Investors Brace for Major Central Bank Decisions as the Year Winds Down

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The final big economic events of the year are set to unfold in the next two days, with decisions from three major central banks—the Federal Reserve, the Bank of Japan, and the Bank of England—shaping market direction as 2024 nears its close.

The Federal Reserve: A Hawkish Cut on the Horizon

The Federal Reserve is widely anticipated to cut interest rates by 25 basis points, bringing the federal funds rate to a range of 4.25%–4.50%. However, the rate cut is unlikely to signal a dovish shift. Instead, it is being described as a ‘hawkish cut’, as policymakers are expected to adopt a cautious stance on further easing next year.

Key factors influencing the Fed’s decision include:

• Persistent inflation: While inflation has moderated, its decline has slowed in recent months, leading the Fed to remain vigilant.
• Robust economic growth: The U.S. economy continues to demonstrate resilience, reducing the urgency for aggressive rate cuts.

In today’s meeting, the Fed’s updated dot plot and Chair Jerome Powell’s press conference might give us clues regarding the pace and extent of future cuts.

Meanwhile, U.S. markets has been under pressure, with the Dow Jones recording its first nine-day losing streak since 1978. Despite this, the index remains up 15% for the year, reflecting the gains accumulated earlier in 2024 following the U.S. presidential elections.

The Bank of Japan: A Hold with Eyes on 2025

Then, in the early European hours, the Bank of Japan (BoJ) is expected to maintain its current monetary policy, holding rates at near-zero levels. However, the BoJ has indicated that it could begin raising rates in 2025, signaling a gradual exit from its decades-long ultra-loose policy.

For now, the BoJ’s focus remains on ensuring stability amidst fragile domestic economic recovery and global uncertainties.

The Bank of England: Inflation Data Signals Continued Caution

The Bank of England (BoE) is also expected to hold rates steady, as policymakers tread carefully in response to mixed inflation data:

• Annual CPI rose to 2.6%, suggesting lingering price pressures.
• However, the monthly CPI slowed sharply to 0.1% from the previous month’s 0.6%, signaling a possible cooling of inflation momentum.

The BoE faces a delicate balancing act, as inflation remains above target while economic growth shows signs of stagnation.

Germany: Business Sentiment Continues to Worsen

Germany’s ifo Business Climate Index painted a bleak picture of the economic outlook, with sentiment dropping to its lowest level since May 2020. While the current situation improved slightly, expectations for the next six months turned sharply pessimistic, particularly in:

• Manufacturing, where protectionist U.S. trade policies and weak global demand especially from China, weigh heavily.
• Services, where uncertainty dampened business confidence despite slight improvements in the gastronomy sector.
• Construction and retail, which remain under pressure due to higher financing costs and slowing activity.

The worsening sentiment suggests that a sustained recovery in the German economy remains unlikely in H1 2025. However, the release of the index had minimal immediate impact on financial markets, reflecting investors’ focus on broader global events.

Investor Optimism on the U.S. Economy

In contrast to the gloom in Europe, institutional investors have grown more optimistic about the U.S. economic outlook. In a December survey, 60% of global fund managers stated they do not expect a U.S. recession in the next 18 months, up from just over 50% in November.

Expectations for U.S. Treasury yields reflect this optimism:

• Long-term yields are expected to remain steady.
• Short-term yields could decline as the Fed delivers gradual rate cuts.

Analysts broadly anticipate two more 25-bps rate cuts from the Fed over the next four quarters, aligning with market sentiment.

The next two days will shape the global economic narrative heading into 2025. While rate cuts from the Fed provide short-term relief, their hawkish tone signals a measured approach to further easing. The BoJ and BoE are likely to remain on hold, reflecting domestic challenges and cautious optimism. Meanwhile, weak German business sentiment contrasts with improving investor confidence in the U.S., underlining a complex and uncertain global economic landscape.

On the agenda today Wednesday, December 18:

Building Permits and Housing Starts for November are both expected to remain steady at 1.4M and 1.3M respectively.

FOMC Interest-Rate Decision is scheduled, a highly anticipated event that could influence financial markets.

Fed Chair Powell Press Conference follows the rate decision, providing insights into the Federal Reserve’s views and monetary policy decisions.

Earnings

General Mills (GIS): Premarket, Expected Move: $2.17, Estimated EPS: $1.22.

Xem thêm : Forex Trading Day Review | 19th December 2024

Micron Technology (MU): Postmarket, Expected Move: $10.33, Estimated EPS: $1.6.

DAX overview

DAX leaders

Commerzbank +3.90%

Sartorius AG +1.15%

SAP +0.72%

Siemens Healthineers +0.68%

DAX laggards

BASF -0.94%

Symrise AG -0.69%

Bayer -0.67%

Heidelberg Materials -0.67%

DAX Technical Analysis – Germany 40 (DAX) – 4 Hour chart

Chart Observations:

1. Exponential Moving Averages (EMAs):

• 50 EMA (yellow): 20,275.1 (currently being tested from above).
• 100 EMA (orange): 20,061.9 (support area).
• 200 EMA (red): 19,773.2 (long-term support).
• The shorter-term EMAs are sloping upward, suggesting the broader trend is still bullish, although price has retraced to test key levels.

• DAX is at 20,267.4, just above the 50 EMA, indicating a minor pullback after a strong rally.
• Price recently peaked near 20,526.9, testing the resistance line (blue trendline) before declining.
• Support zones to watch are around 20,193.5 and below near 20,039.9.

• RSI (14): At 40.61, reflecting bearish momentum as it heads toward oversold territory.
• Stochastic RSI: 10.78, signaling the market is oversold and could be nearing a reversal zone.

• Immediate support: 20,193.5 (psychological level) and 20,061.9 (100 EMA).
• Major support: 19,773.2 (200 EMA).
• Resistance: 20,474.0 and recent highs at 20,526.9.

Outlook:

• If price holds the 50 EMA at 20,275.1, a bounce toward 20,474.0 or the resistance at 20,526.9 is possible.
• Failure to hold support could see DAX testing the 100 EMA at 20,061.9 or lower levels near the 200 EMA.

Key Signals to Watch:

• Bullish reversal signals on RSI and Stochastic RSI.
• Price behavior around the 50 EMA and key support at 20,061.9.