Table of Contents:
Introduction to Global Economic Challenges
As the end of 2024 approaches, the global economic landscape is complex and full of challenges. Central banks, including the Federal Reserve (Fed), the Bank of Japan (BoJ) and the Bank of England (BoE), are preparing for crucial meetings to define monetary policies for 2025. Investors are waiting for clear signals regarding interest rates and economic growth prospects, while recent economic data, such as PMI indices and retail sales, provide valuable clues about the future direction of the economy
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The slowdown in the Chinese economy
China, one of the world’s leading economies, showed signs of slowing down last month. Retail sales in November registered an increase of only 3.0% compared to the previous year, well below expectations for growth of 5.0%. This decline was accompanied by a significant drop in real estate investments, which contracted by 10.4% on an annual basis. Although industrial production remained stable at 5.8%, data suggests that Chinese policymakers face considerable challenges to stimulate a sustained recovery in domestic activity
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Expectations for the Fed’s decisions
On Wednesday, investor attention will be turned to the Fed, which is expecting a possible cut in interest rates by 25 basis points, bringing the Fed funds rate to the range of 4.25%-4.5%. However, what arouses the greatest interest are the indications on future monetary policies, in particular through the new summary of economic projections and the dot chart. The communication from Jay Powell, president of the Fed, will be crucial to understanding expectations regarding inflation and economic growth, especially in a context of political and market uncertainty
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The BoJ and BoE meetings
The BoJ and BoE meetings, scheduled for Thursday, present a more uncertain picture. The BoJ may decide to raise rates, but the odds are only estimated at 15%. On the other hand, the BoE is expected to keep the reference rate at 4.75%. A possible increase in rates by the BoJ could generate volatility in the markets, while a decision to maintain rates could lead to a further weakness in the Japanese yen, especially if the inflation data were to surprise
upwards.
Analysis of PMI and retail sales data in the United States
While waiting for central bank meetings, investors are also focusing on global PMI data and retail sales in the United States. On Tuesday, robust growth in retail sales is expected, with an increase of 0.5% on a monthly basis, while industrial production is expected to rebound by 0.3%. These data, together with the results of the PCE deflator and consumer personal spending, will provide further guidance on the health of the American economy and on the current inflationary pressures
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