KUWAIT: In December, the US services sector experienced accelerated growth, with the Institute for Supply Management’s (ISM) non-manufacturing Purchasing Managers Index (PMI) rising to 54.1 from November’s 52.1, surpassing economists’ expectations of 53.3. Concurrently, the ISM’s measure of prices paid for inputs surged to 64.4, the highest since February 2023, signaling elevated inflation pressures. This aligns with the Federal Reserve’s projections for fewer interest rate cuts this year, acknowledging the economy’s resilience and persistent inflation. The ISM survey also reported increases in new orders and business activity, reflecting strong demand. In response to these economic indicators, US Treasury yields have risen, with benchmark 10-year yields reaching an eight-month high, reflecting economic strength. The dollar has also strengthened against major currencies.

JOLTS job openings

The US job market saw job openings rise by 259,000 to 8.1 million in November 2024, exceeding market expectations of 7.7 million and surpassing October’s revised 7.84 million. Gains were noted in professional and business services (+273,000), finance and insurance (+105,000), and private education services (+38,000), while the information sector saw a decline (-89,000). Regionally, job openings increased significantly in the South (+194,000), the Northeast (+49,000), and the West (+32,000) but fell in the Midwest (-16,000). Hires and separations remained steady at 5.3 million and 5.1 million, respectively, with quits dropping by 218,000 to 3.1 million, while layoffs held steady at 1.8 million.

FOMC meeting minutes

The Federal Reserve’s December meeting minutes highlighted concerns over inflation and uncertainty surrounding President-elect Donald Trump’s potential trade and immigration policies. While the FOMC lowered the benchmark rate to 4.25 percent-4.5 percent, they indicated a slower pace of future cuts, reducing 2025 projections to two from four. With core inflation at 2.4 percent in November, driven by strong consumer spending and a stable labor market, policymakers stressed a cautious, data-driven approach. They expect inflation to gradually return to the 2 percent target by 2027 but noted persistent near-term risks and the need for careful monitoring before making further policy changes.

The US labor market remained robust in December, with non-farm payrolls increasing by 256,000, well above the expected 150,000 and the 2024 monthly average of 186,000. The unemployment rate dropped to 4.1 percent, beating forecasts of 4.2 percent and marking seven months of stability within the 4.1 percent-4.2 percent range. The labor force participation rate held steady at 62.5 percent, consistent with levels since late 2023. Wage growth rose by 0.3 percent month-on-month, meeting expectations, while annual wage growth eased slightly to 3.9 percent from 4.0 percent.

The US Dollar Index closed the week at 109.64.

Eurozone inflation

In December 2024, the eurozone’s inflation rate increased to 2.4 percent, marking the highest level since July and up from 2.2 percent in November. This rise was primarily driven by a 4 percent increase in service costs, while energy prices saw a modest uptick of 0.1 percent. Food, alcohol, and tobacco prices remained steady with a 2.7 percent inflation rate. Among member countries, Croatia, Belgium, and Estonia experienced the highest inflation rates, whereas Ireland, Italy, and Luxembourg reported the lowest.

Germany’s inflation stood at 2.8 percent, slightly above its national estimate of 2.6 percent. The ECB has been implementing a series of interest rate cuts to stimulate economic growth amid these inflationary pressures. In December 2024, the ECB reduced its key deposit rate by a quarter point to 3 percent, marking the third consecutive cut. This decision was influenced by a worsening growth outlook and slowing inflation, with political turmoil in the eurozone adding to the troubled picture.

The ECB’s inflation forecasts were adjusted to 2.4 percent for 2024 and 2.1 percent for 2025, each down by 0.1 percentage point. Despite these measures, the eurozone’s economic recovery is expected to be slower than previously anticipated, with growth forecasts for 2024 and the following two years revised to 0.7 percent, 1.1 percent, and 1.4 percent respectively. Furthermore, these latest figures suggest that inflationary pressures persist in the eurozone creating a dilemma for the ECB to balance between stimulating growth and making sure inflation is tamed. The EUR/USD currency pair closed the week at 1.0244.

In November 2024, Australia’s Consumer Price Index (CPI) increased by 2.3 percent year-over-year, exceeding forecasts of 2.2 percent and up from 2.1 percent in the previous month, marking the highest figure since August. This rise was influenced by the timing of government electricity rebates. Despite this, inflation stayed within the Reserve Bank’s target range of 2 percent-3 percent for the fourth consecutive month. Electricity prices declined more slowly (-21.5 percent vs -35.6 percent in October), as did automotive fuel prices (-10.2 percent vs -11.5 percent). Prices rose for alcohol and tobacco (+6.7 percent vs 6.0 percent) but remained stable for health and education. Recreation and culture costs eased (3.2 percent vs 4.3 percent), while food prices grew at their slowest rate since January 2022 (+2.9 percent vs 3.3 percent). Core CPI rose 2.8 percent, the highest in three months, recovering from a near three-year low of 2.4 percent in October.

The AUD/USD currency pair closed the week at 0.6145.

China inflation

China’s consumer inflation slowed to near zero for the fourth consecutive month, reflecting weaker demand despite government stimulus efforts. The consumer price index rose 0.1 percent year-over-year in December, down from 0.2 percent the previous month but aligning with expectations. Meanwhile, factory deflation persisted for the 27th month, with the producer price index declining 2.3 percent, a slower pace than November. Unlike other major economies grappling with high inflation, China faces deflationary pressures, raising concerns in Beijing about a potential cycle of falling prices that could dampen household spending, reduce corporate revenues, stifle investment, and lead to salary cuts and job losses. The USD/CNY currency pair closed the week at 7.3326.

Kuwait

Kuwaiti dinar

USD/KWD closed last week at 0.30850.