Central Banks and Data Storm Vie for Investors’ Attention
January 30, 2025
The dollar fell 0.8% against the yen overnight but has barely moved against other major currencies in the wake of the FOMC meeting that left the federal funds target unchanged at 4.25-4.50%. Fed Chairman Powell said monetary policy and the U.S. economy are in a good place and that there is no urgency therefore to rush easing. The litmus test for a further interest rate cut will be a preponderance of data confirming the belief that inflation during 2025 will move closer to its 2% target. Powell declined to answer questions of a political nature.
Bank of Japan Deputy Himino gave a speech signaling a further rise of the central bank interest rate if as expected Japanese GDP grows positively and inflation continues to converge on 2%. He spoke of an eventual restoration of a positive inflation-adjusted interest rate.
Many stock markets in the Pacific Rim remained shut for the Lunar New Year holiday, including those in China, Taiwan, Hong Kong, South Korea, and Singapore. Share prices in Japan and India edged up 0.3% but fell 1.2% in Indonesia. Major European stock markets just prior to the ECB interest rate announcement were showing gains of 0.3-0.6%. SPX and DOW futures were essentially flat, while Nasdaq futures recovered around another 0.5%.
Ten-year sovereign debt yields fell overnight by seven basis points in the U.K. and Germany, six bps in Italy and Spain, five bps in France and three basis points in the United States. Himino’s remarks about future Bank of Japan policy buoyed the yen and lifted the 10-year Japanese JGB yield by two basis points.
Bitcoin (+1.1%) and the Comex gold price (+1.0%) were well-bid overnight. Oil hardly moved.
As was expected, the Governing Council of the European Central Bank undertook a fifth interest rate cut, and its size was 25 basis points. The cutting edge deposit rate was lowered to 2.75% versus 4.0% prior to last June’s initial reduction. A released explanation of today’s move again stressed that there is not predetermined schedule of reductions, striking a cautious but hopeful mood. 2% inflation is expected to get restored later this year and be sustainable.
The disinflation process is well on track. Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.
In contrast to the ECB, the Central Bank of Brazil’s Selic interest rate was hiked by another full percentage point, matching the increase made at December’s meeting and bringing the cumulative rise since September to 275 basis points. At 13.25%, the new rate level is its highest since August 2023 and just 50 basis points below the cyclical peak of 13.75% maintained from August 2022 until August 2023. Brazilian consumer price inflation had receded from 12.1% in April 2022 to 3.7% one year later but then rose to a 14-month high of 4.87% in November and stayed near that level last month. A released statement says, “In light of the continuation of the adverse scenario for inflation convergence, the Committee anticipates another adjustment of the same magnitude in the next meeting, if the scenario evolves as expected.”
A great deal of data were reported today, most notably fourth-quarter GDP figures for the euro area and the United States.
In Euroland, real GDP stagnated last quarter, interrupting a three-quarter interval of positive growth. This was a weaker result than analysts anticipated and left real GDP just 0.9% higher than a year earlier and with a full-2024 growth rate of just 0.7% following 0.4% in 2023. GDP posted drops of 1.3% in Ireland, 0.2% in Germany and 0.1% in France. Like Germany, France, and the whole euro zone, Italy’s zero percent quarterly growth undershot expectations. Spain, on the other hand, posted a third straight nonannualized 0.8% quarter-on-quarter GDP rise. For 2024 as a whole in Euroland’s big three members, GDP fell 0.2% in Germany and rose just 1.1% in France and 0.5% in Italy. Spanish GDP was 3.5% higher than a year earlier in the second half of 2024.
U.S. real GDP grew 2.3% at a seasonally adjusted annualized rate between the third and fourth quarters. That too was softer than the forecast 2.6% consensus in the street and down from a 3.1% pace in the prior quarter. The slowdown between the third and fourth quarters was concentrated in government spending, non-residential investment and inventories. Personal consumption, non-residential investment and net exports had more favorable impacts on GDP last quarter than in the summer.
Whereas GDP in Euroland rose only 0.4% in 2023 and 0.7% in 2024, U.S. GDP in those years went up on average by 2.9% and 2.8%.
Unemployment in the euro area bumped up from November’s record low of 6.2% to 6.3%. The joint currency bloc’s economic sentiment index rebounded 1.5 index points in January above December’s 49-month low of 93.7 to 95.2.
Price data reports out this Thursday show
- A 0.1 percentage point uptick in on-year PCE price deflator U.S. inflation to 2.4% overall and 2.8% core.
- A 7-month high in Spanish consumer price inflation of 3.0% this month versus last July’s 42-month low of 1.5%.
- A 39-month low in Icelandic CPI inflation of 4.6% in January versus 10.2% in February 2023.
- A 1.1% on-year drop in Austrian producer prices, their 18th sub-zero reading in a row but the least negative of that streak.
- Low South African PPI inflation of 0.7% in December followed two months of sub-zero readings and remained for below the peak of 18% in 2020.
- Import prices in Australia were projected to drop but instead rose 0.2% last quarter.
- Greek producer prices stayed unchanged from November in December and were 0.8% below their year-earlier level.
- German import price inflation of 2.0% in December was up from 0.6% in November and the highest in 22 months. The energy component swung to 0.4% from -8.2%.
Switzerland’s trade surplus widened 25% last year to CHF 60.6 billion.
Swedish consumer confidence improved 2.5% this month but, with a reading of 99.1, was still below November’s 35-month high of 101.4.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Brazil, Euroland GDP, European Central Bank, U.S. GDP
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