Economy

Few major catalysts are expected to drive market sentiment, with trading volumes expected to be light in the final days of the year, raising the prospect of choppy trading.Stock markets will shut at 1:00 p.m. ET on Tuesday and will be closed for Christmas on Wednesday.At 05:15 a.m., Dow E-minis were up 12 points, or 0.03% and S&P 500 E-minis were up 7 points, or 0.12%, and Nasdaq 100 E-minis were up 38.25 points, or 0.18%.After a stellar run to record highs following an election that sparked hopes of pro-business policies under U.S. President-elect Donald Trump, Wall Street’s rally hit a bump this month as investors grappled with the prospect of higher interest rates.The U.S. Federal Reserve eased borrowing costs for the third time this year last Wednesday, but signaled only two more 25-basis-point reductions in 2025, down from its September projection of four cuts, as policymakers weigh the possibility of Trump’s policies stoking inflation.Traders expect the Fed to leave rates in the range of 4% to 4.25% by the end of 2025, from between 3.75% and 4% about 10 days ago, according to CME’s FedWatch tool.Markets are currently in a historically strong period called the “Santa Clause rally”. The S&P 500 on average has gained 1.3% in the last five days of December and first two days of January, according to data from the Stock Trader’s Almanac going back to 1969.However, market participants are questioning if U.S. stocks’ climb to new record highs will materialize in the coming days, amid concerns about the health of the market under the surface and sky-high valuations.The benchmark S&P 500 fell about 1% in December but the equal-weight S&P 500, a proxy for the average index stock, is down 5.8%.”Expensive/unprofitable growth stocks and low-quality cyclicals appear to be the most vulnerable to potentially higher-for-longer interest rates and less liquidity,” Michael Wilson, equity strategist at Morgan Stanley (NYSE:MS), said in a note.The S&P 500 and the Nasdaq notched two consecutive sessions of gains on Monday, helped by gains in a handful of megacap and growth companies.Among individual stocks, U.S. Steel fell 2.3% in premarket trading as Nippon Steel’s $15-billion bid for the company has been referred to U.S. President Joe Biden, who has long opposed the tie-up. More

LONDON (Reuters) -European shares edged up on Tuesday, though moves were subdued in a holiday-curtailed week, while the U.S. dollar held near a two-year high helped by elevated U.S. Treasury yields as investors bet on fewer Federal Reserve rate cuts in 2025.The pan-European STOXX 600 index was up 0.3%. Britain’s FTSE 100 and France’s CAC 40 were both up 0.5%. German stocks were closed for the Christmas holiday. In Asia, Chinese stocks rose after sources told Reuters that Beijing planned to issue a record amount of special treasury bonds next year as it ramps up fiscal stimulus to revive a faltering economy.The CSI300 blue-chip index and Shanghai Composite Index both ended 1.3% higher. Hong Kong’s Hang Seng Index advanced 1.1%.The news came shortly after China’s finance ministry said authorities would ramp up fiscal support for consumption next year by raising pensions and medical insurance subsidies for residents as well as expanding consumer goods trade-ins.Still, investors remain cautious on the outlook for the world’s second-largest economy, particularly as it faces the threat of hefty tariffs from U.S. President-elect Donald Trump.”China faces significant challenges entering 2025. The ongoing real estate crisis has shattered consumer confidence while a potential trade war with the United States could trigger the worst growth slowdown in decades,” said Ronald Temple, chief market strategist at Lazard (NYSE:LAZ).”Investor expectations have been raised and dashed more than once in China in recent years, and 2025 may prove to be no different. China’s economic and market outlook might largely depend on the speed and magnitude of government reforms.”Elsewhere, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, tracking Wall Street’s Monday gain.FED FOCUSAfter a recent run of central bank decisions, this week is much quieter, leaving the rates theme the main driver of market moves.”Meagre news and data flow should keep the focus on a more hawkish Fed,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. Markets are now pricing in about 35 basis points of easing for 2025, implying one quarter-point rate cut and around a 40% chance of a second. The two-year Treasury yield, which is sensitive