When Will the German Economy Bounce Back?

Economic

Summary:

Elections in February will provide an opportunity to tackle the country’s challenges.

Germany’s economy, which has lagged behind its peers in recent years, faces a series of headwinds in 2025, including trade uncertainty with the US, still-high energy prices, and growing competition from China. Elections in February will provide an opportunity to tackle the country’s challenges.

Europe’s largest economy is forecast to expand 0.3% in 2025, which is slower than the estimate for the euro area of 0.8% and for the UK of 1.2%, according to Goldman Sachs Research. The country’s real (inflation adjusted) GDP is unchanged since the fourth quarter of 2019.

When Will the German Economy Bounce Back?_1

For all the challenges, there are also signs of German industry finding ways to adapt. “Even though industrial production is down significantly over the last few years, the amount of value added has actually been much more stable,” says Goldman Sachs Research Chief European Economist Jari Stehn. “German companies have been able to respond by moving out of relatively low-margin production in chemicals or paper, and so on, into higher value production. I think the way forward essentially is for German companies to continue to do that.”

We spoke with Stehn and analyst Friedrich Schaper about Goldman Sachs Research’s forecast for GDP growth in Germany, competition from China, and the prospect for some easing of high energy prices.

Why has Germany’s economy underperformed other advanced economies in recent years?

Jari Stehn: Since the end of 2019, the statistics are quite striking. GDP in Germany has been flat over that period while the rest of the euro area has grown by 5%, and the US has grown 11%.

There are a few obvious reasons for that. One is the energy crisis that hit Germany particularly hard since it was so reliant on Russian pipeline gas. Germany has a lot of energy-intensive production, and its economy is quite heavily focused on manufacturing activity. So it’s natural that the increase in energy prices had a bigger effect on Germany than on other countries.

Second, Germany is highly exposed to China. This has been a big asset in the past because China has grown a lot. But over the last few years growth in China has slowed, so Germany has sold fewer goods into China. Also, China has become more of a competitor over time, particularly over the last two to three years. China now produces goods that are more like the goods that Germany produces. So essentially, China has transitioned from a key export destination to a key competitor, and it has gained market share, particularly in sectors where Germany has seen big cost increases.

Third, Germany has a number of broader structural issues, such as the degree of regulation that business startups face and public underinvestment. Cumulatively over the last few years, they have put Germany in a less competitive position.

When you take all of that together, it explains a good chunk of the of the underperformance.

Your GDP growth forecast of 0.3% for 2025 is below the consensus. What explains the difference?

Jari Stehn: First, we think that many of the structural headwinds that we just talked about will continue. But then, on top of that, we also expect significant trade tensions from the second Trump administration. Germany is likely to be particularly exposed to those tensions because it's a very open economy. It's heavily focused on industrial activity. When you look back at the first Trump term, we saw a very sharp growth slowdown in 2018 and 2019. The day after the US election we downgraded our forecast for all of Europe, but particularly for Germany.

Are you expecting most of the economic impact to come from tariffs or the mere possibility of them?

Jari Stehn: The takeaway from the first Trump term was you didn't actually see many tariffs implemented on Europe, but you saw a lot of discussions around tariffs that created a lot of uncertainty, a lot of trade tension. In the end, those had big effects on investment, on confidence, and on growth in Germany.

We have set out two scenarios. One, which is our base case, is that you get a sharp increase in trade tensions, but ultimately the actual tariffs that you see are relatively limited and targeted on the auto sector. The auto sector is obviously big in Germany, so you still see a significant hit. Our estimate is a 0.6% hit to the level of GDP. The downside scenario involves an across-the-board tariff on all European imports into the US. In that scenario, we think the negative effects would be significantly bigger — about twice as large.

Either way, we think there is going to be a pronounced period of uncertainty, and that uncertainty will weigh on confidence and investment.

What are the market implications, particularly for Bunds, of the February election in Germany?

Friedrich Schaper: The market is focused on the potential for a looser fiscal stance in Europe and for Germany in particular, and the elections could be a catalyst for such loosening. However, we argue that even at the upper end of our range of expectations about higher fiscal spending, the increase in duration supply of German Bunds is relatively modest compared to the notable increase in safe asset supply that we are already observing. That’s mainly because of a structural shift in the fiscal stance in Europe and the European Central Bank, which is reducing its balance sheet. That has made an impact already, and it’s showing up in higher Bund yields and higher interest rates for euro assets.

