No More 50s in ‘25

Economic

Summary:

The highlights of U.S. and Canada.

Canada – No More 50s in ‘25

It was the Bank of Canada’s (BoC) turn to take center stage last week and markets got the show they wanted. The Bank cut its policy rate by 50 bps to 3.25%–the second consecutive supersized cut. The BoC has now reduced the overnight rate by 175 bps since June (Chart 1). The decision met consensus expectations, but market moves over last week were choppy. The Canadian dollar appreciated almost half a percent immediately post-meeting but ended up losing ground, finishing the week at 0.7030 U.S. cents. Yields marched higher, with the Canadian 2 and 10-year bonds up 10 and 15 bps, respectively.

There is a lot to unpack in this announcement. The BoC has made it clear that the economy no longer needs to be clearly in restrictive territory. And with the Bank’s range for the neutral rate currently at 2.25–3.25%, the policy rate in the eyes of the BoC is in now in more balanced territory. The Bank feels that inflation is stabilizing around their two percent target and has now shifted towards prioritizing the softer growth outlook.

There was one key change in the statement that injected uncertainty about the path forward for interest rates. In October, the Bank stated that they “expect” to reduce borrowing costs if the economy evolves broadly in line with their forecasts. Last week, that changed to, “going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time.” It’s a meaningful shift in tone and one that all but takes another 50 bps move off the table.

The BoC acknowledged the host of domestic and external uncertainties facing Canada’s economy in 2025. For one, U.S. President-elect Donald Trump’s threat to place 25% tariffs on Canadian goods exports severely clouds the economic outlook. Meanwhile, recent immigration policy changes will stall Canada’s population growth inducing both demand and supply effects. A wave of fiscal stimulus including one-time payments to individuals and a temporary suspension of the GST also have the potential to reignite consumer spending channels. In fact, our recent forecast has consumer spending as one of the key drivers of 2025 real GDP growth (Chart 2). An update on Canadian household balance sheets last week also showed that wealth continues to rise, bolstering our view that spending should continue to firm in the near-term.

As discussed in our recent forecast, we expect the BoC to cut another 100 bps–or one 25 bps cut per quarter–in 2025 to reach our estimate of the “neutral” rate by 2.25%. There is little doubt that elevated interest rates did their part in taking heat out of the economy. We think a gradual pace of further cuts is the prudent decision to allow the economy to slowly close economic slack, while minimizing the risk of reigniting inflation. The BoC has is navigating a tough stretch ahead as it aims to balance many competing forces in an effort to properly calibrate interest rates.

U.S. – December Cut Expected, January ‘Pause’ Increasingly Likely

For a year that was supposed to eke out only modest equity gains, the S&P 500 is up an impressive 27% year-to-date (Chart 1). The return is even more notable given that the Federal Reserve has so far delivered on only 75-bps of policy easing, or considerably less than the 150-bps priced by futures markets for 2024 at the end of last year. And even though another quarter-point cut is universally expected this Wednesday CPI and PPI data out last week provided more evidence that progress on the inflation front is indeed stalling and will likely lead to a more gradual path of policy easing in 2025.

Headline CPI inflation accelerated by its fastest pace in seven months in November, pushing the twelve-month change to 2.7%, up from its three-year low of 2.4% in October. Meanwhile, core inflation rose at a similar pace to the prior three-months, though the composition of price pressures shifted somewhat. Services inflation cooled last month, owing to a notable deceleration in shelter costs, but this was offset by a sharp uptick in goods prices and firm readings on ‘supercore’ inflation.

The Fed’s preferred inflation gauge, the core PCE deflator, is released next Friday. Mapping the CPI data into core PCE points to a ‘soft’ 0.3% m/m increase in November, pushing near-term trends higher (Chart 2). This is likely to unnerve FOMC members, who need to see further evidence of cooling inflationary pressures before committing to future rate cuts. This is a message that Fed Chair Powell is likely to telegraph at this week’s policy announcement.

