Singapore Economy

Economic

Summary:

Singapore is a high-income economy, renowned for its robust financial sector and a high degree of economic openness.

As one of the most competitive economies globally, it consistently ranks among the top nations for providing a business-friendly environment.

Since achieving independence in 1965, Singapore has undergone a remarkable transformation. From a small domestic market economy grappling with high unemployment and poverty, it has evolved into a highly developed, free-market economy driven by industrialisation and global trade.

The city-state is highly urbanised, with a population of approximately 5.96 million in 2024. English, one of Singapore’s official languages, serves as the primary medium of communication in business and government.

Singapore’s economic growth is primarily driven by exports and domestic demand. The country’s GDP experienced a significant contraction of 4.1% in 2020 due to the coronavirus pandemic. However, recovery was swift, with growth rebounding to 7.6% in 2021, the highest annual rate since 2010’s 14.5%. Growth moderated in subsequent years, with GDP expanding by 3.6% in 2022 and slowing further to 1.2% in 2023. Singapore Economy_1

While the IMF WEO October 2024 forecasted 2.6% growth in 2024, the Ministry of Trade & Industry (MTI) just said the economy grew by 4%. For 2025, the MTI sees growth slowing to a range of 1-3 %, citing geopolitical conflicts and higher uncertainty over US trade policies under the Trump administration. The IMF forecasts 2.5% growth in 2025.

The country’s GDP per capita remains one of the highest globally. In 2024, GDP per capita is estimated to be $104,127, underscoring Singapore’s status as a global economic leader.

While unemployment exists, it remains minimal due to structural changes such as outsourcing lower-skilled jobs. The unemployment rate stood at 2.7% in 2023 and is projected to come down to about 2% in 2024.

Currency and Central Bank

The Singapore dollar (SGD) is the official currency of Singapore and is divided into 100 cents. It is commonly denoted by the dollar sign ($) or S$ to distinguish it from other dollar currencies. Banknotes and coins are issued by the Monetary Authority of Singapore (MAS), the country’s central bank.

As of 2024, the Singapore dollar remains one of the strongest currencies in the Asia-Pacific region and continues to play a key role in international trade and finance. It is also among the top traded currencies globally, ranking 11th in 2021 and maintaining its prominence in recent years due to Singapore’s stable economic environment and sound financial policies.

In addition to its role as a central bank, the MAS serves as Singapore’s financial regulatory authority, overseeing banking, insurance, securities, and the broader financial sector. The MAS is currently led by its chairman, Ravi Menon, following Tharman Shanmugaratnam’s tenure.

Inflation in Singapore has moderated after reaching a peak of 6.1% in 2022. In 2023, inflation eased to 4.8%, reflecting tighter monetary policies and stabilising global supply chains.

According to official data from MAS, core and headline inflation in 2025 are both expected to average 1.5 – 2.5%, compared to the 2024 forecast of 2.5 – 3.0% and around 2.5%, respectively.

Industry and Trade

Singapore’s economy is predominantly driven by the services and industrial sectors. According to the Singapore Department of Statistics, services industries contributed over 70% to the nominal value added, while goods-producing industries accounted for about 25%.

The manufacturing sector remains a cornerstone of Singapore’s industrial landscape, comprising approximately 18.6% of GDP. Key industries include electronics, petrochemicals, biomedical sciences, logistics, and transport engineering. Notably, the electronics cluster has experienced a resurgence, supported by strong demand for smartphone, PC, and AI-related chips, according to the Ministry of Trade and Industry (MTI).

Within the services sector, wholesale trade represents a significant portion. In the first quarter of 2024, the domestic wholesale trade index declined by 2.2% year-on-year, while the foreign wholesale trade index increased by 3.4%.

The finance and insurance sector also demonstrated robust growth, expanding by 6.7% year-on-year in the second quarter of 2024, driven by the banking and fund management segments. Singapore Economy_4

Singapore relies heavily on its export sector. Top exports include machinery and equipment, petroleum products, chemical products, miscellaneous manufactured articles, and oil bunker.