So the additional impulse of higher spending after the elections is already well reflected in pricing, in our view. Coupled with the outlook for slowing economic growth, which we expect will lead to a sustained cycle of interest rate cuts from the ECB, Bunds remain our favorite long position among G-10 bonds.

Going back to the energy situation in Germany, are you expecting any relief on the cost front next year?

Jari Stehn: Energy prices have come down significantly from the peak days of the summer of 2022. So we've seen a lot of relief and there's probably some more relief in the pipeline in the sense that contracts in Germany are relatively long and don't reset very frequently. We do think there's some drag on the energy-intensive sectors that is still likely to lift.

We also think that ultimately a lot of liquid gas will flow into Europe and into Germany. Germany has built many liquid gas terminals, and from the end of 2025 onwards, a huge amount of liquid gas will be coming from the US and from Qatar. That should be helpful in normalizing prices.

The caveat is that, on a relative basis, energy costs are likely to stay high. They are still notably higher than before the energy crisis — about twice as high. And they are three to four times higher than in the US.

Do you see competition with China remaining a growth obstacle for the foreseeable future?

Jari Stehn: Yes, I think it will continue to be a headwind. China has moved up in the value chain in terms of the goods that it produces. It used to be more that China would produce lower-value manufactured goods that Germany would import and use as an input for creating high-value manufactured goods that they could sell and capture a big margin in the process. Cars are an obvious example. China is now producing a lot of cars itself that are in direct competition with German-made cars. I don't really see a good reason why that should change anytime soon.

I would also say, though, that Germany has managed to adapt. So even though industrial production is down significantly over the last few years, the amount of value added has actually been much more stable. In other words, German companies have been able to respond by moving out of relatively low-margin production in chemicals or paper, and so on, into higher-value production. I think the way forward essentially is for German companies to continue to do that.

You also write that Germany has by far the most fiscal space amongst major advanced economies. Is it likely to use some of that capacity for additional spending in the next year?

Jari Stehn: In terms of the debt levels, government debt accounts for 64% of Germany’s GDP, almost half of what you're seeing in the US. And the trajectory is very different because that figure is falling in Germany while it’s rising in the US. So there clearly is space.

That said, Germany is constrained by the constitutional debt brake, which allows only for a small bit of borrowing when you adjust the deficit for the cycle. This has led to very tight policy over the last few years, particularly now that you have significant costs related to defense, to Ukraine, and then also to all of these challenges that we talked about, which all need investment to be addressed.

The outgoing government was not able to find a compromise around changing the debt break rule. The issue is that you need a two-thirds majority to do that because it's a constitutional amendment. But we do think that there's a good chance under the new government that you could get agreement on a modification of the rule that would open up some fiscal space.

The economic boost would probably be relatively modest — about half a percent of GDP, or about 20 billion euros a year. We would not expect this amount of investment to immediately turn around the growth picture or affect our 0.3% GDP forecast for next year. It’s probably more of a 2026 or 2027 story.

What else do you expect in terms of new policies once the February elections take place?

Friedrich Schaper: Much of the focus has been on what a government led by the CDU (Christian Democratic Union), which is currently leading in the polls, might prioritize. First, we think a CDU-led government would focus on passing some reforms to improve the competitiveness of the economy. That could include rolling back some of the most recent legislation, including climate-related regulations, to lower taxes for businesses, and especially to focus on lowering energy prices for industry.

Second, we think there will be a push to increase labor market participation. On the one hand, there has been some talk about limiting immigration. But, on the other hand, we think a CDU-led government would focus on improving work incentives, for example, by toughening eligibility criteria for welfare recipients, reducing welfare spending overall, and potentially also raising the retirement age.

Third, we would expect the incoming government to continue to fulfil the 2% NATO target on military spending. We would expect strong support for close transatlantic relations.

Lastly, we would expect some further European integration given the very pro-European agenda of the CDU as a party. However, we would note that the CDU is very skeptical of any further integration that involves some joint liabilities, such as a common deposit insurance scheme or any improvements of the capital markets that would imply joint borrowing.