The FOMC will also release a revised set of economic projections, which will provide insight on how policymaker’s view of the outlook and future path for the policy rate has shifted post-election. In the September projections, the median ‘dot’ assumed 100-bps of policy easing in 2025, or nearly double what’s currently reflected in futures pricing. However, core PCE inflation is running about 25 bps hotter than the 2.6% assumed in the last set of projections for the fourth quarter of this year. This suggests that the median dots for 2025 could shift a bit higher. But that’s by no means a guarantee, as each Committee member will make their own assumptions on scope, magnitude, and timing of potential policy changes under the incoming administration. This could very well lead to a wider dispersion in forecasts.

This is exactly what happened in December 2016, following the last Republican sweep. Transcripts from those FOMC meetings show that roughly half of the FOMC members incorporated some degree of fiscal stimulus in their individual forecasts. So even though Powell is unlikely to speculate on the impact of potential policy changes during this week’s press conference, it’s very likely that some FOMC members will have baked in some impacts from tariffs and/or tax cuts into their revised projections. Given the policy uncertainties and the fact that recent inflation readings have shown that progress has stalled, we suspect that the FOMC will open the door to a ‘pause’ on rate cuts in January and shift to cutting rates at every other meeting in 2025.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Owen Li

Economic

When it comes to AI, this crew of technologists is fairly aligned on the need for rapid development and adoption of AI throughout the U.S. However, there's one AI safety issue this group brings up quite a bit: the threat of AI "censorship" from Big Tech.

Trump's Silicon Valley advisers could make the responses of AI chatbots a new battleground for conservatives to fight their ongoing culture war with tech companies.

AI censorship is a term used to describe how tech companies put their thumb on the scale with their AI chatbots' answers in order to conform to certain politics, or push their own. Others might call it content moderation, which often refers to the same thing but has a very different connotation. Much like social media and search algorithms, getting AI answers right for live news events and controversial subjects is a constantly moving target.

For the last decade, conservatives have repeatedly criticized Big Tech for caving to government pressures and censoring their social media platforms and services. However, some tech executives have begun to moderate their positions in public. For example, ahead of the 2024 election, Meta CEO Mark Zuckerberg apologized to Congress for bending to the Biden administration's pressure to aggressively moderate content related to COVID-19. Shortly after, the Meta CEO said he'd made a "20-year political mistake" by taking too much responsibility for problems that were out of his company's control — and said he wouldn't be making those mistakes again.

But according to Trump's tech advisers, AI chatbots represent an even greater threat to free speech, and potentially a more powerful way to effect control over speech. Instead of skewing a search or feed algorithm toward a desired outcome, such as downranking vaccine disinformation, tech companies can now just give you a single, clear answer that doesn't include it.

In recent months, Musk, Andreessen, and Sacks have spoken out against AI censorship in podcasts, interviews, and social media posts. While we don't know how exactly they're advising Trump, their publicly stated beliefs could reveal the conversations they're having behind closed doors in Washington, D.C., and Mar-a-Lago.

"This is my belief, and what I've been trying to tell people in Washington, which is if you thought social media censorship was bad, [AI] has the potential to be a thousand times worse," said a16z co-founder Marc Andreessen in a recent interview with Joe Rogan. "If you wanted to create the ultimate dystopian world, you’d have a world where everything is controlled by an AI that’s been programmed to lie," said Andreessen in another recent interview with Bari Weiss.

Andreessen also disclosed to Weiss that he has spent roughly half his time with Trump's team since the election happened, offering advice on technology and business.

"[Andreessen] explained the dystopian path we were on with AI," said former PayPal COO and Craft Ventures co-founder, David Sacks, in a recent post on X shortly after he was appointed to be Trump's AI and crypto czar. "But the timeline split, and we're on a different path now."

On All In — the popular podcast Sacks hosts alongside other influential venture capitalists — Trump's new AI adviser has repeatedly criticized Google and OpenAI for, as the show's hosts describe it, forcing AI chatbots to be politically correct.

"One of the concerns about ChatGPT early on was that it was programmed to be woke, and that it wasn’t giving people truthful answers about a lot of things. The censorship was being built into the answers," said Sacks on an episode of All In from November 2023.

Despite Sacks' claims, even Elon Musk admits xAI's chatbot is often more politically correct than he'd like. It's not because Grok was "programmed to be woke," but more likely a reality of training AI on the open internet. That said, Sacks is making it more clear every day that "AI truthfulness" is something he's focused on.

