US
As the curtains rose on the new year, the S&P 500 made an unsteady entrance, eking out a modest 0.20% gain on Friday. Yet, the week's end marked a sobering moment, as the stock market faced its bleakest performance since late October. The equities benchmark, once sprinting along a nine-week bull run, stumbled out of the gate. The Nasdaq 100, too, managed a faint advance on Friday after enduring five days of successive losses. The initial days of this fledgling year ushered in a sell-off, casting a shadow over 2023's tech titans like Apple Inc. and Nvidia Corp.
In a striking turn of events, the US economy added a commendable 216,000 jobs in December, maintaining the unemployment rate at a steady 3.7%, as reported by the Bureau of Labor Statistics on Friday. This robust monthly surge vastly outpaced expectations set at a net gain of 160,000 jobs. It punctuated a year that showcased the labor market's resilience. Contrary to last year's projections, where the Federal Reserve's spirited fight against inflation through successive rate hikes forecasted mounting job losses and imminent recession, the job market's tenacity fueled consumer spending and overall economic growth. Despite cooling, the job market's momentum remained intact, even after enduring 11 Fed rate hikes that propelled the benchmark interest rate up by 5 percentage points in under two years. Friday's jobs report, a beacon amidst this economic labyrinth, signified a pivotal juncture, with the trajectory likely hinging on interest rates descending from their 22-year peaks.
Treasury Secretary Janet Yellen, in a Friday statement, painted a picture of the US economy achieving a graceful descent, with inflation tapering without triggering a pronounced economic downturn. In an interview on CNN, she labeled this phenomenon as a "soft landing," expressing hope for its continuity. Her sentiment acknowledged the diligent efforts of the American populace, emphasizing their daily contributions to the labor market and the inception of new businesses. President Biden's strategic incentives, aiming to empower Americans and fortify economic growth, also found mention in her reflection. Yellen's remarks coincided with the release of the unexpectedly robust December jobs report, amplifying the sentiment of a promising economic trajectory.
Mexico
The Mexican peso, after its stellar performance against the dollar last year, seems poised to lose some momentum in the coming months. A shift in the central bank's policy towards a less stringent approach might undercut the currency's allure, as indicated by a Reuters poll. Throughout 2023, the peso flexed its muscle against the dollar, marking its strongest showing in over three decades. Banxico, Mexico's central bank, enticed inflows by maintaining a multi-year high key rate of 11.25%, a move aimed at taming inflation. However, projections paint a picture of the peso sliding to around 18 per dollar by year-end, indicating a potential 5.4% decrease from its position around 17 on Wednesday. This anticipated depreciation, exceeding the consensus inflation forecast of 4.0%, suggests the currency might face pressure from narrower interest rate differentials alongside the typical adjustments linked to surging consumer prices.
Montserrat Aldave, a principal economist at Finamex, highlighted the foreseen easing of central banks in 2024, anticipating a decline in rate spreads between Mexico and the United States by 100-150 basis points. Currently, Banxico's 11.25% rate maintains a substantial margin over the Federal Reserve's range of 5.25%-5.50%, a differential that investors leverage through profitable "carry trade" maneuvers. However, signs point to Mexico's central bank contemplating a rate cut in the first quarter of 2024, as hinted by the bank's governor last month. Despite the annual inflation rate sitting at 4.32% in November, well below the 20-year record of 8.70% observed in August 2022, the coming period could herald a shift in monetary policy dynamics.
Meanwhile, Mexican President Andres Manuel Lopez Obrador has sought $20 billion from the United States to help combat illegal immigration. The U.S. has witnessed a significant surge in unauthorized border crossings, with November seeing 192,000 apprehensions, and the first three weeks of December adding 9,600 daily migrant encounters. States like Texas, Florida, and New York City have been at the forefront of this issue, redirecting and managing the influx. Obrador, in a Friday news conference, disclosed his appeal to U.S. authorities to allocate these funds, aiming for a cooperative strategy to assist other Latin American countries. This initiative seeks to address the record influx of migrants traveling through Central America and Mexico en route to the U.S.