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Pepperstone

Economic

Central Bank

As expected, the Bank of England’s Monetary Policy Committee stood pat on policy at the final meeting of the year, maintaining Bank Rate at 4.75%, in line with the outcome that money markets had fully discounted in advance of the announcement.

December 2024 BoE Review: Steady As She Goes_1

The lack of policy shifts means that the ‘Old Lady’ has delivered just 50bp of easing in total this year, a considerably more gradual pace of removing policy restriction than that of the Bank’s G10 peers, and some way off the over 150bp of cuts that the GBP OIS curve had discounted at the beginning of the year.

In any case, December’s decision was not a unanimous one. Once again, external MPC member Dhingra dissented in favour of an immediate 25bp cut, cementing her place as the Committee’s resident ‘uber-dove’. Dhingra was, surprisingly, joined in dissent by Deputy Governor Ramsden, and external member Taylor, resulting in a tighter than expected 6-3 vote in favour of a 25bp cut.

Accompanying the decision, as always, was the MPC’s updated policy statement. Largely, this statement was a repeat of that issued after the November meeting. As such, the Committee reiterated that a “gradual” approach to removing policy restriction remains appropriate, and that policy must remain “restrictive for sufficiently long” in order to reduce the risks of inflationary pressures becoming embedded within the economy. Furthermore, the MPC repeated that a ‘data-dependent’ and ‘meeting-by-meeting’ approach will continue to be followed, with particular focus on the “risks of inflation persistence”.

In reaction, the GBP OIS curve repriced marginally in a more dovish direction, as a result of the tighter than expected vote split. As such, money markets now see around a 72% chance of a cut in February, up from around 55% at Wednesday’s close. Furthermore, 22bp of easing is now priced by the end of Q1, from 18bp yesterday, while two 25bp cuts in 2025 are now fully priced back into the curve.

December 2024 BoE Review: Steady As She Goes_2

These policy expectations, and the Bank’s continued reluctance to deliver a more rapid pace of normalisation, are reinforced by this week’s economic data.

While unemployment held steady at 4.3% in the three months to October, both regular pay, and earnings including bonuses, rose by 5.2% YoY over the same period, boosted by the summer’s above-inflation public sector pay awards, which will further boost earnings growth in the November figures. Setting that aside, broader pay pressures remain intense, with earnings growth running at a rate roughly double that which would be compatible with a sustainable return towards the 2% inflation aim.

December 2024 BoE Review: Steady As She Goes_3

Meanwhile, price pressures remain persistent. Headline CPI rose 2.6% YoY in November, 0.2pp above the Bank’s most recent forecast, while core prices rose 3.5% YoY, and services CPI rose by 5.0% YoY, having now been north of that level for the last two and a half years. Progress in eradicating these persistent underlying price pressures has been glacial of late, with some of this progress seemingly starting to be undone. In order to unlock another rate cut, policymakers will be seeking convincing evidence of faster disinflation during the winter months.

December 2024 BoE Review: Steady As She Goes_4

Looking ahead, providing said evidence does indeed present itself, my base case is for the MPC to deliver the next 25bp Bank Rate cut at the February meeting. Beyond this, policymakers are likely to deliver further such cuts on a quarterly basis, likely at meetings which coincide with the release of an updated Monetary Policy Report.

Risks to this base case, though, are tilted towards a more dovish outcome, amid increasing signs of overall economic momentum stalling, and with risks to the labour market tilted to the downside, amid the upcoming changes to National Insurance. Were a greater degree of labour market slack to dramatically reduce overall demand, thus leading to an easing in stubborn services inflation, this could lead to a faster pace of normalisation from the BoE, though firm hints in this direction are unlikely until the second quarter, at the earliest.

The MPC will likely be reluctant to pivot away from the current ‘slow and steady’ stance too soon, particularly as the UK economic backdrop becomes an increasingly stagflationary one, lending further support to the case for ‘gradual’ rate cuts for the time being.

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Warren Takunda

Economic

The U.S. economy grew faster than previously estimated in the third quarter, driven by robust consumer spending.

Gross domestic product increased at an upwardly revised 3.1% annualized rate, the Commerce Department's Bureau of Economic Analysis said in its third estimate of third-quarter GDP on Thursday. The economy was previously reported to have expanded at a 2.8% pace last quarter.