Biggest imports include machinery and equipment (including electronics), crude oil, miscellaneous manufactures and chemical products.

The nation’s primary trading partners are China, the United States, Malaysia, the European Union, Taiwan, and Hong Kong. In 2023, Mainland China, the US and Malaysia were Singapore’s top trading partners. Singapore’s exports to Mainland China exceeded Singapore’s imports from Mainland China, while Singapore’s imports from Malaysia and US exceeded exports to these trading partners.

Stock Exchanges and Capital Markets

The Singapore Exchange or SGX is the sole stock exchange in the country. It is a multi-asset exchange that operates equity, fixed income and derivatives markets, and provides listing, trading, clearing, settlement, depository, and data services. It is the largest stock market exchange in Southeast Asia, with a total of 620 listed companies, as of September 2024.

The SGX uses the FTSE Straits Times Index or STI as its benchmark index. The STI is a capitalisation-weighted stock market index that tracks the performance of the top 30 companies listed on the SGX.

Approximately 40% of the companies listed on SGX are based outside Singapore, highlighting its role as a regional financial hub. SGX positions itself as a leading offshore market for equity index derivatives, covering major Asian economies with high liquidity. Notably, the exchange has expanded its derivatives offerings, including the GIFT Nifty 50 Index Options, which saw a significant increase in trading volume in 2024.

Along with London, New York, and Tokyo, Singapore is consistently listed as one of the world’s most active trading centres. SGX continues to enhance its market infrastructure and diversify its product offerings to maintain its competitive position in the global financial landscape.

Bond Market

Singapore’s bond market continues to attract both local and foreign investors, maintaining its position as one of the most developed in Asia. The country’s AAA credit rating from major agencies reflects its strong fiscal discipline and economic stability.

Singapore Government Securities (SGS) are a cornerstone of the bond market, comprising Treasury Bills (T-bills), SGS Bonds, Singapore Savings Bonds (SSBs), and Cash Management Treasury Bills (CMTBs). T-bills are short-term securities issued at a discount and maturing in 6 months or 1 year, providing returns upon maturity. SGS Bonds, in contrast, are longer-term instruments with fixed coupon rates and periodic interest payments, available in maturities ranging from 2 to 50 years. SSBs are designed for individual investors, offering step-up interest rates over 10 years and flexible redemption options. Meanwhile, CMTBs are short-term instruments primarily used for cash management purposes.

The MAS highlights several objectives for issuing SGS Bonds and T-bills. These include creating a liquid market to facilitate efficient trading, establishing a robust government yield curve as a benchmark for pricing other debt instruments, and supporting an active secondary market for cash transactions and derivatives to enhance risk management. Furthermore, the issuance of these securities encourages participation from both domestic and international issuers and investors, bolstering the growth and global integration of Singapore’s bond market.

Real Estate Market

Singapore’s real estate market exhibited mixed trends throughout 2024. In the third quarter, private residential property prices declined by 0.7%, marking the first decrease since the second quarter of 2023. This downturn was observed across all market segments, with landed property prices falling by 3.4% and non-landed property prices experiencing a marginal increase of 0.1%. For the first three quarters of 2024, overall private housing prices rose by 1.6%, a notable slowdown compared to the 3.9% gain during the same period in 2023.

Conversely, the public housing sector demonstrated robust growth. Resale prices for public housing units increased by 9.6% in 2024, nearly doubling the 4.9% rise observed in 2023. The number of resale transactions also grew by 8% year-on-year. Despite government interventions aimed at cooling the market, such as reducing the loan-to-valuation ratio for resale flats from 80% to 75%, demand remained strong. This surge is partly attributed to supply constraints and heightened demand, with fewer newly eligible units available for sale compared to previous years.

In the luxury segment, the market faced challenges due to policy measures. The Additional Buyer’s Stamp Duty (ABSD) for foreign buyers was increased to 60% in 2024, making Singapore one of the most expensive major cities for property purchases by foreigners. This move aimed to address concerns about housing affordability for locals and to temper speculative investments.

