Global Economic and Market Updates: Central Bank Rate Decisions and Market Movements
These global developments reflect a mixture of central bank decisions, economic indicators, and market reactions that are shaping the outlook for 2025.
The Bank of Canada and the Riksbank both made rate cuts in line with market expectations, while the US Federal Reserve opted to pause its interest rate reductions.
By the close of Wednesday’s trading, the Dow Jones Industrial Average (US30) fell by 0.31%, the S&P 500 (US500) dropped by 0.47%, and the Nasdaq Technology Index (US100) declined by 0.51%.
US Federal Reserve Holds Rates Steady
At its January 2025 meeting, the US Federal Reserve decided to keep the federal funds rate unchanged at 4.25%-4.5%. This decision follows three consecutive rate cuts in 2024, amounting to a full percentage point reduction. Chairman Jerome Powell emphasized that the Fed is not in a rush to reduce rates further, opting to pause and assess progress on inflation. Economic indicators show solid growth, with the unemployment rate stabilizing at low levels and the labor market remaining resilient.
Bank of Canada Cuts Rates and Ends Quantitative Tightening
The Bank of Canada (BoC) reduced its key interest rate by 25 basis points to 3% in January 2025, continuing its rate-cut cycle, which has seen a 200 basis point reduction since June 2024. In addition to the rate cut, the BoC announced the end of its quantitative tightening policy and plans to resume asset purchases in early March to support liquidity and stimulate economic activity. The central bank noted that inflation has moved closer to the 2% target and is expected to stay near the target over the next two years.
Mexico’s Strong Job Market Eases Banxico’s Rate Stance
Mexico’s unemployment rate fell to a 22-year low of 2.4% in December, exceeding expectations and highlighting the strength of the labor market. This eased pressure on Banxico to adopt a more dovish stance, bolstering confidence in Mexico’s economy. However, Banxico’s 2025 monetary program suggests softer conditions and potential rate cuts beyond 2024, with a 25 basis point rate cut in February still seen as likely.
European Markets Experience Mixed Trading
European equity markets saw mixed trading on Wednesday. Germany’s DAX (DE40) rose by 0.97%, while France’s CAC 40 (FR40) declined by 0.32%. Spain’s IBEX 35 (ES35) gained 1.09%, and the UK’s FTSE 100 (UK100) closed up 0.28%. The DAX hit a new record high of 21,637.5, continuing its upward trend for the second consecutive day, driven by fresh corporate earnings and anticipation of the European Central Bank’s (ECB) upcoming monetary policy decision, with a 0.25% rate cut expected.
Riksbank Cuts Rates Amid Economic Weakness
Sweden’s Riksbank reduced its discount rate by 25 basis points to 2.25% in January 2025, as expected by the market. This marks the fifth consecutive rate cut and the sixth since May, totaling a 175 basis point reduction. While previous rate cuts have provided some relief to households and businesses, the full impact on demand remains to be seen, given ongoing economic challenges.
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Oil Prices Drop Amid Trade Tensions
WTI crude oil prices fell below $73 per barrel on Wednesday as traders assessed the impact of potential US tariffs on Canada and other oil suppliers. The US government’s plan to impose a 25% tariff on Canada and Mexico starting February 1 added to market pressure, especially since Canada is a key oil supplier to the US. Additionally, US crude inventories increased by 3.463 million barrels, the first rise after nine consecutive weeks of declines, further weighing on oil prices.
Asian Markets Post Gains
Asian markets were largely positive on Wednesday. Japan’s Nikkei 225 (JP225) gained 1.02%, while China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were closed due to holidays. Australia’s ASX 200 (AU200) saw a modest rise of 0.57%.
Hong Kong Keeps Rates Steady
The Hong Kong Monetary Authority (HKMA) kept its benchmark interest rate unchanged at 4.75% on January 30, following the US Federal Reserve’s decision to maintain rates. The HKMA’s monetary policy is aligned with the US, given the peg of the Hong Kong dollar to the US dollar. The last rate cut in Hong Kong occurred in December, when the HKMA reduced rates by 25 basis points.
New Zealand Dollar Under Pressure Amid Expectations of Rate Cuts
The New Zealand dollar continues to face pressure, with markets anticipating a 50 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) at its February meeting. Expectations are that the RBNZ could ease further, potentially bringing the official cash rate down to 3.0% by the end of 2025. In January, business confidence in New Zealand fell to a five-month low, with the index dropping to 54.4 from 62.3 in December.
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In Australia, major banks such as Westpac and NAB have brought forward their projections for the Reserve Bank of Australia’s (RBA) first rate cut, now predicting it could come in February rather than May. Markets are pricing in a 95% probability of a 25 basis point reduction in the cash rate to 4.35% at the RBA’s February 18 meeting.
These global developments reflect a mixture of central bank decisions, economic indicators, and market reactions that are shaping the outlook for 2025. As central banks across the world adjust their policies in response to economic growth and inflation pressures, markets are carefully monitoring the signals of future rate moves and their potential impact on global economic activity.
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