to changes in Fed rate expectations, last stood at 4.3427%, while the benchmark 10-year yield steadied near a seven-month high at 4.5967%. [US/]”Like markets, the Fed will need to consider U.S. policies on tariffs and immigration in its inflation and growth outlook. We believe the subtle slowing in the U.S. labor market will still be the Fed’s paramount concern,” said analysts at Citi Wealth.”While always uncertain, our base case expectation for a 3.75% policy rate is unchanged. It’s a far cry from the 1.7% U.S. policy rate average of the past 20 years.” Earlier this month, the Fed cut its main interest rate for third time this cycle, taking the Fed funds rate to 4.25%-4.5%. Ahead of Trump’s return to the White House in January, global central banks have urged caution over their rate paths due to uncertainty on how his planned tariffs, lower taxes and immigration curbs might affect policy.Data on Monday showed U.S. consumer confidence unexpectedly weakened in December as the post-election euphoria fizzled and concerns about future business conditions emerged.In currencies, the dollar index held near a two-year high at 108.19, having climbed more than 2% in December so far. The euro eased 0.1% to $1.0391, while the yen languished near last week’s five-month low at 157.08 per dollar.Japan’s Finance Minister Katsunobu Kato on Tuesday reiterated Tokyo’s discomfort with excessive foreign exchange moves and put speculators on notice that authorities are ready to act to stabilise a faltering yen.Spot gold was little changed at $2,613 per ounce, having risen about 27% this year, heading for its biggest yearly gain since 2010. Oil prices edged higher, with Brent crude futures rising 0.6% to $73.08 a barrel, while U.S. crude gained 0.6% to $69.67 per barrel. [O/R] More

This plan of a significant increase from the 1 trillion yuan issued in 2024 highlights Beijing’s push for stronger fiscal stimulus to support an economy facing headwinds.The move comes as Chinese officials brace for the potential impact of higher U.S. tariffs under Donald Trump’s incoming administration. The funds raised will focus on stimulating consumption through subsidy programs, supporting business equipment upgrades, and driving innovation in advanced industries, the report said.Following the announcement, yields on China’s 10-Year and China 30-Year treasury bonds edged up by 1.7 and 2.1 basis points, respectively.The planned special treasury bond issuance in 2025 would mark the largest on record and underlines Beijing’s readiness to go even deeper into debt to counter deflationary pressures and maintain economic momentum.”The issuance ‘exceeded market expectations,” noted Tommy Xie, head of Asia Macro (BCBA:BMAm) research at OCBC Bank. He added that since the central government is best positioned to take on additional debt, such measures are viewed positively and are expected to provide further economic support.China typically reserves special treasury bonds for targeted policy objectives, bypassing standard budget plans. These instruments are considered a tool for extraordinary circumstances, allowing the government to secure funding for specific projects.Out of the total issuance planned for 2025, approximately 1.3 trillion yuan will be allocated to finance “two major” and “two new” initiatives, the sources told Reuters.The “new” programs include subsidies for consumers to replace old cars and appliances, as well as incentives for businesses to upgrade large-scale equipment. The “major” projects will focus on infrastructure development, such as building railways, airports, and farmland, while also strengthening national security capabilities.According to the report, a significant portion of China’s planned 3 trillion yuan special treasury bond issuance for next year will be directed toward investments in “new productive forces,” a term used by Beijing to describe advanced manufacturing sectors like electric vehicles, robotics, semiconductors, and green energy.One of the sources reportedly indicated that over 1 trillion yuan will be allocated to this initiative. The remaining funds will be used to recapitalize major state-owned banks, which are grappling with narrowing margins, declining profits, and rising levels of bad debt.The planned bond issuance for 2025 represents approximately 2.4% of China’s 2023 gross domestic product (GDP). For comparison, Beijing raised 1.55 trillion yuan in special bonds in 2007, equivalent to 5.7% of the country’s economic output at the time. More