Looking ahead, the Singapore real estate market is projected to grow from $46.58 bn in 2024 to $64.04 bn by 2029, representing a compound annual growth rate (CAGR) of 6.57%. This growth is expected to be driven by affordable housing projects and increased demand for logistics and industrial real estate. Singapore Economy_5

Source:asia fund managers

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ING

Economic

Contrary to the run-up to the ECB’s December meeting, the preparation for next week’s has been relatively quiet, at least in public. There haven’t been any controversial views about the next steps. Instead, there seems to be a growing consensus about the need for further rate cuts. Today’s comments by ECB president Christine Lagarde suggest that a 25bp rate cut at next week’s meeting is a no-brainer and that the rate cut cycle will continue.

Rate cut next week despite higher inflation

Remember that the minutes of the ECB’s December meeting already showed a growing easing bias at the European Central Bank based on doubts about the growth forecasts and the growing risk of inflation undershooting. With little new hard data since the December meeting, the ECB is currently looking at a mild version of stagflationary tendencies: continued sluggishness of the economy and accelerating inflation. Still, the ECB seems to be looking through this temporary acceleration of inflation, and even the hawks sound dovish.

The main reason for the ECB’s increased dovishness is that the December forecasts used a terminal rate of below 2%. Just to deliver the December forecasts' outcomes, the Bank will have to cut rates by a total of 100bp. Add to that the increased risks for eurozone growth stemming from the potential economic policy choices of the new US administration, and you can understand where officials are coming from.

Rate cutting will continue beyond next week's meeting

At 3%, the deposit interest rate is still restrictive and too restrictive for the eurozone economy's current weak state. The recent surge in bond yields has also worsened financial conditions in the eurozone. Even if some argue that monetary policy can do very little to solve structural issues, political instability and uncertainty in many countries will force the ECB to continue doing the heavy lifting.

Also, as long as the current inflationary pressure is anticipated to diminish over the year, the Bank is likely to overlook the present inflation resurgence. While the experience of being slow to address rising inflation will deter the ECB from adopting ultra-low rates, the desire to stay ahead of the curve remains a compelling reason to return interest rates to neutral as swiftly as possible.

This means that the ECB will continue to cut rates. Bringing them at least to the upper end of estimates for the neutral interest rate, i.e. 2.5%, seems like a no-brainer. However, if the eurozone economy remains weaker than the ECB’s December forecasts predict, cutting rates further will become unavoidable.

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Alex

Forex

Economic

Trump, who has also threatened Canada, Mexico and China with heavy duties, said on Tuesday Europe had troubling trade surpluses with the US and was "in for tariffs".

In statements to reporters before their working lunch at the Elysee Palace, both Macron and Scholz insisted that Europe was strong and the Franco-German tandem solid, while expecting difficulties.

"President Trump will, that much is already clear, be a challenge," Scholz said.

"Our position is clear. Europe is a large economic area with around 450 million citizens. We are strong. We stand together. Europe will not duck and hide."

Macron has long pushed for Europe to be more self-reliant.

"After the inauguration of a new administration in the US, it is necessary more than ever for Europeans and for our two countries to play their role of consolidating a united, strong and sovereign Europe," he said.

The two leaders mentioned the steel, car and chemicals sectors — possible targets for US tariffs — as crucial for the European economy.

Some business leaders and analysts have said Trump's first term offers evidence that he often publicly launches threats of tariffs and other measures to use as leverage, without ultimately carrying them out.

But others fear he could be emboldened by a strong popular mandate and more support in both houses of Congress.

"The European Union (EU) is very, very bad to us," Trump told reporters on Tuesday. "So they are going to be in for tariffs. It's the only way...you are going to get fairness."

Many EU countries have export-oriented economies. Already facing higher energy costs because of the war in Ukraine and a slowdown in trade with China, they do not relish the idea of a new front with the US.

"We have entered a new phase of negotiations with the US," French government spokeswoman Sophie Primas told reporters before the meeting. "Relations with President Trump are transactional. We must be as determined as the US, we must show our strength."

