Daily Analysis 16/12/2024

• GBP/USD Price: The Pound Sterling (GBP) surged near 1.2650 against the US Dollar (USD) during Monday’s London session, bolstered by the release of fresh UK economic data. The pair’s recovery reflects a combination of improved business activity and mixed sectoral performance in the UK economy.
• UK PMI Data: The S&P Global/CIPS PMI report showed steady overall business activity in December, with the composite index at 50.5.
• Manufacturing and Services: While the Manufacturing PMI dropped further to 47.3 (below forecasts of 48.1), the Services PMI showed resilience, rising to 51.4, beating expectations of 51.0. This divergence highlights continued struggles in manufacturing while the service sector gains momentum.
• Employer Concerns: A survey by the UK Recruitment and Employment Confederation (REC) revealed rising dissatisfaction among employers over increased National Insurance contributions, from 13.8% to 15%. The added costs could weigh on business sentiment and hiring trends, potentially challenging the UK’s economic recovery efforts.
• US Flash PMI Data: Investors turned their attention to the upcoming release of the US flash PMI for December, scheduled for today. Expectations point to slower growth in US business activity, which could influence the GBP/USD pair depending on the data’s alignment with market forecasts.

Closing statement: The GBP/USD recovery is underpinned by improving services activity and softening USD demand. However, structural challenges in the UK’s manufacturing sector and rising employer costs could limit upside potential. Near-term movement will likely hinge on US data releases and broader market sentiment.

• Gold Recovers: Gold price (XAU/USD) has rebounded modestly from a one-week low reached earlier on Monday, currently hovering around the $2,655 region. The recovery reflects profit-taking in USD long positions as traders adjust ahead of the Federal Reserve’s (Fed) key policy announcements on Wednesday.
• Geopolitical Risks: Renewed geopolitical tensions in Israel-Gaza and political unrest in South Korea are fueling demand for gold as a safe-haven asset. Reports of an airstrike in Gaza that resulted in civilian casualties, including an Al Jazeera journalist, underscore the uncertainty in the region, which continues to lend support to the non-yielding asset.
• China's Economic Concerns: Gold’s gains are limited by growing concerns about China’s economy. While November’s Industrial Output growth showed slight improvement, disappointing Retail Sales data point to weaker consumer spending, raising doubts about China’s recovery and dampening optimism in global markets.
• US PMI Data: US PMI data are next on the docket for a fresh take on the Fed’s interest rate path next year, which could have a strong bearing on the value of the USD-sensitive gold price.
• Fed Policy: Traders are keenly watching upcoming Wednesday’s Fed policy decision for clues about the central bank’s monetary trajectory in 2024. A hawkish Fed stance could strengthen the USD and limit gold’s appeal, while a dovish tone may support further upside for the metal.

Closing statement: Gold’s modest recovery is driven by geopolitical tensions and pre-Fed position adjustments. However, further upside remains capped by China’s economic challenges and uncertainty over US monetary policy. Key market-moving events this week will likely determine gold’s next directional move.

• WTI Oil Price: After a positive session last week, West Texas Intermediate (WTI) Crude Oil is correcting slightly, trading near $70.20 per barrel during Monday’s European session. This pullback reflects profit-taking amid mixed global factors influencing supply and demand dynamics.
• Possible New Sanctions: US Treasury Secretary Janet Yellen indicated potential sanctions targeting "dark fleet" tankers and Chinese banks to restrict Russia’s oil revenue. These measures aim to reduce Russia’s access to foreign resources fueling its war in Ukraine, potentially tightening global oil supplies and influencing market sentiment.
• China’s Stimulus Optimism: China’s economic stimulus plans, led by President Xi Jinping, have raised optimism for increased crude oil demand. The government’s pledge to raise the fiscal deficit target in 2024 supports expectations of heightened industrial and transportation activities, bolstering oil consumption.
• Interest Rate Cuts: Recent rate cuts by central banks in Canada, Europe, and Switzerland have provided a lift to market sentiment, indirectly benefiting crude oil prices. Lower borrowing costs could support global economic activity, increasing energy demand.
• Fed’s Policy Decision: Traders are closely watching Wednesday’s Federal Reserve (Fed) policy decision, with a 25-basis-point rate cut widely anticipated. A dovish Fed stance could weaken the US Dollar, making oil more attractive to international buyers and potentially providing upward momentum for prices.

Closing statement: Crude oil prices are navigating a mix of geopolitical and economic factors, with optimism about China’s stimulus plans and central bank rate cuts supporting demand expectations. However, attention remains on potential US sanctions and the Fed's decision, both of which could reshape the oil market’s direction in the coming days.

• DAX Price: On Friday, the DAX slipped 0.10% to close at 20,406, reversing Thursday’s modest 0.13% gain. Earlier in the session, the index reached a record high of 20,523 but failed to hold above the 20,500 level, reflecting profit-taking amid mixed sentiment.
• Weak Trade Data: German trade data released on Friday painted a bleak picture of demand. Exports fell 2.8% month-on-month in October, following a 1.8% decline in September, signaling weakening global demand. Similarly, a decline in imports pointed to slowing domestic consumption, amplifying concerns about Germany’s economic health amid potential US tariffs on EU goods.
• Eurozone PMI: According to the HCOB Purchasing Managers Index (PMI), the Eurozone manufacturing sector remained in contraction, while the services sector showed slight improvement in December.
• Germany PMI: Germany’s Manufacturing PMI fell to 42.5, down from November’s 43.0 and missing the forecast of 43.8, emphasizing ongoing struggles in its industrial base.
• Political Uncertainty in Germany: German Chancellor Olaf Scholz faces a vote of confidence in the Bundestag later today. To survive, Scholz must secure an absolute majority of 367 votes. This political uncertainty could weigh on investor sentiment, with potential policy changes affecting Germany's economic outlook.

Closing statement: The DAX faces a challenging environment marked by slowing trade, weak manufacturing data, and political uncertainty. While the index shows resilience near record highs, sustained upward momentum may require improved economic conditions and greater political clarity. Investors will closely monitor developments in US-EU tariff discussions and the Bundestag’s confidence vote.