Japan is neighbours with an increasingly assertive China and a nuclear-armed North Korea that has been deepening military ties with Russia. “I think it’s important to strengthen the U.S.-Japan alliance even further… and share a common understanding of the situation in north-east Asia,” he said at a press conference, adding that no dates for a potential meeting were set yet. Ishiba, in office since October, has sought a meeting with Trump, but told reporters last month that the president-elect’s camp had said meetings with world leaders were restricted under the Logan Act before Trump’s January inauguration.Trump has met with Akie Abe, the widow of the late Japanese Prime Minister Shinzo Abe. Ishiba also said his cabinet plans to approve on Dec. 27 a draft state budget for the next fiscal year from April.He also pledged to work on measures to raise minimum wages and to eliminate public concerns for the future to boost private consumption. More

The budget plan is based on expected economic growth of between 2.3% and 3.3% and inflation of 0.7% to 1.7% in 2026, it said in a medium-term fiscal plan, which was approved by the cabinet on Tuesday. The 2026 fiscal year starts on Oct. 1, 2025.The plan projects a public debt-to-GDP ratio of 67.3% at the end of the 2026 fiscal year, up from 65.6% at the end of the 2025 year.The 2026 budget plan would increase spending by 0.7% from the 3.75 trillion baht planned for the 2025 fiscal year, when spending is set to rise from 2024, according to the statement.The deficit would fall by 1% from the 870 billion baht planned for 2025.”The fiscal target of the fiscal plan still requires a deficit budget to maintain economic stability and focus on reducing the deficit to an appropriate level in the medium term,” the government said.It will meet to discuss the 2026 budget plan on Jan. 3, a Budget Bureau official told reporters.($1 = 34.15 baht) More

The main focus of the markets as we approach 2025 will be the path of interest rate cuts by the Federal Reserve, after the central bank policymakers detailed forecasts to cut rates by 50 basis points in 2025, bringing the target range for the funds rate down from 4.25%-4.50% to 3.75%-4.00%, citing concerns about inflation remaining above target.Core PCE inflation, a key measure for the Fed, is projected to reach 2.5% by early 2025 if recent trends persist, above the central bank’s 2% target.However, BCA Research expects the Federal Reserve to cut interest rates by more than 50 basis points in 2025, projecting that inflation will undershoot the Fed’s targets, while unemployment is set to rise above its forecasts.”If monthly core PCE inflation prints at its 3-month average, the 12-month rate will hit 2.5% by March. If monthly core PCE inflation prints at its 6-month average, the 12-month rate will hit 2.5% by February,” the report notes. This suggests inflation could align with or fall below the Fed’s forecast sooner than anticipated.BCA said that if three consecutive PCE inflation prints average 0.2% or lower, the Fed could implement another 25 bps cut, potentially leading to total easing of up to 100 bps by the end of 2025.BCA also noted that the labor market is losing momentum. The unemployment rate has risen to 4.2%, up from its cycle low of 3.4%, and BCA questions the Fed’s 4.3% year-end forecast.”Hitting that level would require a significant improvement in labor market momentum, a trend shift we don’t view as particularly likely,” BCA noted.US stock futures traded largely unchanged in thin volumes Tuesday, with the market set to close early for the start of the Christmas festivities. By 03:55 ET (08:55 GMT), the Dow futures contract was down 35 points, or 0.1%, S&P 500 futures dropped 2 points, or 0.1%, and Nasdaq 100 futures rose by 6 points, or 0.1%.The New York Stock Exchange closes early Tuesday for Christmas Eve, and the market is also closed on Wednesday for Christmas Day.The main Wall Street indices had started the holiday-shortened week with a positive slant on Monday, with the S&P 500 rising around 0.7%, the Nasdaq Composite closing about 1% higher and the Dow Jones Industrial Average gaining nearly 0.2%.This follows a generally strong year, with the broad-based S&P 500 gaining over 25%, the tech-heavy Nasdaq Composite up over 30%, and the blue chip DJIA gaining around 14%.A strike at Starbucks’ US stores is set to expand Tuesday, with the union representing the workers at the coffee chain claiming more than 5,000 workers expected to walk off the job, with the strike expanding to