Both Macron — who lost snap elections last year and has had four prime ministers in 2024 alone — and Scholz, who is trailing his conservative rival in surveys before the German election next month, are weakened politically at home.

The pair have differed on many issues in recent years, slowing down decision-making in the EU and leaving a leadership void that EU institutions have struggled to fill.

"Franco-German relations must warm up very strongly and very quickly," said a French government source, speaking on condition of anonymity. "Europe won't be relaunched without a strong Franco-German couple."

But while leading German politicians have been pushing for a free trade agreement between Europe and the US, France says the EU must reject economic coercion and apply counter-tariffs if attacked.

Source：theedgemalaysia

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Owen Li

Economic

“The economic rebound is being driven by a shift from deflation to reflation, marking a dramatic transformation after years of sluggish growth,” says Stephen Way, Head of Global & Emerging Markets Equities at AGF Investments. As he explains, deflation stifled wage growth, consumer spending and overall economic activity over the past two decades. “We believe the current environment is markedly different, as rising wages, increased inflation expectations and improved corporate pricing power support a more robust economic backdrop,” he adds.

AXA Investment Manager’s Gabriella Dickens also sees the end of deflation in Japan “with a virtuous wage/price spiral appearing to take hold”. “We see scope for a structural rise in wages over the coming years,” the G7 Economist – Macro Research says. “Dwindling labour supply amid an ageing population should increase bargaining power, while rising inflation expectations among households and businesses should pave the way for larger pay rises in the coming years. We look for a rise in base pay of around 3% in 2025 and 2026,” Dickens adds.

However, economic challenges remain, including labour shortages, straining production and public finances. Global trade uncertainties and the Bank of Japan’s monetary tightening pose risks to exports, consumer spending, and investments.

Japan Outlook: Equities

In 2024, the Nikkei 225 reached its highest level since 1989, and the Japanese equity market is expected to maintain its current robust performance. However, the stock market is sensitive to macroeconomic conditions in the US as well as the Bank of Japan’s monetary policy, cautions Tomochika Kitaoka, Chief Japan Equity Strategist at Nomura. So, the market’s reaction to tariffs being imposed by the US is one concern for 2025.

However, according to Nomura, the impact of Trump’s tariffs on Japanese corporate earnings is unlikely to be substantial.

Asian Market Insights

Exclusive news, analyses and opinion on Asian economies and financial markets.

Sumitomo Mitsui Trust Asset Management (SuMi Trust) sees the equity market’s positive momentum bolstered by “expectations for a soft landing for the US economy, improving corporate earnings in the service sector, and a positive outlook for shareholder return programs by Japanese companies”.

“The key to whether corporate earnings remain steady will be if the yen can maintain the assumed exchange rate of 145 yen to the dollar used by many Japanese companies in their earnings forecasts,” says Hiroyuki Ueno, Chief Strategist at SuMi Trust.

The yen is at historically weak levels but has shown some signs of resilience since June 2024. SuMi Trust expects the Japanese currency to likely move in response to Japanese and US monetary policy developments.

“While the BOJ’s plans will take into account the economy, prices, and the general finance environment, we expect that they will continue to raise rates as planned since real interest rates are currently at a low level,” says Ueno.

Pictet Asset Management believes the yen will be the major beneficiary of the dollar’s long-term decline and will appreciate next year. “The Japanese economy is set to accelerate while the Bank of Japan is one of the few central banks that will hike interest rates. According to our model, the yen is around 20% below its fair value,” says Pictet in their outlook for 2025.

“We believe the biggest risk for Japan in 2025 is that following decades-long stagnation, its moderate economic recovery could face a slowdown, denting business and investor sentiment,” opines Junichi Inoue, Head of Japanese Equities at Janus Henderson Investors.

He notes that the earnings growth rate for the Japanese market is anticipated to be in the high-single digits, a target that appears achievable. However, Inoue highlighted that while the financial sector is expected to drive this growth, the manufacturing sector might experience a more pronounced slowdown, potentially impacting profits if revenue growth falters, as cost reductions in this sector are not easily implemented.

