France's Manufacturing Sector: A Mixed Outlook for 2024

Solid ECN – In December 2023, France's manufacturing sector showed signs of positive change. The manufacturing climate indicator, a measure of the health of the industry, reached 100, the highest level since July. This increase, up from 99 in November, surpassed expectations of 98. Key factors behind this rise included a more positive view from industrialists about recent production, moving from a negative perception (-9) in the past to a neutral stance (0). Additionally, there was a slight improvement in the inventory of finished goods, with the index moving from 13 to 14.

However, not all aspects were upbeat. The overall order books didn't show any change, remaining at a low level (-17), though foreign orders saw a marginal improvement. Concerns emerged regarding the future, as manufacturers' expectations for their own production dropped slightly, and their outlook on selling prices also deteriorated.

An encouraging sign was the decrease in perceived economic uncertainty, which fell to 25 in December from 28 in November. This suggests that manufacturers are becoming slightly more confident about the economic environment.

France Manufacturing Sector: Economic Implication 

Looking ahead, these mixed signals in France's manufacturing sector offer a nuanced view of the economic future. The improvement in the manufacturing climate indicator and the reduction in uncertainty are positive signs, indicating potential growth and stability in the industry. However, the stagnant order books and cautious outlook on production and pricing point to ongoing challenges. The sector might experience moderate growth but will likely continue facing hurdles, such as fluctuating demand and pricing pressures.

Overall, while the immediate future seems cautiously optimistic, the long-term outlook remains uncertain, dependent on both domestic and global economic conditions.

Offshore Yuan Slips to 7.15

Solid ECN – The offshore yuan dropped to around 7.15 per dollar, moving down from its six-month high. This happened because China's central bank did not change its main lending rates, even though there was pressure to loosen monetary policy due to a weak economic recovery.

The People’s Bank of China kept its one-year rate at 3.45% and its five-year rate at 4.2%, as many had expected. Now, markets are looking forward to possible rate cuts next year and maybe a lower reserve requirement ratio to keep enough money in circulation. Experts believe that China’s low inflation and slow economic growth justify this expectation. However, the yuan is still strong because the US Federal Reserve might start to cut interest rates next year. Also, the Bank of Japan has not said anything about changing its policies in 2024.

Ibovespa Hits Record High

Solid ECN – On Thursday, the Ibovespa index climbed 0.8%. It reached over 131,800, a new high. This rise followed a loss in the previous session. The upbeat mood in Wall Street influenced this. Investors think the Federal Reserve will soon lower interest rates. This hope caused a drop in future interest rate expectations in Brazil. It also supports a positive view of Brazil's central bank. This mood is good for stocks in emerging markets.

Vale, a big company, saw its shares rise almost 3%. This was due to higher iron ore prices. In other news, Braskem, despite a police probe into its mining in Maceio, saw its shares go up.

UK Pound Rises Amid Economic Shifts

Solid ECN – The UK pound recently surged past $1.27, driven by investor reactions to fresh economic data and predictions about future monetary policies. Recent reports have painted a mixed picture of the UK's economic health. The third quarter showed a shrinkage in the economy, a downturn further emphasized by revised figures from the second quarter, signaling a looming recession risk. On a brighter note, retail sales in November surpassed expectations.

Inflation trends are also shifting. The latest Consumer Price Index (CPI) report indicates a drop in UK inflation to 3.8%, significantly lower than the anticipated 4.4%. Additionally, core inflation has fallen to 5.1%, which is below the forecasted 5.6%. These changes have led traders to strongly anticipate interest rate cuts by the Bank of England (BOE) in the coming year. Market expectations suggest a total decrease of 143 basis points, translating to five quarter-point reductions and a 70% likelihood of a sixth cut. However, this contrasts with BOE Governor Andrew Bailey's insistence on keeping rates higher for a longer duration.

Despite the recent slowdown, inflation in the UK remains nearly double the BOE’s 2% target and is the highest among the Group of Seven nations. This situation poses a delicate balance for policymakers, who must navigate between supporting growth and controlling inflation.

Economic Implication

In a fundamental analysis, the future of the UK economy hinges on several factors. The anticipated interest rate cuts could stimulate spending and investments, potentially aiding in recession recovery. However, persistent high inflation remains a challenge. If inflation continues to outpace targets, the BOE may need to reconsider its stance on rate cuts to prevent further devaluation of the pound and manage cost-of-living increases. The economic outlook will largely depend on the BOE’s ability to balance these competing priorities and the government's measures to support economic growth.

USDJPY's Sharp Decline

Solid ECN – The USDJPY pair saw a sharp drop after hitting the Ichimoku cloud. It's now trading below a resistance level formed by the cloud. A closer look at the USDJPY 4-hour chart shows the price falling within a channel. The pair is currently at the 78.6% Fibonacci support level.