Economists polled by Reuters had forecast GDP would be unrevised. The revision reflected upgrades to consumer spending and export growth, which offset a downward revision to private inventory investment and upward revision to imports.

The economy grew at a 3.0% pace in the April-June quarter. It is expanding at a pace that is well above what Federal Reserve officials regard as the non-inflationary growth rate of around 1.8%.

The U.S. central bank on Wednesday delivered a third consecutive rate cut, but projected only two reductions in borrowing costs next year compared to the four it had forecast in September, citing continued economic resilience and still-elevated inflation.

There are also concerns that some of the incoming Trump administration's policies, including tax cuts, mass deportations of undocumented immigrants and tariffs on imported goods, would be inflationary.

The Fed's policy rate was reduced by 25 basis points to the 4.25%-4.50% range. It was hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.

Fed Chair Jerome Powell told reporters on Wednesday that "it's pretty clear we've avoided a recession," adding that "the U.S. economy has just been remarkable, I feel very good about where the economy is ... and we want to keep that going."

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 3.7% pace. That was revised up from the previously estimated 3.5% rate.

A measure of domestic demand that excludes government spending, trade and inventories increased at a 3.4% pace. Final sales to private domestic purchasers were previously estimated to have risen at a 3.2% rate. Domestic demand increased at a 2.7% pace in the second quarter.

National after-tax profits without inventory valuation and capital consumption adjustments decreased $15.0 billion, or 0.4%. They were previously estimated to have risen $0.2 billion, or unchanged in percentage terms.

When measured from the income side, the economy grew at a 2.1% rate last quarter, lowered from the initially estimated 2.2% pace. Gross domestic income (GDI) increased at a 2.0% rate in the second quarter.

In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data. Annual benchmark revisions have sharply narrowed the gap between GDP and GDI.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.6% rate. That was revised up from the 2.5% rate reported last month. Gross domestic output grew at a 2.5% pace in the April-June quarter.

Source: Reuters

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Warren Takunda

Economic

Global stock markets ended Thursday in a sea of red following the Fed's hawkish pivot, leading to a broad-based selloff not seen since August.

The souring sentiment caused major benchmarks on both sides of the Atlantic to tumble, dimming hopes for a Santa Rally.

Yields on major benchmark government bonds in the Eurozone rose, mirroring their US counterparts, as the Fed projected fewer rate cuts in 2025.

The German 10-year government bond yield climbed 6 basis points to 2.3%, the highest in nearly a month.

The US 10-year government bond yield surged to 4.56%, the highest since May, rising by 17 basis points over the past two days.

The bond market turmoil continued to weigh on equity markets, with all regional stocks likely ending the week lower, just days before Christmas.

Europe

Major European benchmarks all recorded weekly losses, with the pan-European Stoxx 600 index falling 2.32%, the DAX declining 2.14%, the CAC 40 slipping by 1.55%, and the UK’s FTSE 100 dropping 2.35%.

All sectors were in negative territory, with energy and industrial stocks leading the week’s losses. The two sectors continued to underperform due to falling oil and metal prices.

Over the past five trading days, shares of Shell and BP slumped more than 4%, while Rio Tinto and Glencore’s stocks fell nearly 9%, particularly weighing on British stock markets.

Meanwhile, technology stocks declined following the Fed’s hawkish rate cut, with ASML down 3.69% and SAP falling 1.35% on Thursday.

On the economic front, December’s flash manufacturing Purchasing Managers’ Index (PMI) data came in lower than expected in Germany and France, indicating that the sector’s downturn deepened.

On a brighter note, services PMIs in Germany and the eurozone returned to growth this month, according to S&P Global’s estimates.

However, this expansion was insufficient to offset the broader economic challenges.

In the UK, the Bank of England kept interest rates on hold at 4.75%, as widely expected.

However, Governor Andrew Bailey stated: “With heightened uncertainty in the economy, we cannot commit to when or by how much we will cut rates in the coming year,” while reiterating a gradual approach to future rate cuts.

The dovish tone contrasted sharply with the Fed’s hawkish stance, causing the British pound to weaken significantly against the dollar, hitting its lowest level since May.

Wall Street

The US stock markets experienced a significant retreat this week following the Fed’s hawkish rate cut.

Over the past five trading days, the Dow Jones Industrial Average fell 3.39%, the S&P 500 slid 3.04%, and the Nasdaq Composite slumped 2.8%. The small cap, Russel 2000, tumbled 5.5% due to expectations of a slow pace of rate cuts.