Europe
The United Nations World Economic Situation and Prospects (WESP) 2024 report casts a cautious eye on Europe's economic revival in the upcoming year. Despite the outlook for mild recovery, the region faces a buffet of challenges like high-interest rates, stringent fiscal policies, and ongoing geopolitical tensions. Globally, the report forecasts a deceleration in economic growth, projecting a drop from 2.7% in 2023 to 2.4% in 2024, resting below the pre-pandemic growth rate of 3.0%. Europe's economic direction remains tethered to monetary adjustments, past rate hikes, and decreased liquidity affecting its tangible economic landscape.
Within the European Union (EU), the anticipated average growth of 1.2% in 2024 marks a modest stride from the 0.5% recorded in 2023. Yet, it falls far short of the pre-pandemic stride of around 2%. The recovery trajectory hinges on an uplift in consumer spending, a slowdown in inflation, escalating real wages, and robust labor markets. However, this resurgence is embraced with reserved enthusiasm as both consumer and business confidence linger at low levels while fiscal policies are expected to adopt a more constrictive tone.
Nevertheless, Europe grapples with persistent inflationary woes. In Germany and France, the leading economies within the EU, annual inflation in December climbed. The initial estimate of eurozone consumer price inflation for the last month corroborated this trend, surging to 2.9% from November's 2.4%. It's the first upswing in the annual inflation rate across the 20 countries using the euro since April 2023. The uptick, driven by escalating costs in food, alcohol, tobacco, and services, coupled with a less pronounced decline in energy prices year-over-year, might quell investor enthusiasm anticipating an imminent interest rate cut by the European Central Bank (ECB).
Shifting the focus to the UK housing market, Halifax reported a third consecutive month of price upsurge in December, spurred by a dearth of available properties. However, their forecast predicts a downturn this year despite the recent rate cut. Property prices experienced a 1.1% growth in December following rises of 0.6% in November and 1.2% in October. The average UK home now fetches around £287,105, approximately £3,000 more than in November. Yet, this growth is attributed not to heightened buyer demand but rather to the scarcity of available properties in the market.
Asia
In India, the Ministry of Statistics released its inaugural advance estimate, predicting the country's economy to expand by 7.3% in the 2023-24 fiscal year. This growth outpaces the provisional rate of 7.2% recorded in the previous financial year, placing India ahead among the globe's major economies. The nation's increase in state spending and a notable surge in manufacturing activities have contributed to this positive economic outlook. The government's strategic focus on enhancing infrastructure through increased state spending and investing in manufacturing has buoyed India's robust economic performance despite global uncertainties. S&P Global Ratings further underscores India's potential, foreseeing it as the fastest-growing major economy over the next three years.
In Japan, a magnitude 7.6 earthquake struck the western coast, causing disruptions and claiming at least 94 lives. Despite the grim aftermath, Japanese manufacturers swiftly resumed production after the New Year break. Approximately 80% of 200 companies with operations in the quake-affected zones, spanning from machinery to semiconductor and textile manufacturers, have either resumed production or are slated to do so shortly, as confirmed by Industry Minister Ken Saito. However, restoring the region's power supply remains uncertain, with around 24,000 structures in the hardest-hit Ishikawa prefecture still lacking electricity.
President Xi Jinping of China diverged from his customary New Year's Eve speech by addressing the country's economic challenges. In a marked departure from his previous New Year's messages, Xi acknowledged the struggles faced by Chinese businesses and job seekers. China grapples with a structural slowdown underscored by weakened demand, heightened unemployment, and a downturn in business confidence. Xi's televised speech marked a significant moment as he recognized the hardships faced by enterprises and individuals in finding employment and fulfilling basic needs. Emphasizing these concerns, he pledged to fortify the nation's economic recovery momentum, aiming to bolster confidence and stability in China's economic landscape.
[Disclaimer: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. Consult with a qualified financial professional before making any investment decisions.]
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