"That's how you get Black George Washington at Google"

The most cited case of AI censorship was when Google Gemini's AI image generator generated multiracial images for queries such as "U.S. founding fathers" and "German soldiers in WWII," which were obviously inaccurate.

Trump's Silicon Valley Advisers Have AI 'Censorship' in their Crosshairs_1

But there are other examples of companies influencing specific results. Most recently, users found out that ChatGPT just won't answer questions about certain names, and OpenAI admitted that at least one of those names triggered internal privacy tools. At another point, Google's and Microsoft's AI chatbots refused to say who won the 2020 U.S. election. During the 2024 election, almost every AI system refused to answer questions about election results, except for Perplexity and Grok.

For some of these examples, the tech companies argued they were making a safe and responsible choice for their users. In some cases, that may be true — Grok hallucinated about the outcome of the 2024 election before votes had even been counted.

But the Gemini incident stuck out; it caused Google to turn off Gemini's ability to generate images of people — something the free version of Gemini still cannot do. Google referred to that incident as a mistake and apologized for "missing the mark."

Andreessen and Sacks don't see it this way. Both venture capitalists have said that Google didn't miss the mark at all, but rather, hit it a little too obviously. They considered it a pivotal mask-off moment for Google.

“The people running Google AI are smuggling in their preferences and their biases, and those biases are extremely liberal,” said Sacks on an episode of All In from February 2024, responding to the Gemini incident. “Do I think they’re going to get rid of the bias? No, they’re going to make it more subtle. That is what I think is disturbing about it."

"It's 100% intentional; that's how you get Black George Washington at Google," said Andreessen in the recent interview with Weiss, rehashing the Gemini incident. "This goes directly to Elon’s argument, which is that at the core of this, you have to train the AI to lie [i.e., to produce answers like Gemini's]."

As Andreessen mentions, Elon Musk has been outspoken against "woke AI chatbots." Musk originally created his well-funded AI startup, xAI, in 2023 to oppose OpenAI's ChatGPT, which the billionaire said at the time was infected with the "woke mind virus." He ultimately created Grok, an AI chatbot with notably fewer safeguards than other leading chatbots.

"I'm going to start something which you call TruthGPT or a maximum truth-seeking AI that tries to understand the nature of the universe," said Musk in an interview with Fox from 2023.

When Musk launched Grok, Sacks applauded the effort: "Having something like Grok around will — at a minimum — keep OpenAI honest and keep ChatGPT honest," said Trump's AI czar in an All In episode from November 2023.

Now, Musk is doing more than just keeping ChatGPT honest. He has raised more than $12 billion to fund xAI and compete with OpenAI. He's also suing Sam Altman's startup and Microsoft, potentially halting OpenAI's for-profit transition.

Musk's influence on conservative government officials has already shown to carry weight in other areas. Texas attorney general Ken Paxton is investigating a group of advertisers that allegedly boycotted Elon Musk's X. Musk previously sued the same advertising group, and since then, some of the companies have resumed advertising on his platform.

It's not clear what Trump and other Republicans could do if they actually wanted to investigate OpenAI or Google for AI censorship. It could be investigations by expert agencies, legal challenges, or perhaps just a cultural issue that Trump can press on for the next four years. Regardless of the path forward, Trump's Silicon Valley advisers are not mincing words on this issue today.

“Elon, with the Twitter files, did a privatized version of what now needs to happen broadly," said Andreessen to Weiss, referring to Musk's allegations of censorship at Twitter. "We, the American population, need to find out what’s been happening all this time, specifically about this intertwining of government pressure with censorship … There needs to be consequences."

Source: yahoo finance

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IC Markets

Economic

US Markets Consolidate Ahead of a Big Week – Dow Off 0.2%

It was a relatively muted trading day on Friday, as expected, with investors digesting recent updates and looking ahead to another key trading week. The Dow dipped 0.20%, the S&P closed flat, and the Nasdaq gained just 0.12% in lacklustre trading. Currencies traded in relatively tight ranges, with the dollar edging higher.