In the S&P 500, all eleven sectors ended in negative territory, with the interest-rate-sensitive real estate sector leading losses, down 6.84% for the week.

The energy sector followed, dropping 6.76%, while industrials fell 5.67% compared to last week.

Most of the "Magnificent Seven" stocks declined on a weekly basis, with Nvidia down 4.85% and Meta Platforms falling 5.58%. Tesla, however, bucked the trend, rising 4.32% week-on-week.

The Fed cut interest rates by 25 basis points, bringing the total reduction this year to one full percentage point.

However, its dot plot projected just two cuts next year, down from four in its previous forecast. The final third-quarter GDP growth came in at an annualised pace of 3.1%, higher than the first two estimates.

This data further evidenced a resilient economy, reinforcing expectations of a gradual easing cycle by the Fed.

Asia

The Bank of Japan (BOJ) kept its policy rate unchanged this week and provided little guidance on future rate decisions.

Markets interpreted this as dovish, reducing the likelihood of a January rate hike. The Japanese yen weakened sharply against the dollar, reaching its lowest level since July.

In China, the People’s Bank of China (PBOC) kept the 1-year and 5-year Loan Prime Rates unchanged, as expected.

The Fed’s hawkish pivot may have influenced the PBOC to slow its pace of rate cuts, helping to stabilise the tumbling yuan. The Chinese yuan weakened against the dollar to its lowest level since November 2023 on Thursday.

Elsewhere, New Zealand’s economy slipped into a technical recession once again. Third-quarter GDP contracted by 1% compared to the previous quarter, following a 1.1% contraction in Q2.

Two consecutive quarters of negative economic growth constitute a technical recession.

Source: Euronews

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Owen Li

Economic

Stocks

The Nasdaq 100 has reversed its bullish momentum where at the start of this week, it was the sole major US benchmark stock index to print a fresh all-time high of 22,133 on Monday, 16 December.

The ex-post release of the US Federal Reserve monetary policy’s latest “dot plot” and Fed Chair Powell’s press conference on Wednesday, 18 December, have spooked the US stock market. The Fed has indicated the prospect of lesser interest rate cuts in 2025 due to the risk of inflationary pressure resurgence (some Fed officials have taken into account the effects of the incoming Trump administration’s “America First” policy).

The heightened prospect of a transition from a Fed “dovish pivot” to a “normalization” pivot in 2025 is likely the narrative at this juncture that may dim the hopes of the seasonal “Santa Rally” for this year-end.

The higher beta Nasdaq 100 recorded a loss of 4% from 18 December to 19 December (open to close) ex-post FOMC, the second worst performer among the four major US stock indices; Russell 2000 (-5.3%), S&P 500 (-3%), Dow Jones Industrial Average (-2.6%).

Several technical elements have now flashed out an increasing odd of a medium-term (multi-week) correction on the Nasdaq 100

Weak market breadth

Fig 1: Percentage of Nasdaq 100 and S&P 500 component stocks above 20-day & 50-day moving averages as of 19 Dec 2024 (Source: TradingView, click to enlarge chart)

Since the start of December 2024, the percentage of Nasdaq 100 component stocks trading above their respective 20-day and 50-day moving averages has fallen. In contrast, the price actions of the Nasdaq 100 have kept rocketing upwards to print record highs in the recent two weeks.

Right now, the percentage of Nasdaq 100 component stocks trading above their respective 20-day moving averages have plummeted to 9.9% as of 19 December. Also, the Nasdaq 100 component stocks above their respective 50-day moving averages have declined to 33.7% (see Fig 1).

20,790 is the last line of defense for the Nasdaq 100

Fig 2: Nasdaq 100 CFD major & medium-term trends as of 20 Dec 2024 (Source: TradingView, click to enlarge chart)

The recent past three days of price actions of the Nasdaq 100 CFD Index (a proxy of Nasdaq 100 E-mini futures have reintegrated below the upper boundary of its long-term secular ascending channel from the March 2020 low. This observation suggests the bullish breakout seen on 4 December is a failure acceleration move.

Since its all-time high on 16 December, it has declined by 5.5%. It is now hovering right above its 50-day moving average, which is acting as key intermediate support at 20,790.