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Source:asia fund managers

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Owen Li

Central Bank

“I’ll demand that interest rates drop immediately,” he said at a virtual address to the World Economic Forum in Davos, Switzerland. He paired his comment on rate cuts with a call for Saudi Arabia to reduce oil prices.

“I’m going to ask Saudi Arabia and OPEC to bring down the cost of oil,” Trump said, later adding: “With oil prices going down, I’ll demand that interest rates drop immediately.”

It’s an ambitious agenda, but the odds are low that Trump could, from the bully pulpit of the White House, issue orders that change interest rates and oil prices in a meaningful degree through time. Impossible? Maybe not. This, after all, is Trump and his political rise has come at the expense of numerous political norms that are now buried under the rubble of the collapsed old-world-order that was Washington pre-2016.

But while Trump has a history of getting what he wants, and beating the odds along the way, he’s set a high bar with interest rates and oil prices that will likely be difficult, if not impossible, for the president to control. What’s different here is that rates and oil are set globally, driven by a mix of supply and demand data, economic indicators, investor sentiment, rank speculation, and many other factors. The idea that any one person – even the most powerful person on the planet – can dictate oil prices and interest rates is akin to assuming that you can easily grab a couple of eels out of a bucket of water.

Let’s start with interest rates. The Federal Reserve controls the short end of the yield curve and presumably Trump’s plan would be to order the central bank to lower the target rate whenever he decides it’s time to ease monetary policy. In theory, that’s possible, but several things would need to happen first, perhaps starting with Trump firing Fed Chairman Jerome Powell, who would likely refuse to follow the president’s directive on rates.

Could the president fire the Fed head? “No,” Powell told reporters in November. “Not permitted under the law.”

Laws can be changed, of course, and Republicans control both houses of Congress. But we’re a long way from rewriting the rules for the Fed’s operations. Never say never, but I’ll go out on a limb here and predict such a huge change — and one that would likely upend markets — in the status quo for US central banking is unlikely.

But let’s indulge in a thought experiment and imagine Congress gives the president the power to set interest rates, which would make the Fed little more than the White House’s errand boy. Even in such an alternative universe, the president’s newly acquired monetary powers would only directly apply to the Fed funds target rate, which casts a long shadow over short-term yields. Further out on the maturity curve is a different story.

Case in point: the Fed announced its first rate cut for the current cycle on Sep. 18, 2024. But expecting longer maturities to act in lockstep with Fed decisions is assuming too much. In the four months since the Fed first reduced its target rate (followed by two more cuts), the 10-year Treasury yield has increased by roughly 100 basis points. And since long rates determine the cost of borrowing, this is where most of the economic signifance lies vis-a-vis changes in interest rates.

Trump Says He’ll ‘Demand That Interest Rates Drop Immediately’_1

Perhaps the president would have more success lowering oil prices. Although Saudi Arabia is only one of several members of the OPEC cartel, the kingdom does have an outsized influence over crude prices, thanks to the country’s ample reserves – the world’s second largest. No less important is the low cost-per-barrel to pump Saudi oil – the lowest among producers.

But while Saudi influence on global prices is significant, it’s not absolute. There’s also the question of whether the kingdom would play ball with Trump. Possibly, although under what conditions (and price tag) is open for debate.

Even if the House of Saud is willing to do a deal with Trump, it’s not obvious that oil prices will quickly fall significantly for any length of time. The history of OPEC – a cartel that’s intent on manipulating oil prices to maximize profits for its members – has had mixed results over the decades since its founding in 1960.

To be fair, Trump is hardly the first president to cajole the Fed and oil producers. Nixon, for example, famously pressured Fed Chairman Arthur Burns to expand the money supply for political purposes in the runup to the 1972 election. The results, however, weren’t encouraging.