There were, however, some notable moves in treasuries and commodities. The US 2-year yield added 5.4 basis points, rising to 4.245%, while the benchmark 10-year yield gained 6.9 basis points, reaching 4.397%. Oil prices pushed higher again as traders evaluated EU sanctions on Russia, with Brent crude adding 1.47% to $74.49 and WTI rising 1.81% to $71.29. Gold saw another drop from recent highs, losing 1.21% on the day to close the New York session at $2,649.65.

Central Bank Focus This Week

This week is set to be significant for financial markets, with key updates from some of the world’s major central banks. The Federal Reserve’s meeting, concluding late in the US trading day on Wednesday, will undoubtedly be the major focus. However, with a 25-basis-point cut already well priced in, the outcome could prove to be a non-event.

The Bank of England and the Bank of Japan are also due to update markets on interest rates. Both are expected to keep rates on hold, and these meetings may have a greater potential to move markets than the Fed’s announcement. FX traders anticipate significant activity around these events, with any surprises likely to come from the latter two meetings. Consequently, stronger moves in the pound and the yen may be seen as the week progresses.

Busy Day to Kick Off a Busy Week

Monday features an unusually packed calendar to start what could be a pivotal week for financial markets. A raft of Flash Manufacturing and Services PMI figures is due across all sessions, with data coming from Australia, France, Germany, the EU, the UK, and the US.

The Asian session includes several key Chinese updates, with Industrial Production and Retail Sales data in the spotlight. In the European session, ECB President Christine Lagarde is scheduled to speak, followed later by Bank of Canada Governor Tiff Macklem, who will address an audience in Vancouver.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

The debate between automated trading and manual trading has become a focal point in the world of forex and other financial markets. While each method offers its own set of advantages, many traders—especially newcomers—are unaware of the dark side of both trading styles. From scams involving false promises of "perfect" trading algorithms to deceptive brokers targeting those new to manual strategies, both automated and manual trading can lead to massive losses if you're not careful.

What Is Automated Trading?

Automated trading involves using computer algorithms to execute trades without human intervention. Traders set predefined rules based on technical indicators, price levels, or market trends, and the trading system automatically places orders according to these criteria. Many believe that automated trading removes the emotional bias from decisions and works tirelessly 24/7, capturing opportunities even when the trader is asleep.

However, not all automated trading systems are built equally. While some are genuinely effective, many are marketed by scam brokers promising astronomical returns. These systems, often referred to as "black-box" algorithms, are designed to trick traders into thinking they’re following a flawless, profit-generating formula. Unfortunately, the reality is far from what is promised.

The Allure and Risk of Automated Trading

The Promise of Easy Profits

Automated trading is often marketed by scam brokers as a “set it and forget it” solution. They promise easy profits with little effort on the trader’s part. This allure is tempting for traders, especially beginners, who want to enter the market without the need for in-depth market knowledge or experience. However, the reality is that these systems rarely deliver the returns they promise. Scam brokers create the illusion of success, but in most cases, the algorithms are rigged to funnel money away from traders rather than towards them.

Lack of Transparency and Control

One major downside of automated trading is the lack of transparency. If you’re using a proprietary algorithm, you often don’t know exactly how it works or what data it relies on. In many cases, this lack of insight makes it nearly impossible to assess its true effectiveness or adjust its parameters if it starts losing money. Worse, some scam brokers sell you access to a system that is poorly designed or even deliberately faulty, all in the name of generating profits for the scammer.

Risks of Over-Optimization

Automated trading systems can fall victim to over-optimization, where the algorithm is adjusted to perform well based on historical data but fails to adapt to current market conditions. This can lead to poor decision-making during periods of volatility or unforeseen market events. Scam brokers may try to convince traders that their system is infallible, but in reality, it may only be tailored to past trends that no longer hold true in the market.

What Is Manual Trading?

Manual trading, on the other hand, involves the trader executing orders based on their own analysis and discretion. Using tools like chart patterns, technical indicators, and fundamental analysis, manual traders aim to identify profitable trades and execute them at opportune moments. While it requires more effort, knowledge, and time, manual trading gives traders full control over their strategies and decisions.

