Summary:
Last Week Review
• When veteran centrist Francois Bayrou, France’s new prime minister, was education minister in the 1990s, his plan to increase subsidies for private schools led to nationwide protests. He quickly caved in and would stay in the post for four more years.* Three decades later, he will face a different force in the shape of a fractured and fractious parliament where one of his earliest tasks – as President Emmanuel Macron’s fourth prime minister of the year – will be to pass a budget for 2025.
• South Korea’s acting president, Han Duck-soo, moved on Sunday to reassure the country’s allies and calm financial markets a day after President Yoon Suk Yeol was impeached and suspended from his duties over a martial law attempt. Han spoke with U.S. President Joe Biden by phone, the White House and Han’s office said. In a further attempt to stabilise the Asian nation’s leadership, the main opposition party announced it would not seek to impeach Han for his involvement in Yoon’s Dec. 3 martial law decision.
• The United Arab Emirates (UAE), a prominent member of the OPEC+ alliance, is set to reduce oil shipments starting early next year. This move is part of a collective effort by OPEC+ to enforce stricter adherence to production quotas, with the goal of supporting oil prices. The state-owned Abu Dhabi National Oil Co. (Adnoc) has informed some Asian customers that it will decrease the allocation of crude oil cargoes. The reductions are reported to be up to 230,000 barrels per day across various crude grades. Despite OPEC’s compiled data indicating that the UAE has largely complied with its production limit of 2.912 million barrels per day, there is skepticism among some traders. The International Energy Agency in Paris has released estimates that suggest the UAE’s actual production may have been considerably above the quota.
This Week’s Outlook
• The Fed is widely expected to deliver another 25-basis point rate cut after its final meeting of the year on Wednesday, in what would be its third straight reduction. With the cut already fully priced in, investors are focusing on any guidance around how much further rates could be cut in 2025. The Fed’s updated summary of economic projections released at the meeting will provide one indication of where policymakers see rates heading. In a sign of possible support for a slower pace of rate cuts next year Fed Chair Jerome Powell said this month the economy is stronger now than the central bank had anticipated in September.
• The Bank of Japan is to hold its final meeting for 2024 on Thursday and while market expectations have swung widely in the past two weeks as the decision draws nearer a consensus is forming that officials will hold steady. Reuters reported on Thursday that policymakers are leaning towards a pause, waiting for further data on wages and clarity on Donald Trump’s policies before hiking rates for a third time. A day earlier, Bloomberg reported that BOJ officials see “little cost” from delaying additional tightening.
• The BoE is widely expected to keep rates on hold at 4.75% on Thursday and is seen holding off from delivering a third rate 25-bps rate cut until February. Markets are currently pricing in three quarter-point rate cuts by the end of next year. Data on Friday showed that the UK economy contracted for the second month in a row in October, adding to concerns over the outlook after recent business surveys pointed to weakness and retail sales flatlined.
• Global PMI numbers this week will give investors fresh insight into the health of the world’s economy after data in November indicated that sluggishness in the manufacturing sector is spreading to service sector activity. The November eurozone composite PMI, seen as a good gauge of overall economic health, sank to 48.3 from October’s 50.0.
• Oil prices ended Friday at the highest level in three weeks amid expectations that additional sanctions on Russia and Iran could tighten supplies and that lower interest rates in Europe and the U.S. could bolster the demand outlook. Brent gained 5% for the week, while WTI posted a 6% gain for the week and closed at its highest since Nov. 7. The European Union has agreed to impose a 15th package of sanctions on Russia over its war against Ukraine, targeting its shadow tanker fleet. The U.S. is considering similar moves.
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