Ultimately, global markets will determine medium- and long-term interest rates and oil prices. The caveat for Trump is that politicians who try to circumvent markets eventually lose.The price discovery mechanism, unlike politicians and bureaucrats, can’t be suppressed, bought off or rendered inert for long.

Source:The Capital Spectator

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Justin

Economic

In December, consumer and business sentiment dampened amid political chaos, after President Yoon Suk Yeol was impeached and suspended from duties over his short-lived bid to impose martial law, followed by the impeachment of Prime Minister Han Duck-soo.

That impact saw gross domestic product (GDP) expand just 0.1% from a quarter earlier on a seasonally adjusted basis, the Bank of Korea's (BOK) advanced estimates showed on Thursday.

It was weaker than increases of 0.2% forecast in a Reuters survey and 0.5% projected by the central bank less than a week before Yoon's Dec 3 martial law edict.

Asia's fourth-largest economy has struggled through 2024, having narrowly avoided a technical recession in the third quarter, when it grew 0.1% following a 0.2% contraction in the second.

Worryingly, the BOK and economists expect the political crisis to remain a dampener on growth this year too.

"Economic sentiment weakened significantly on political uncertainty, which will continue to affect the economy as a risk factor in the first quarter and throughout the year," a BOK fficial told a briefing, warning that this quarter's growth could also miss the central bank's November forecast of 0.5%.

Shivaan Tandon, markets economist at Capital Economics, concurred: "We suspect that the weakness in activity could persist in the near term due to the ongoing political crisis, and the bleak outlook for the construction sector".

The benchmark KOSPI fell as much as 1.1% in morning trade after the data release, despite Wall Street's overnight rally to a record high, while the won weakened.

Trump factor

In 2024, the South Korean economy grew 2.0%, after expanding 1.4% the year before, but growth is projected to slow in 2025 to 1.6% or 1.7%, below the estimated potential of around 2%, according to the BOK.

In the October-December quarter, GDP grew 1.2% on an annual basis, the slowest pace since the second quarter of 2023.

Consumption was a major drag. Over the quarter, consumer spending rose 0.2% and corporate investment grew 1.6%, weaker than the previous quarter's gains of 0.5% and 6.5%, respectively, while construction investment fell 3.2%.

Exports rose 0.3%, making a modest recovery after their fall of 0.2% a quarter earlier, led by sales of semiconductors on robust demand for artificial intelligence, though there are worries that US President Donald Trump's tariff threats against its major trading partners could hit South Korean shipments.

"The sub-par fourth-quarter GDP result is concerning, and the country will need to find a way to bolster the domestic economy and negotiate with the United States to limit the impact of tariff hikes," said Danny Kim, associate economist at Moody's Analytics.

More stimulus expected

All of this meant policymakers will be under pressure to step up stimulus, economists say.

"We are seeing almost no growth for the first quarter, as it is hard to expect a recovery in domestic demand, while exports are also weakening," said Park Sang-hyun, chief economist at iM Securities.

"The Bank of Korea will definitely lower interest rates in February, and will probably have to in April as well," Park said, expecting the government to draft an extra budget as early as in the second quarter.

South Korea's central bank is expected to lower interest rates next month by 25 basis points, and twice more this year to 2.25%, after its unexpected rate-hold decision this month to prevent the won — which weakened the most among Asian currencies last year — from falling further.

There are also growing calls from economists and opposition lawmakers for the government to draft a supplementary budget to support frail domestic demand, with no less a figure than BOK governor Rhee Chang-yong arguing the case last week.

Finance Minister Choi Sang-mok, serving as acting president, said earlier this week that the government was willing to discuss it with parliament.

Source：theedgemalaysia

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ING

Economic

Further consolidation is likely among the $ Majors as traders await a Trump dialogue in Davos today. Elsewhere we see downside risks to the Norwegian krone from today's Norges Bank meeting and see the Turkish lira staying attractive despite another 250bp rate cut today.

USD: Some short-term uncertainty

Monday's correction in the dollar has not run very far at all. That sell-off was premised on Day One not nearly being as aggressive with tariffs as many had feared. Currently, the market’s attention is on two significant upcoming dates.