Given the technical indicators, it seems this support might break, continuing the bearish trend.

A Simple Guide to the Nikkei 225’s Recent Rise

Solid ECN – On Monday, the Nikkei 225 index rose by 85.05 points or 0.26%, ending at 33,254.03. This continued the gains from the previous session. Investors were encouraged by Wall Street’s year-end rally on Friday, especially after the US Federal Reserve’s preferred inflation measure for November was lower than expected and closer to the central bank’s 2% target.

Meanwhile, both overall and core inflation in Japan dropped to a 16-month low last month. On a quiet Christmas day, investors paid attention to a speech by Kazuo Ueda, the governor of the Bank of Japan. He suggested that the central bank might change its monetary policy if wages and prices start moving in the right direction. He also repeated that the board was keeping its very supportive monetary policy to protect the delicate economic recovery.

The healthcare sector led the increase, followed by property, tech, and consumer sectors. The top performers of the day included Nexon Co. (5.4%), NTT Data Group (4.5%), Lasertec Co. (2.8%), NH Foods (2.5%), and Takashimaya Co. (2.4%).

Euro Hits 5-Month High Amid Dollar Weakness

Solid ECN – The euro recently climbed to $1.1, marking its highest point in five months. This rise is largely due to the weakening U.S. dollar. The latest PCE inflation data from the U.S. has fueled expectations that the Federal Reserve might begin lowering interest rates as early as next year, potentially starting in March.

At the same time, market players are predicting that the European Central Bank (ECB) might also reduce borrowing costs next year, potentially in line with the Fed's actions. However, it's worth noting that many ECB policymakers are not in favor of this prediction. Over the course of the year, the euro has seen an approximate 3% increase in value.

Japanese Yen Strengthens Amid Inflation Progress

Solid ECN – The Japanese yen has recently seen an uptick, reaching approximately 142.2 against the dollar. This boost is largely due to comments made by Kazuo Ueda, the Governor of the Bank of Japan, hinting at improvements in inflation. Ueda expressed that Japan’s economy is slowly but surely moving away from a low-inflation state and inching towards the price stability target. However, he also noted that the chances of this happening are not yet high enough.

Ueda further stated that if the positive feedback loop between wages and prices strengthens and the likelihood of sustainably achieving the 2% inflation target increases enough, the board may contemplate altering its monetary policy. Earlier in the month, the BOJ decided to stick with its ultra-accommodative monetary policy and refrained from making any statements about potential adjustments towards policy normalization in the coming year.

In terms of economic data, Japan’s unemployment rate for November remained steady at 2.5%, which was in line with market predictions.

Understanding EURJPY’s Movement in the Ichimoku Cloud

Solid ECN – The EURJPY currency pair is presently undergoing a test of the Ichimoku cloud. Last week, the pair managed to cross above the cloud successfully. The subsequent decline post-breakout could potentially be viewed as a consolidation phase.

However, should the pair’s decline persist below the cloud, the bullish bias would be rendered invalid, indicating a false Ichimoku signal.

From a technical perspective, as long as the pair remains within the channel and above the 50% Fibonacci support level, the short-term trend is bullish. In this scenario, the target could be the upper band of the flag channel.

This analysis is subject to market conditions and should be used in conjunction with other indicators.

Yen Dips as BOJ Ponders Stimulus Exit

Solid ECN – The value of the Japanese yen fell to 142.5 against the US dollar. This happened when the Bank of Japan's meeting summary revealed discussions. They discussed when to end their extensive stimulus program. While some board members aren't in a hurry to act. One member believes the bank has enough room to assess if a positive wage-inflation cycle is in place. BOJ Governor Kazuo Ueda recently said Japan's economy may soon overcome low inflation. He said it may also reach its price stability goal. Yet, he believes this chance is still not very high. Ueda said if wages and prices get better and hitting the 2% inflation goal looks possible, the board may change its money policy.

USDCNH RSI Uncertainty, Bullish Outlook Remains

Solid ECN – The USDCNH currency pair is currently hovering near the Ichimoku Kinko Hyo, while the RSI indicator presents a level of uncertainty. Despite mixed signals from technical indicators, the market is trending upwards. The bullish channel, which began in mid-November 2023, supports this current trend. The bulls are now eyeing the 7.1577 to 7.1637 resistance zone. If USDCNH can demonstrate strength above the cloud, the price is expected to rise to the upper band of the bullish flag.

On the other hand, the lower band of the flag underpins the bullish scenario. However, if this level is breached downwards, the above scenario should be accordingly invalidated. In such a case, the price could drop to 7.1117, and potentially even to 7.09669.