The Allure and Risk of Manual Trading

The Emotional Factor

One of the biggest challenges with manual trading is the emotional aspect. Fear, greed, and impatience can cloud a trader’s judgment, leading them to make poor decisions. While some brokers advertise that their manual trading platform can help mitigate these emotions, the reality is that all traders face psychological challenges at some point. Scam brokers may exploit this weakness by offering strategies that promise to reduce risk or promise guaranteed results, only to lure traders into risky or manipulated trades.

Deceptive “Success” Signals

Manual trading also opens the door to scams in the form of misleading signals or fake expert advice. Many brokers offer “proven” strategies or market signals that supposedly lead to consistent profits. These services may come with hidden costs, or worse, the signals themselves might be rigged or untested. When a trader follows these signals, they often end up losing money or being forced into high-risk trades they don’t fully understand.

Lack of Automated Assistance

Manual trading can be mentally exhausting. Without the aid of automation, a trader must stay glued to their screen for extended periods to catch optimal trade opportunities. This long exposure can lead to poor decision-making due to fatigue, stress, or lack of focus. Scammers prey on this by offering manual trading platforms that promise to simplify the process, yet they often end up with fees, untrustworthy signals, or worse, manipulation of trades that cause traders to lose their funds.

The Common Scam Across Both Methods

Regardless of whether you’re trading manually or through automation, scammers tend to use similar tactics to lure unsuspecting traders:

Unrealistic Promises of Profits: Both automated trading systems and manual signal services are often advertised with promises of guaranteed profits, no losses, or high returns. These promises are often too good to be true and are a hallmark of fraudulent services.

Fake or Manipulated Reviews: Scammers often populate forums or social media with fake reviews or testimonials to create the illusion of credibility. They may also feature fabricated screenshots of impressive gains or success stories to lure new clients into their traps.

Hidden Fees and Costs: Both methods are prone to hidden fees. Automated trading systems might charge for access to algorithms that don’t work as advertised. Meanwhile, manual trading services may charge for overpriced signals, hidden subscription fees, or bait-and-switch tactics, where the trader is offered a "discount" that isn’t really a deal.

Lack of Regulation: Many scam brokers offering both automated and manual trading options operate without any regulation, making it difficult for traders to seek justice or get their money back if things go wrong.

How to Protect Yourself

Whether you're considering manual or automated trading, the key is to be aware of the risks and make informed decisions. Here’s how to protect yourself:

Choose a Regulated Broker: Always ensure that the broker is regulated by a trusted financial authority (such as the FCA, ASIC, or CySEC). This adds an additional layer of security.

Avoid Unrealistic Promises: If it sounds too good to be true, it probably is. Steer clear of brokers or systems promising guaranteed profits.

Research Thoroughly: Read reviews from reputable sources and check for complaints or scam reports before committing to any trading platform.

Start Small: Whether trading manually or using automation, always start with a small amount of capital to test the platform’s credibility and withdraw functionality before scaling up.

Conclusion: The Dark Side of Trading

Both automated and manual trading offer unique opportunities, but they also come with significant risks. While automation promises ease and speed, it’s often a front for scam brokers preying on naive traders. Manual trading, while giving full control, also opens the door to emotional pitfalls and misleading advice. Always ensure that you’re dealing with a regulated, trustworthy broker, and be wary of any offer that seems too good to be true.

Final Word: Whether you choose automated or manual trading, protecting yourself from scams requires vigilance, skepticism, and a thorough understanding of the risks involved.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

The foreign exchange market offers an array of trading options, with currency pairs ranging from major to minor and exotic. Exotic forex pairs, often seen as an avenue for high-risk, high-reward trading, have gained popularity among traders looking to maximize profits. However, behind the allure of these pairs lies a darker truth—many traders fall victim to scams and unethical brokers when dealing with exotic pairs. In this article, we’ll explore why trading exotic forex pairs can be risky, the signs of potential scams, and how to protect yourself.

What Are Exotic Forex Pairs?

Exotic forex pairs involve a major currency paired with the currency of a developing or emerging market. Examples include USD/TRY (US Dollar/Turkish Lira), USD/ZAR (US Dollar/South African Rand), or EUR/INR (Euro/Indian Rupee). These currencies tend to have lower liquidity compared to major pairs like EUR/USD or GBP/USD, making them more volatile and subject to greater fluctuations in value.

While these pairs can present opportunities for traders to profit from these price swings, they also carry significant risks, especially when paired with brokers that operate without proper regulation.