1 April is a deadline for the US Commerce Department and the US Trade Representative to conduct a root-and-branch review of why the US persistently runs large trade deficits. Large trade deficits are an anathema to the America First agenda. These reviews are due by 1 April and ING's Inga Fechner discusses what's at stake here. This means in theory, substantial tariffs may not come in until after April once the recommendations have been made.

The second big date is 1 February. Seemingly in off-the-cuff remarks, President Trump has floated the possibility of 25% tariffs on Mexico and Canada, plus 10% tariffs on China by this date if progress is not made on fentanyl or border issues. This threat is probably preventing the dollar from correcting further. That said we have been seeing a little more stability in some EM currencies, where the Brazilian real is sub 6.00 again after heavy local FX intervention.

Today the focus will probably be on Trump's digital dialogue in Davos at 11ET,16GMT/17CET. One new area of interest may be the international tax code, where he could potentially tariff counties trying to enact the OECD's Global Minimum Tax – clearly something on the mind of his tech industry sponsors. Let's see if we hear more about this today, but we would say this dialogue is another positive dollar event risk.

DXY could trade a 108.00-108.60 range today and again is very much exposed to Trump headlines.

Elsewhere, we note that Chinese measures to support the local stock market – by instructing state-owned mutual funds and insurers to buy more mainland stocks – have failed to move the needle on Chinese asset prices.

EUR: Correction has been lacklustre

This week's EUR/USD bounce has been pretty muted so far. As above, there is no way investors can expect to hear an 'all-clear' signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump's last tariff regime in 2018-19.

Another reason traders may not want to reduce their euro short positions is ahead of tomorrow's release of the eurozone flash PMis for January. Another dire set of confidence readings will only encourage the ECB to look through the tick-up in inflation and commit to a 100bp+ easing cycle this year. See Carsten Brzeski's ECB preview here.

EUR/USD looks like it might explore the lower end of a 1.0350-1.0450 range today should Trump have something more to say about tariffs. But the next big move may not emerge until the FOMC meeting next Wednesday, the US December core PCE deflator next Friday, and that seemingly 1 February tariff deadline.

NOK: Norges Bank to reiterate March cut guidance (down)

Norges Bank is widely expected to keep rates on hold today. In December, Governor Ida Wolden Bache signalled rates could be cut by 25bp to 4.25% in March and forecasted another 50bp of reductions by the end of the year. Since then, oil prices have increased – generally a hawkish signal – but core inflation eased more than expected to 2.7% in December. Also, NOK has appreciated by around 1% on a trade-weighted basis.

On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.

Markets aren’t fully pricing in the 75bp of easing by year-end currently in Norges Bank’s projections, so there is some room for a small dovish surprise if Bache keeps guidance unchanged. EUR/NOK can move to fresh YTD highs (e.g. 11.85), but long-term considerations are not particularly bearish for NOK in a global trade war scenario compared to the EUR or SEK. So sellers should be attracted before reaching the 12.00 mark.

TRY: Attractive carry despite cutting cycle

The Central Bank of Turkey (CBT) is scheduled to meet today, the first time since the start of the cutting cycle in December. We expect the CBT to continue cutting rates by another 250bp to 45% in line with the market consensus, given recent positive signals on the inflation outlook that are likely to further raise the level of real interest rates and lead to tighter financial conditions if the central bank does not act.

We anticipate that the forward guidance will stay consistent today, indicating a cautious and data-driven strategy for future rate cuts. The statement is expected to highlight a decrease in the underlying trend of monthly inflation in December, while also noting a temporary increase in January to manage inflation expectations and signal prudence.

In FX, the cutting cycle's start in December brought higher USD/TRY volatility but mainly to the downside with the CBT’s hawkish messages and narrower rate corridor. Since the beginning of the year, TRY has resumed its trend of nominal depreciation. Despite the onset of gradual FX carry deterioration, TRY continues to outperform other emerging market currencies and remains our favourite carry trade for this year.

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