In December, the US CPI for November increased 2.7% YoY, in line with expectations and higher than the previous 2.6% rise. The US inflation data was generally in line with expectations, but showed some stickiness. Retail sales in November rose 0.7% MoM, higher than the expected 0.5% and the prior 0.5% increase, indicating the economy remains relatively strong.
The Federal Reserve, as expected, lowered rates by 25 basis points to the 4.25%-4.50% range, but the dot plot showed the projected rate hikes for next year were halved to 2 hikes. Powell stated future rate adjustments would require more caution, taking a more hawkish stance overall. The US dollar continued to strengthen, breaking above the 108 level, with real rates hovering near 15-year highs. Gold was supported by central bank purchases but remained range-bound, as the “Trump trade” and the Fed’s attitude made the market doubtful of any further 25-year rate cut cycle, leading to pressure on precious and base metal company stocks.
Domestically, the Politburo meeting was more explicit in its growth targets. Boosting domestic demand was prioritized, with a stronger emphasis on improving consumption and livelihoods. Both monetary and fiscal policies are set to be more proactive, with the first mention of “extraordinary counter-cyclical adjustments”. Fiscal policy next year is expected to be more forceful than this year, potentially targeting measures to benefit the people, boost consumption, stabilize the housing market, and moderately increase government investment. However, the lack of concrete numbers or policies has led to a muted market reaction, with the task of restoring market confidence remaining arduous.
As we enter 2025, macroeconomic uncertainties remain elevated, with global markets expected to continue experiencing volatility. China’s central bank has increased its gold purchases for the second consecutive month, further strengthening the near-term support for gold. After adjustments in December, producers’ valuations are generally low. With Q4 production and earnings announcements, and given the historically high gold prices and moderating cost increases, profit margins should see expansionary room for a corrective rally.