Why Are Exotic Pairs So Risky?

Higher Volatility

Exotic pairs are notoriously volatile. Currencies in emerging markets are often subject to drastic price changes due to political instability, economic events, or market sentiment. While volatility can be attractive to traders looking for big moves, it also means that the market can shift unexpectedly, leading to rapid losses. Unregulated brokers who promote exotic pairs may exploit this volatility to manipulate trades, causing unwarranted losses for traders.

Lack of Liquidity

Liquidity refers to how easily a currency can be bought or sold without significantly affecting its price. Exotic currency pairs often have lower liquidity, meaning it may be difficult to execute trades at desired prices. This can result in large slippage—where orders are filled at worse-than-expected prices—making trading even more unpredictable.

Increased Spreads and Hidden Fees

Many brokers who offer exotic forex pairs impose larger spreads to compensate for the lack of liquidity. This means that traders are required to pay more to enter and exit trades. In addition to the spread, some brokers may also charge hidden fees, including account maintenance fees or unannounced withdrawal fees. These fees often aren't disclosed clearly, leaving traders blindsided.

Scam Brokers Target Exotic Pair Traders

Exotic pairs’ volatility and complexity make them prime targets for scam brokers. Many shady brokers lure inexperienced traders with promises of high returns from exotic forex pairs, capitalizing on the traders’ ignorance of the risks involved. Once a trader signs up and deposits funds, the broker may manipulate trades, deny withdrawal requests, or lock accounts, leaving traders with no way to recover their funds.

The Dark Side: Scam Brokers and Exotic Pairs

Traders who venture into exotic pairs are often drawn by the promise of higher profits, but they fail to account for the associated risks and the potential for falling victim to scams. Scam brokers may offer seemingly attractive trading conditions, such as low initial deposits or high leverage, to entice traders to open accounts and trade exotic pairs.

Once a trader becomes involved, the broker may engage in unethical practices such as:

Delayed or Denied Withdrawals: The trader may attempt to withdraw profits or even their initial deposit, only to find that the request is delayed indefinitely or denied altogether.

Manipulation of Trades: A scam broker may manipulate the price of an exotic pair, executing trades at prices different from the market value or even preventing the trader from closing their positions.

Fake Bonuses and Promotions: To encourage traders to deposit more funds, scam brokers often offer fake bonuses or promotions. These may come with hidden terms that make it almost impossible to withdraw the bonus funds, leading to further losses.

No Clear Regulation: Scam brokers often operate without proper regulation from a financial authority, leaving traders with no recourse in case something goes wrong.

How to Protect Yourself from Exotic Pair Trading Scams

If you’re determined to trade exotic pairs, here are several steps you can take to protect yourself from potential scams:

Choose a Regulated Broker: Always ensure that the broker you choose is regulated by a reputable financial authority such as the FCA (UK), ASIC (Australia), or CySEC (Cyprus). Regulation ensures that the broker is held to high standards and offers you legal protection.

Read Reviews and Testimonials: Before signing up with a broker, research reviews from other traders. If many reviews mention issues like withdrawal problems or unresponsive customer support, it’s a red flag.

Start Small and Test Withdrawals: If you're new to exotic pairs, start with small trades and test the withdrawal process to ensure the broker honors withdrawal requests.

Understand the Risks: Exotic pairs may be tempting, but they come with heightened risk. Be sure you fully understand how these pairs move and the potential impact of news and events on their value.

Conclusion: Are Exotic Forex Pairs Worth the Risk?

While exotic forex pairs can offer enticing profit opportunities, they are often plagued by risks, especially when dealing with scam brokers. The high volatility, low liquidity, and the potential for manipulation make these trades far riskier than many traders initially realize. If you are considering trading exotic pairs, it's crucial to choose a regulated broker and understand the inherent risks involved.

Remember: just because a broker offers exotic forex pairs doesn’t mean they are trustworthy. Always do your due diligence to avoid falling victim to scams and ensure your trading experience is secure.

Final Advice: If you're new to forex trading or uncertain about exotic pairs, it may be better to stick with major and minor pairs until you gain more experience and can discern between legitimate brokers and potential scams.