over 300 stores before the five-day work stoppage ends later on Christmas Eve.Starbucks Workers United, representing employees at 525 stores nationwide, said more than 60 US stores across 12 major cities, including New York, Los Angeles, Boston and Seattle, were shut on Monday.Talks between Starbucks (NASDAQ:SBUX) and the union had hit an impasse with unresolved issues over wages, staffing and schedules, leading to the strike.The Christmas Eve strike on Tuesday was projected to be the largest ever at the coffee chain, the union added.Earlier this month, the workers’ group rejected an offer of no immediate wage hike and a guarantee of a 1.5% pay increase in future years.xAI, the artificial intelligence start-up founded by billionaire Elon Musk raised $6 billion in a series C funding round, which included participation from Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). The latest round puts xAI’s valuation at more than $40 billion, according to multiple reports, and comes after a series B funding round earlier this year also raised $6 billion.xAI said the new funds will be deployed towards building more AI infrastructure and furthering the development of its flagship models. The company aims to compete with major AI firms such as OpenAI with its Grok AI model.Musk had founded xAI in March 2023. Crude prices edged higher Tuesday, stuck in a tight trading range ahead of the Christmas holiday period. By 03:55 ET, the US crude futures (WTI) climbed 0.7% to $69.72 a barrel, while the Brent contract rose 0.7% to $72.81 a barrel.Despite these small gains, both benchmarks were down about 5% so far in 2024, with persistent concerns over slowing demand in China, the world’s largest oil importer,  being a key point of pressure.Both OPEC and the IEA have forecast slower demand growth in 2025 due to slowing demand in China. The country is also expected to face increased economic headwinds from a renewed trade war with the US under the new Donald Trump-led administration. Oil markets were also on edge over a potential supply glut in 2025, with US oil production close to record highs, and Trump vowing to ramp up domestic energy production, as well as OPEC likely to increase production at some point in 2025.U.S. inventory data, from the American Petroleum Institute, is due later in the session.  More

“The median FOMC participant now expects to cut rates by 50 basis points in 2025, bringing the target range for the funds rate down from 4.25%-4.50% to 3.75%-4.00%,” BCA said in a report. However, the investment research firm believes that “more than 50 bps of easing will be required” as core PCE inflation trends lower and the job market weakens.Core PCE inflation, a key measure for the Fed, is projected to reach 2.5% by early 2025 if recent trends persist. “If monthly core PCE inflation prints at its 3-month average, the 12-month rate will hit 2.5% by March. If monthly core PCE inflation prints at its 6-month average, the 12-month rate will hit 2.5% by February,” the report notes. This suggests inflation could align with or fall below the Fed’s forecast sooner than anticipated.At the same time, the labor market is losing momentum. The unemployment rate has risen to 4.2%, up from its cycle low of 3.4%, and BCA questions the Fed’s 4.3% year-end forecast.”Hitting that level would require a significant improvement in labor market momentum, a trend shift we don’t view as particularly likely,” BCA noted.In this context, BCA outlines a potential path for rate cuts, with a possible initial 25 bps cut in March. Chair Jerome Powell indicated last week that the Fed will remain data-dependent, stressing that next year’s rate decisions “will not be because of anything we wrote down today, we’re going to react to data.”BCA believes that if three consecutive PCE inflation prints average 0.2% or lower, the Fed could implement another 25 bps cut, potentially leading to total easing of up to 100 bps by the end of 2025.The report also addresses the impact of potential tariffs from the incoming Trump administration, suggesting that while tariffs could temporarily push inflation higher, the resulting drag on manufacturing would likely force the Fed to accelerate rate cuts in the latter half of the year.Quantitative tightening (QT) is expected to slow by mid-2025 and halt entirely by late 2025 or early 2026.  More

