January’s Growth Chronicle

January 24, 2025
6 min read

January’s Growth Chronicle

  • The spotlight today is on relative growth momentum with the release of the January PMI readings for the EU, UK, and US. Japan and Australia’s PMI improve.
  • President Trump lifts financial market risk sentiment. USD down across the board while stocks keep rising.
  • Bank of Japan delivered a hawkish hike. Markets continue to imply the BOJ policy rate to peak at 1.00% over the next two years. Monetary Authority of Singapore loosened policy.

USD is down across the board and global equity markets keep grinding higher. US President Donald Trump’s constructive tone on China and his demand for the Fed to lower interest rates buoyed financial market risk sentiment. Yesterday, Trump said that “with oil prices going down, I'll demand that interest rates drop immediately”. Asked later on if he believed Fed officials would listen to him, Trump responded, “Yeah.”

The fundamentals suggest the Fed has very little room to ease policy further which is USD supportive. The US economy is tracking well above long-run annual trend growth of 1.8% (the Atlanta Fed GDPNow model estimates Q4 growth at 3.0% SAAR) and progress on inflation is stalling above 2%.

Additionally, US economic outperformance continues to favor USD strength. The US January preliminary PMI is forecast to be indicative of an encouraging growth outlook (2:45pm London). The composite index is expected at 55.6 vs. 55.4 in December, the manufacturing PMI is anticipated at 49.8 vs. 49.4 in December, and the services PMI is projected at 56.5 vs. 56.8 in December.

In contrast, the Eurozone January preliminary PMI is expected to remain consistent with a soggy growth outlook (9:00am London). The composite PMI is forecast at 49.7 vs. 49.6 in December, the manufacturing PMI is expected at 45.4 vs. 45.1 in December, and the services PMI is projected at 51.5 vs. 51.6 in December. The PMIs for France and Germany are released earlier (8:15am and 8:30am London, respectively). ECB President Christine Lagarde participates in panel titled “The Global Economic Outlook” (10:00am London).

The UK January preliminary PMI is equally anticipated to print soft (9:30am London). The composite index is forecast at 50.1 vs. 50.4 in December, the manufacturing PMI is expected at 47.0 vs. 47.0 in December, and the services PMI is projected at 50.8 vs. 51.1 in December.

In the meantime, private sector activity in Japan and Australia improved in January. Japan’s composite PMI rose to a four-month high at 51.1 vs. 50.5 in December, while Australia’s ticked-up to a five-month high at 50.3 vs. 50.2 in December.

USD/JPY dropped as much as 1% briefly below key support at 155.00 after the Bank of Japan (BOJ) delivered a hawkish hike. In line with market pricing, the BOJ raised the policy rate 25bps to 0.50%. Only NAKAMURA Toyoaki dissented on raising rates, which is not surprising as he also voted against raising rates last July.

Importantly, the BOJ reiterated that “if the outlook presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.” Still, BOJ Governor Ueda cautioned that the policy path will be guided by checking the impact of rate hikes already undertaken. This argues against an aggressive pace of tightening.

The BOJ made no changed to real GDP growth projections but lifted CPI inflation forecasts (see table) and continues to see risks to prices skewed to the upside for 2025. Specifically, the BOJ warned that the “virtuous cycle between wages and prices will continue to intensify” as firms' behavior has shifted more toward raising wages and prices.

Nonetheless, the money market continues to imply the BOJ policy rate to peak at 1.00% over the next two years. This seems about right as the BOJ expects inflation to stabilize around its 2% target in 2026. Bottom line: the BOJ shallow policy normalization cycle is an ongoing headwind for JPY. USD/JPY should find good technical support at its 200-day moving average (152.85), if 155.00 gives way.

The Monetary Authority of Singapore (MAS) loosened policy. It reduced “slightly” the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band whilst keeping the width and midpoint unchanged. This was the first time it has eased since 2020. MAS noted that Singapore’s growth momentum is expected to slow over this year while core Inflation will remain below 2% this year, reflecting the return to low and stable underlying price pressures in the economy.

USD/CNH fell to its lowest level since November on broad USD weakness. As was widely expected, the People’s Bank of China (PBOC) left its 1-year medium-term lending facility (MLF) rate steady at 2.0%. More easing is in the pipeline. However, China’s economic outlook will remain unimpressive as long as policymakers fail to address the root cause of weak consumption spending activity (i.e. the huge debt overhang).

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction