1%.
🛡️ European NATO members are discussing increasing their defense spending target from the current 2% of GDP to a higher level. Several NATO members, including Germany, have already pledged to increase defense spending in response to the war in Ukraine. However, some countries may face domestic political challenges in justifying higher defense budgets to their populations. ‘Ukraine will spend almost a quarter of its GDP on defence next year. That’s more than ten times what its European NATO allies spend,’ NATO’s Secretary General said yesterday. He forgot to mention that Ukraine’s GDP is tapped and that in reality, Ukraine spends vast amounts of other states’ money on contracts with US companies, an action that some US politicians have described as money laundering.
🇬🇧 British Prime Minister Keir Starmer is set to strengthen defense and security cooperation with the European Union at an informal EU leaders’ retreat in Brussels in February. This marks the first time a British PM has attended such an EU meeting since Brexit. The UK is considering common weapon procurement and joint military exercises as part of this potential defense pact. Additionally, the UK is considering access to the €1.5 billion European Defence Investment Program.
📉 Market View:
📊 US markets continue to move sideways, holding near record highs, but failing to move higher. Yesterday’s US PPI data could indicate that inflation remains persistent, dampening expectations of Fed stimulus. Mini S&P 500 futures remain at 6,068 points at the moment, less than 50 points off all-time highs. The Nasdaq 100 reached a new high yesterday at 21,800 points, but has retreated slightly since then.
💵 The dollar index seems to be unwinding its bearish figure and has climbed to 107 points, breached earlier this morning. Consequently, the EUR/USD also abandons its bullish patterns and falls below the 1.05 level, currently trading at 1.0460. US bonds seem to resume the upward trend in yields since last week, reflecting lower confidence in a possible rate cut by the Fed.
🇪🇺 In Europe, markets remain strong but also show no significant gains. The DAX 40 is within a few points of its all-time highs reached on Monday, currently trading at 20,420 points. On the other hand, the EuroStoxx 50, which briefly managed to break above 5,000 points on Monday, is now trading at 4,965 points.
⛽ As anticipated in yesterday’s report, Brent crude oil peaked near $74 per barrel and has retreated over the past few hours, falling below $73.50 per barrel.
🥇 Gold prices fell more than 2.30% in yesterday’s session from Wednesday’s highs. This fall could be attributed to the PPI data reflecting inflationary pressures, the strengthening dollar and rising US bond yields.
💰 Finally, Bitcoin is slightly down and fails to consolidate above $100,000. However, its price continues to move within this zone, currently trading at $99.775.
🌐 Geopolitics:
🇫🇷 It is anticipated that French President Emmanuel Macron will choose a new prime minister this morning. The former head of government, Michel Barnier, had to learn the hard way that Marine Le Pen cannot be appeased, and his choice will have to internalise that lesson. According to behind-the-scenes reports, the leader of the far-right National Rally planned Barnier’s demise as a force demonstration against Macron.
📉 France’s economic outlook is deteriorating due to the government collapse and scrapping of its 2025 budget, which has damaged business confidence. The country is relying on untested emergency legislation and decrees, which only permit vital spending and unchanged taxation from January. This is a blow for Europe as it struggles to recover from high inflation, with Germany also facing an uncertain future. The ouster of Barnier makes it less likely that France will be able to repair its public finances, which were already derailed this year by poor tax revenues. The next government may need to reduce fiscal consolidation ambitions to gain support from lawmakers.
🇹🇷🇺🇸 U.S. Secretary of State Antony Blinken arrived in Turkey to discuss a critical aspect of establishing stability in Syria – the clashes in the north between U.S.-backed Kurdish forces and Turkey-backed rebels. The U.S. and Turkey have clashed over the Kurdish-led Syrian Democratic Forces (SDF), which the U.S. sees as a key ally against ISIS but Turkey views as an extension of the Kurdistan Workers’ Party (PKK), which it considers a terrorist group. This week, Turkish-backed forces seized the northern city of Manbij from the U.S.-backed SDF, which then withdrew east of the Euphrates River. A Turkish defense official said the advance aimed to “clear terrorism.”