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Central Bank

Fed seen taking the sidelines in January

Following the RBA, the BoC, the SNB and the ECB, the central bank bonanza continues next week, with the Fed on Wednesday, and the BoJ and the BoE on Thursday.

Although Wednesday’s data suggested that US inflation was a little bit hotter than in October, market participants became more convinced that the Fed will press the rate-cut button next week, almost fully penciling in a quarter-point reduction. Having said that though, the probability for policymakers taking the sidelines in January has soared to around 80%.

It seems that market participants took the words of several policymakers seriously, who appeared willing to vote in favor of a rate cut at the upcoming meeting, but they also stuck to their guns that a slower rate-reduction path moving forward is necessary.

That belief may be the result of president-elect Trump’s pledge to impose hefty tariffs on imports from around the globe, especially China, as well as his promise for massive corporate tax cuts. These policies are seen as fueling inflation, which has been proving sticky even before Trump’s plans are enacted.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_1

The stellar performance of the US economy corroborates the notion that Fed officials do not need to rush into lowering interest rates, something also noted by Fed Chair Powell himself. The Atlanta Fed GDP now model is pointing to a strong 3.3% QoQ SAAR growth in Q4, while the latest employment report confirmed that the labor market remains robust and that October’s dismal print was just an outlier, a one-off occasion due to strikes and adverse weather conditions.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_2

Mind the dots

With all that in mind, a 25bps cut itself is unlikely to shake the markets much. Investors may focus more on hints and clues on how likely a January pause is, as well as on how many rate cuts policymakers are contemplating throughout 2025.

Taking next week’s reduction out of the equation, Fed fund futures are pointing to another 50bps worth of reductions by next December. Combined with an already strong chance for a pause at the first gathering of the year, this poses some downside risks for the US dollar.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_3

Even if Fed Chair Powell corroborates the notion of a January pause, a median dot for 2025 pointing to more than 50bps worth of rate cuts could disappoint market expectations and thereby weigh on the greenback. At the same time, bets of lower-than-currently expected borrowing costs combined with Trump’s tax cuts, may be celebrated on Wall Street, with equity indices continuing to explore uncharted territories.

Bank of Japan – to hike or not to hike?

Passing the ball to the BoJ, up until very recently, investors were expecting 15bps worth of a rate increase at this gathering, or a 60% chance for a quarter-point hike. However, that probability dropped to around 25% after board member Nakamura said that, although he is not opposed to rate hikes, the decision should be data dependent.

His remarks disappointed those expecting the BoJ to finish the year with a hike, but yet, traders are nearly fully pricing in a quarter-point increase by March as Governor Ueda and his colleagues maintained their readiness to hike again due to an expanding economy, rising wages, and above-target inflation.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_4

This means that there are upside risks for the yen. A rate hike by the BoJ next week could offer strong support, but even if officials decide to stand pat, strong hints that an increase at the turn of the year is warranted could still prove beneficial.

BoE appears in no rush to cut rates

A few hours later, the central bank torch will be passed to the BoE. Contrary to the Fed, investors are seeing only a 10% chance of a 25bps cut at this gathering. They are not even fully pricing in one before March.

Last month, policymakers lowered the Bank rate from 5.0% to 4.75% but raised their inflation forecasts as finance minister Reeves announced massive government spending in her first budget.

Combined with recent remarks from Governor Bailey that there is still “a distance to travel”, this prompted investors to anticipate no action before the turn of the year and around 75bps worth of reductions by the end of 2025.

The relatively hawkish BoE bets helped the pound to be the only major currency that has not lost ground against the greenback in 2024, and to strongly outperform the neighboring euro as the ECB is expected to cut interest rates by another 115bps in 2025. Trump’s tariff threats pose another risk for the Eurozone and the common currency.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_5

Ergo, should the BoE maintain a hawkish stance, the pound is likely to remain supported. It could even finish the year higher against the US dollar if the Fed disappoints current market expectations.

Flash PMIs, CPIs and more

What could add extra pressure on the euro next week may be another round of disappointing PMIs on Monday. The preliminary numbers from France and Germany are coming out ahead of the Eurozone’s prints and signs of more economic struggles in these two nations, which are also face political uncertainty, could intensify headaches for euro traders.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_6

The UK and US preliminary S&P Global PMIs are also out on the same day, but they may attract less attention than the Euro area prints as pound and dollar traders may have their attention fixed on the BoE and Fed central bank decisions.

