Goldman Sachs Revises Economic Outlook and European Energy Market Dynamics

At the end of Friday, the Dow Jones Index (US30) saw an increase of 1.18%, although it ended the week down by 2.25%. The S&P 500 Index (US500) experienced a gain of 1.09% with a weekly drop of 2.19%. Meanwhile, the Nasdaq Technology Index (US100) rose by 0.85%, concluding the week with a decline of 2.75%. This positive performance on Friday was fueled by inflation data released that was lower than anticipated. The November PCE Index indicated a year-over-year increase to 2.4%, just shy of the 2.5% forecast, easing some market concerns regarding the Federal Reserve's plans for interest rate cuts in 2025. Nonetheless, despite gains on Friday, all three indices finished in the negative for the week.

Goldman Sachs has made adjustments to its economic forecasts, reflecting subtle changes in perceptions of monetary policy and global growth for the year 2025. The investment bank now anticipates that the US Federal Reserve's final policy rate will be in the range of 3.5% to 3.75%, an increase from prior forecasts of 3.25% to 3.5%. The next expected cut of 25 basis points is anticipated to occur in March, followed by additional reductions in June and September. The US economy is expected to continue to exhibit stronger performance compared to developed regions, backed by robust real income growth and substantial productivity improvements. Conversely, the European Central Bank (ECB) is predicted to persist with rate cuts until mid-2025, eventually stabilizing at around 1.75%. China’s economic outlook remains cautious, despite recent policy relaxation.

In currency news, the Mexican peso (MXN) appreciated to 20.2 per US dollar as the US dollar weakened following the release of less-than-expected Core PCE data. Last week, the Bank of Mexico lowered interest rates by 25 basis points to 10%, aligning with market expectations. This decision was driven by reduced inflation levels in Mexico, with the bank predicting further rate cuts next year as inflation is expected to decline to 4.6% by year-end, though reaching the target of 3% is not anticipated until mid-2026.

Donald Trump recently expressed that the Panama Canal imposes "exorbitant prices and tariffs" for US military and merchant ships. He has called for reduced fees or suggests the canal should be returned to US control. The US is the canal's largest user, with about three-quarters of cargo originating from America, while China ranks as the second largest customer. Trump emphasized that should Panama not honor the terms under which the canal was handed back, the US will demand its return, emphasizing the historical context of this transfer in 1977 by then-President Jimmy Carter.

In European markets on Friday, equity trends were generally negative. Germany’s DAX (DE40) decreased by 0.43%, closing the week down 2.34%. France’s CAC 40 (FR40) dropped by 0.27% (week down 1.46%), and the UK's FTSE 100 (UK100) fell by 0.26% (week down 2.60%). While Spain’s IBEX 35 (ES35) showed slight resilience with a 0.24% gain, it still finished the week down 2.25%. Increased concerns regarding a potential second Trump administration in the US have heightened anxiety in Europe. Trump has threatened to impose tariffs on the European Union unless they increase their purchases of US oil and gas.

WTI crude oil prices saw a slight decrease of 0.1%, closing at $69.46 per barrel. Although there was a slight recovery, the weekly decline stood at around 3%. Market uncertainties, particularly related to China's energy outlook, continue to unsettle traders; Sinopec projects that crude imports may peak by 2025 and that oil consumption will reach its maximum by 2027. Additionally, OPEC+ has reduced its demand growth forecast for 2024 for the fifth straight time, underscoring the necessity of maintaining supply discipline. Incoming President Trump has indicated potential tariffs on the EU if they fail to address trade disparities, especially concerning energy.

Natural gas prices (XNG/USD) climbed to $3.7 per mmbtu, marking the highest level in a month. The diminishing probability of Europe receiving Russian gas via Ukraine has led investors to take long positions in LNG, as EU nations explore alternative gas sources. This trend is bolstered by upcoming US presidential elections, with the President-elect promising to expedite LNG export permits. This is influencing companies to prioritize more lucrative export opportunities over costlier domestic gas sales due to the US’s abundant gas supply.

Asian markets displayed mixed movements last week. Japan’s Nikkei 225 (JP225) dipped by 0.29%, while China’s FTSE China A50 (CHA50) made small gains of 0.19%. However, Hong Kong’s Hang Seng (HK50) decreased by 1.14%, and Australia’s ASX 200 (AU200) fell by 1.48% for the week.

In Singapore, Core Consumer Prices rose by 1.9% year-on-year in November 2024, down from 2.1% the previous month and below market expectations. This is the lowest core inflation since November 2021, attributed to declining prices in food and services. The Monetary Authority of Singapore expects core inflation to remain below 2% until the end of 2024, projecting an average inflation rate of 2.5% to 3.0% in 2024, followed by a drop to 1.5% to 2.5% in 2025.

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