Global markets are navigating a delicate balance between optimism and apprehension as they digest stronger-than-expected Chinese economic data while bracing for potential headwinds from U.S. policy developments, including the looming inauguration of President-elect Donald Trump and anticipated tariffs.
China’s Economic Data Beats Expectations
China’s economy delivered a surprise in Q4 2024, expanding by 5.4%, outpacing the market’s forecast of 5%. Key drivers included:
- Retail Sales: Up 3.7% year-on-year in December, surpassing the expected 3.5%.
- Industrial Production: Rose 6.2% compared to the forecasted 5.4%.
These stronger-than-expected metrics suggest resilience in the Chinese economy despite ongoing global challenges. However, lingering U.S.-China trade tensions continue to weigh on investor sentiment.
US Dollar Rebounds Amid Mixed Market Sentiment
The U.S. Dollar (USD) is seeing a modest recovery, supported by haven demand as traders engage in short-covering following a recent correction. Despite this, U.S. Treasury bond yields remain subdued, reflecting renewed expectations that the Federal Reserve (Fed) may implement two interest rate cuts in 2025.
FX Market Highlights
- AUD/USD:
The Australian Dollar remains under pressure, trading around 0.6200, as concerns over U.S.-China trade persist. This is despite the robust Chinese data, which failed to lift the currency. - USD/JPY:
The pair is rebounding from monthly lows of 154.98, bolstered by easing concerns over China’s economic health and a firmer U.S. Dollar. However, the prospect of a Bank of Japan (BoJ) rate hike next week may cap further gains. - GBP/USD:
Sterling has fallen to 1.2150 following disappointing UK Retail Sales, which unexpectedly dropped 0.3% in December (vs. a forecasted 0.4% increase). Combined with soft inflation data, expectations for aggressive Bank of England (BoE) rate cuts are gaining traction. - EUR/USD:
The Euro continues to slide, trading below 1.0300, as dovish European Central Bank (ECB) commentary fuels speculation of further rate cuts. - USD/CAD:
The Canadian Dollar is struggling against a recovering USD, with USD/CAD climbing to 1.4400. However, rising oil prices, with WTI nearing $78.50, could limit further upside for the pair.
Commodities Update
- Gold:
The precious metal is consolidating weekly gains, trading above $2,700 in the European session after reaching a monthly high of $2,725 on Thursday. The uncertain market backdrop continues to support Gold as a safe-haven asset. - Oil:
WTI crude prices are up 0.68% on the day, hovering around $78.50, driven by hopes of demand recovery amid China’s upbeat economic data.
Outlook: Optimism Meets Caution
While stronger Chinese growth figures offer some reassurance, markets remain cautious ahead of key global events, including U.S. policy shifts and central bank decisions. Investors are likely to tread carefully, balancing short-term gains against potential risks on the horizon.
IBAFIN 
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