The latest reading seen from the daily RSI momentum indicator suggests that the 20,790 key intermediate support is likely to be a “weak support” as the RSI has broken below a parallel ascending trendline support and breached below the 50 level that indicates a revival of medium-term bearish momentum (see Fig 2).

In addition, fewer Nasdaq 100 component stocks managed to record new 52-week highs since 14 November 2024 as the 10-day moving average of the difference between new 52-week highs minus 52-week lows has shaped a lower high.

Hence, a break with a daily close below the 20,790 key intermediate support may trigger a multi-week corrective decline sequence to expose the medium-term supports of 19,840 and 18,310 in the first step.

On the other hand, clearance above the 22,470/980 medium-term pivotal resistance zone invalidates the bearish scenario for the continuation of its impulsive upmove sequence for the next medium-term resistances to come in at 23,980/24,440 and 25,080/570.

Source: ACTIONFOREX

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Cohen

Economic

TOKYO (Dec 20): Japan's minority ruling coalition on Friday failed to secure support from a key opposition party for its tax reform plans, jeopardising Prime Minister Shigeru Ishiba's budget agenda for next year.

Without opposition support for the plans, which form the basis of next year's state budget, the ruling camp may struggle to get its budget and tax reform bills through parliament.

Japan's ruling Liberal Democratic Party and its small coalition ally Komeito said they agreed to lift the tax-free income threshold from ¥1.03 million (US$6,556 or RM29,574) to ¥1.23 million, the first change since 1995 to reflect rising living costs.

But the new threshold, included in the tax reform framework for the next fiscal year from April, is far short of the ¥1.78 million demanded by the opposition Democratic Party for the People (DPP).

"With the planned ¥1.23 million threshold, there is no way for us to support the state budget," DPP lawmaker Yuichiro Tamaki said on social media platform X on Friday.

Yoichi Miyazawa, chair of the LDP's tax system panel, told a news conference the ruling camp would continue discussions with the DPP.

Ishiba's ruling coalition lost its majority in a snap election he called for October, and it now needs the support of the DPP or other opposition parties to pass legislation through parliament.

The finance ministry calculated that hiking the threshold to ¥1.78 million would reduce tax revenue by up to ¥8 trillion, likely thereby adding to Japan's already huge public debt.

The LDP's Miyazawa said the coalition's proposed threshold hike would cut revenue by just ¥700 billion.

The tax reform plans will be approved by the cabinet as early as next week. Based on the tax plans, the government is set to draft a state budget by the end of this year.

The ruling coalition plans also include raising the country's corporate and tobacco taxes from April 2026 to fund more defence spending.

The step follows through on former Prime Minister Fumio Kishida's commitment to raise taxes to double defence spending to 2% of gross domestic product by 2027.

Source: Theedgemarkets

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ING

Economic

Commodity

Energy – WTI settles below $70/bbl

Crude oil prices edged lower with NYMEX WTI closing below $70/bbl while ICE Brent settled below $73/bbl yesterday. The oil market witnessed a second straight session of decline as the strengthening dollar weighs on the complex.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by just 16kt over the week to 6.3mt. The additions in gasoil and gasoline stocks were balanced by the declines reported in other oil products stocks. Gasoil stocks in the ARA region increased by 57kt week-on-week to 2.2mt for the week ending 19 December. Similarly, gasoline inventories rose by 12kt to 1.4mt over the reporting week.

In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 9.7m barrels for a seventh straight week to 54.4m barrels as of 18 December, the highest since August 2020. Residue stocks increased by 11.05m barrels whilst light and middle distillate stocks decreased by 556k barrels and 813k barrels, respectively. It is reported that inventories of heavy fuels rose by the most ever in a week, with levels at the highest since June 2016.

Meanwhile, US natural gas prices moved higher for a fourth consecutive session as weekly inventory numbers reported outflows, whilst expectations of a cold start to January raised hopes for increased consumption of the heating fuel. The weekly data shows that US gas storage decreased by 125Bcf last week, slightly lower than the 127Bcf increase the market was expecting. However, this was well above the five-year average decline of 92Bcf. Total gas stockpiles totalled 3.62Tcf as of 13 December, which is just 0.6% above last year and 3.8% above the five-year average.

