Markets enter the final week of 2024 with muted holiday trading and key economic releases ahead. The US dollar dominated this year, rising 7% on economic resilience and Fed hawkishness. Gold shone brightest with a 28% surge to $2,620/oz, while oil struggled amid oversupply concerns. Investors eye Trump's upcoming presidency and mounting Middle East tensions as key factors for 2025.
Key Events and Data to Watch This Week
Monday:
US: Pending Home Sales (Nov)
Tuesday
China: NBS Manufacturing PMI (Dec)
China: NBS Non-Manufacturing PMI (Dec)
US: Housing Price Index (Oct)
Wednesday
New Year's Day
Thursday
China: Caixin Manufacturing PMI (Dec)
Eurozone: HCOB Manufacturing PMI (Dec)
US: Challenger Job Cuts (Dec)
Friday
US: ISM Manufacturing PMI (Dec)
The U.S. Dollar Shines in 2024: Key Drivers Behind Its Strength
Markets are entering another trading week with limited economic data releases due to the New Year holiday. Traders, who had a quiet week last week due to the Christmas holiday, will be making their final assessments ahead of critical data releases in the coming week.
The U.S. economy has continued to grow robustly this year despite high interest rates, a cooling labor market, and uncertainty stemming from the presidential election. However, as the economy prepares for a new president in the New Year, not everything is perfect.
The recent pause in inflation's progress toward the 2% target has led the Federal Reserve to project fewer rate cuts next year than previously anticipated. This implies that interest rates in the U.S. will remain high for an extended period.
As a result, sectors like housing and manufacturing, which have struggled under the weight of high borrowing costs throughout the year, as well as heavily indebted households, are likely to face continued challenges next year.
Against this macroeconomic backdrop, the resilience of the U.S. economy, the anticipated impact of President-elect Donald Trump's policies, and the Fed's cautious stance—while central banks elsewhere in the world continue to ease—are all contributing to the ongoing strength of the U.S. dollar. The dollar index has climbed more than 7% this year, marking its best annual performance in nearly a decade.
So far in 2024, the Japanese yen has fallen by approximately 12% against the dollar, while the Australian dollar has dropped 8.3%, making them the biggest losers. The euro has depreciated by around 5.5%, trading near $1.04, with an increasing number of strategists pointing to the likelihood of parity being reached next year.
Analysts at Goldman Sachs state that the dollar's current strength aligns with economic fundamentals and note that markets have yet to fully price in the risks associated with tariffs. Despite Donald Trump's protectionist measures, they predict that if U.S. growth remains resilient, the dollar could rise further in the medium term.
Moreover, several Wall Street banks see additional upside potential for the dollar in 2025. This sentiment is echoed among individual traders, with bullish dollar bets steadily increasing.
In conclusion, the U.S. dollar is poised to end the year on a strong note. However, uncertainties surrounding the policies to be implemented under the Trump administration and their potential impacts may continue to cast a shadow over the markets for some time.
Traders will be closely monitoring the critical data releases next week for more clues on the U.S. economy as the countdown to Trump's inauguration begins.
Gold's Golden Year: A Century-Defining Rally Despite Market Headwinds
Although gold prices declined following Trump's presidential victory, the precious metal remains the best-performing asset of the year. Starting the year at $2,062 per ounce, gold prices have surged by approximately 28%, closing in on $2,620 per ounce as the year comes to an end, marking one of the century's largest annual gains.
Looking ahead, the anticipated further strengthening of the U.S. dollar and high U.S. Treasury yields could dim gold's shine. Additionally, ongoing challenges in China's economy continue to suppress the country's gold demand.
However, expectations of more concrete stimulus measures from the Chinese government in 2025, along with projections that Trump's policies could drive U.S. inflation higher, are fueling optimism for a rebound in gold prices in the second half of the year. Furthermore, the safe-haven demand spurred by geopolitical risks and strong purchasing activity by central banks could help limit any downside in gold prices.
Oil Markets in Flux: Geopolitics, Oversupply, and Trump's Uncertainty
Oil prices have been fluctuating within a narrow range due to concerns over an oversupply anticipated for the coming year, geopolitical risks, and uncertainties linked to the Trump administration. Despite experiencing significant volatility throughout the year, with both upward and downward swings, oil is on track to close the year with a modest loss of around 1%.
Geopolitical conflicts in the Middle East, which have persisted throughout the year, have significantly increased the geopolitical risk premium for oil. These tensions have fueled supply concerns that are likely to extend into the next year.
Israel's recent actions against the Houthis in Yemen risk escalating tensions between Yemen and Saudi Arabia, the world's largest oil producer. While fears of supply disruptions are growing, they are partially offset by pessimism regarding demand from China, the world's largest oil importer.
Another crucial factor for oil prices will be the policies implemented by Trump after he takes office in a few weeks. Trump recently threatened to increase tariffs on oil-producing nations such as Canada and Mexico. He has also pledged to intensify pressure on Iran. As a result, the actions taken by the Trump administration in the coming months will be critical for the oil market's trajectory.
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