The plan for 2025 sovereign debt issuance would be a sharp increase from this year’s 1 trillion yuan and comes as Beijing moves to soften the blow from an expected increase in U.S. tariffs on Chinese imports when Donald Trump takes office in January.The proceeds will be targeted at boosting consumption via subsidy programmes, equipment upgrades by businesses and funding investments in innovation-driven advanced sectors, among other initiatives, said the sources.The sources, who have knowledge of the discussions, declined to be identified due to sensitivity of the matter.The State Council Information Office, which handles media queries on behalf of the government, the finance ministry and the National Development and Reform Commission (NDRC), did not immediately respond to a Reuters request for comment.China’s 10-year and 30-year treasury yields rose 1 basis point (bp) and 2 bps, respectively, after the news.The planned special treasury bond issuance next year would be the largest on record and underscores Beijing’s willingness to go even deeper into debt to counter deflationary forces in the world’s second-largest economy.The issuance “exceeded market expectations,” said Tommy Xie, head of Asia Macro (BCBA:BMAm) research at OCBC Bank.”Furthermore, as the central government is the only entity with meaningful capacity for additional leverage, any bond issuance at the central level is perceived as a positive development, likely providing incremental support for growth.” China does not generally include ultra-long special bonds in annual budget plans, as it sees the instruments as an extraordinary measure to raise proceeds for specific projects or policy goals as needed.As part of next year’s plan, about 1.3 trillion yuan to be raised through long-term special treasury bonds would fund “two major” and “two new” programmes, said the sources with knowledge of the matter.The “new” initiatives consist of a subsidy programme for durable goods, allowing consumers to trade in old cars or appliances and buy new ones at a discount, and a separate one that subsidises large-scale equipment upgrades for businesses.The “major” programmes refer to projects that implement national strategies such as construction of railways, airports and farmland and build security capacity in key areas, according to official documents.The state planner NDRC said on Dec. 13 Beijing had fully allocated all proceeds from this year’s 1 trillion yuan in ultra-long special treasury bonds, with about 70% of proceeds financing the “two major” projects and the remainder going towards the “two new” schemes.TARIFFS THREATAnother big portion of the planned proceeds for next year would be for investments in “new productive forces”, Beijing’s shorthand for advanced manufacturing, such as electric vehicles, robotics, semiconductors and green energy, the sources said.One of the sources said more than 1 trillion yuan would be earmarked for that initiative. The rest would go to recapitalise large state banks, said the sources, as top lenders struggle with shrinking margins, faltering profits and rising bad loans.The issuance of new special treasury debt next year would equate to 2.4% of 2023 gross domestic product (GDP). Beijing raised 1.55 trillion yuan via such bonds in 2007, or 5.7% of economic output at that time.President Xi Jinping gathered with top officials for the annual Central Economic Work Conference (CEWC) on Dec. 11 and 12 to chart the economic course for 2025.A state media summary of the meeting said it was “necessary to maintain steady economic growth”, raise the fiscal deficit ratio and issue more government debt next year, but did not give specifics.Last week Reuters reported, citing sources, that China plans to raise the budget deficit to a record 4% of GDP next year and maintain an economic growth target of bout 5%.At the CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other areas in the year ahead.Though usually agreed by top officials, such targets are not officially unveiled until an annual parliament meet in March and could still change before then.China’s economy has struggled this year due to a severe property crisis, high local government debt and weak consumer demand. Exports, one of the few bright spots, could soon face U.S. tariffs in excess of 60% if Trump delivers on campaign pledges.While the risks to exports mean China will need to rely on domestic sources of growth, consumers are feeling less wealthy due to falling property prices and minimal social welfare. Weak household demand also poses a key risk.Last week, officials said Beijing plans to expand the consumer goods and industrial equipment trade-in programmes.($1=7.2939 Chinese yuan) More