That said, pound traders may be tempted to incorporate the UK jobs data for October and the UK CPI numbers for November, due out on Tuesday and Wednesday, into their expectations heading into Thursday’s decision. So, the pound could experience some early volatility before Bailey and co. announce their decision. The UK retail sales are due out on Friday.

On Friday, the agenda also includes the US core PCE index for October, which is the Fed’s preferred inflation gauge and is accompanied by the personal income and spending data for the same month.

Speaking about inflation, following the BoC’s decision to cut interest rates by 50bps this week, loonie traders may turn their attention to Canada’s CPI data on Wednesday.

Week Ahead – Fed, BoJ and BoE Conclude End-Year Policy Decisions_7

Although policymakers opted for the bigger move, Governor Macklem said that further reductions would be more gradual. Now, investors are seeing a 40% probability for the Bank to stand pat at the January meeting and signs of inflation stickiness may increase that chance, thereby adding some support to the Canadian dollar.

Source:XM

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The AI revolution is “the biggest platform shift since electricity” and, as such, will bring investment opportunities in smaller tech firms that are climbing ever nearer to the Big Tech behemoths, according to one U.K.-based fund manager.

“We’re of the firm belief that the winners of this new technology cycle, that really started 18 months, two years ago with the ChatGPT moment [and the] AI revolution, these are not going to be the same winners as the last technology cycle,” Clare Pleydell-Bouverie, co-lead fund manager at Liontrust Asset Management, told CNBC’s Arjun Kharpal last week.

“We’re really focused on the opportunities sat below the Magnificent Seven,” Pleydell-Bouverie said, referencing a group of Big Tech stocks comprising of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.

Many of those tech firms she says are ripe for investment work on AI applications, which the fund manager describes as an emerging club of high-value firms, and one of a number of different layers growing within the wider AI industry.

“This year we’ve been really focused on the AI infrastructure layer of this new technology stack,” she said.

Pleydell-Bouverie warned keen AI investors to see that “you’ve got to build out this new compute infrastructure before you can monetize it.” This includes silicon chips, semiconductor equipment, the likes of Applied Materials, and firms responsible for laying underground cables and networks, she said.

“So, the Broadcom’s, the Amphenol’s, the Arista’s of this world, these are all really crucial components to scale this AI infrastructure. And on top of that, you’ve got the model providers. For the most part, we view these players as quite commoditized ... It’s a complete arms race to build these large foundation models,” she said. Large foundation models refer to machine-learning models that are trained on large amounts of data.

Below the AI application making “stack” are engineering firms “who bring AI to companies and customers,” said Pleydell-Bouverie, adding: “The value at the moment resides still in that AI infrastructure layer, but we see that moving up the stack into next year.”

Nvidia ‘primary beneficiary’ of AI boom

Pleydell-Bouverie believes Nvidia will be the key player for the AI revolution in 2025, striking comparisons with Apple’s surge as the dominant player during the smartphone transition.

Understanding Nvidia’s role in 2025, however, requires investors to view the Magnificent Seven firm in a different light.

“The key misunderstanding about Nvidia is that it’s a chip provider. Looking at the company through this framework … looking at this company through the framework of a backward looking hyperscaler capex [capital expenditure] is fundamentally the wrong way to be looking at this company,” said Pleydell-Bouverie.

Apple co-founder Steve Jobs is credited with integrating a failing operating system with sleek hardware in the mid-1990s, laying down the foundations for it to eventually take advantage of the smartphone boom that would emerge at the turn of the millennium.

Pleydell-Bouverie sees Nvidia accelerating similarly to Apple.

“Nvidia is actually positioning itself to be the operating system for this new AI-infused software that we’re going to really start to see come to market from next year,” she added.

Nvidia has been the primary beneficiary of the ongoing artificial intelligence boom, with its next-generation AI chip Blackwell now in focus. Shares of the company have nearly tripled so far in 2024 — up more than 180% in the year-to-date — making it one the world’s most valuable companies.

Source:CNBC

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