Metals – Indonesia mulls mining cuts

Indonesia is considering implementing deep cuts to the nickel mining quota primarily to support the falling prices of the battery metal. The Energy and Mineral Resources Ministry is said to be planning to restrict the amount of nickel ore allowed to be mined to 150mt in 2025, sharply down from 272mt this year. However, the discussions about the size of the potential reduction are still ongoing with the government. Rising supply from Indonesia and slower-than-expected demand growth have been weighing on nickel prices. However, the announcement failed to offer any immediate support to LME nickel with prices falling to their lowest since November 2020 yesterday, as market participants continue to focus on the broader weakness in risk assets.

In zinc, market reports suggest that Toho Zinc Co. located in Japan will shut down its unprofitable zinc smelting business by the year-end, as ore-processing fees continue to hover near multi-year lows. The Japanese company is also withdrawing from mining investments following a “significant loss” in the mineral resources division.

Agriculture – EU lowers corn and wheat output estimates

In its latest cereals market situation report, the European Commission estimated that the bloc’s grain production could fall to 255.8mt for the 2024/25 season, compared to its previous projections of 256.9mt. This is largely driven by a decrease in soft wheat production estimates, which fell from 112.3mt from November projections to 111.9mt for the period mentioned above. This is due to a reduction in the harvest area to 20.2m hectares from 20.3m hectares. Similarly, corn production estimates were revised down slightly to 59.5mt from its previous projections of 59.6mt.

Meanwhile, in its weekly report, the Buenos Aires Grain Exchange raised Argentina’s corn planting estimates to 65.8% complete for the 2024/25 season, up from 55.6% estimated earlier. Sufficient rain has been helpful for the planting season so far. Meanwhile, the exchange reported that the corn planting area remained unchanged at 6.3m ha for the above-mentioned period. Similarly, soybean planting estimates were raised to 76.6% for the 2024/25 season from its previous estimates of 64.7%. The exchange further added that the forecast for more showers could continue to improve the country’s wheat crop condition as well.

US weekly net export sales for the week ending 12 December show strong demand for US grains over the week. US corn shipments surged to 1,177kt, higher than the 946.9kt a week ago and 1,014kt for the same period last year. This was also higher than the average market expectations of 1,013kt. Similarly, wheat shipments rose to 458kt, higher than the 290.2kt reported in the previous week and 326kt a year ago. The market was expecting a number closer to 329kt. Meanwhile, soybean shipments stood at 1,424.2kt, higher than the 1,173.8kt reported a week ago but lower than the 2,133.4kt reported a year ago. The average market expectations stood at 1,256kt.

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When Will the German Economy Bounce Back?

Why has Germany’s economy underperformed other advanced economies in recent years?

Your GDP growth forecast of 0.3% for 2025 is below the consensus. What explains the difference?

Are you expecting most of the economic impact to come from tariffs or the mere possibility of them?

What are the market implications, particularly for Bunds, of the February election in Germany?

Going back to the energy situation in Germany, are you expecting any relief on the cost front next year?

Do you see competition with China remaining a growth obstacle for the foreseeable future?

You also write that Germany has by far the most fiscal space amongst major advanced economies. Is it likely to use some of that capacity for additional spending in the next year?

What else do you expect in terms of new policies once the February elections take place?

December 2024 BoE Review: Steady As She Goes

US Third-Quarter Economic Growth Revised Higher

Source: Reuters

Global Markets in Sea of Red as the Fed Dims Hopes of Santa Rally

Europe

Wall Street

Asia

Source: Euronews

Nasdaq 100 Technical: At Risk Of Staging A Multi-week Corrective Decline

Fig 1: Percentage of Nasdaq 100 and S&P 500 component stocks above 20-day & 50-day moving averages as of 19 Dec 2024 (Source: TradingView, click to enlarge chart)

Fig 2: Nasdaq 100 CFD major & medium-term trends as of 20 Dec 2024 (Source: TradingView, click to enlarge chart)

Source: ACTIONFOREX

Japan's Ruling Camp Fails To Secure Opposition Support For Tax Reforms

Source: Theedgemarkets

The Commodities Feed: Stronger USD Prompts Oil Sell-off

Energy – WTI settles below $70/bbl

Metals – Indonesia mulls mining cuts

Agriculture – EU lowers corn and wheat output estimates

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