• Let’s take a quick look back at 2024 before we look ahead to 2025; final December S&P Global manufacturing PMI and weekly jobless claims will be reported; Canada highlight will be December manufacturing PMI
  
• Final December eurozone manufacturing PMIs were reported; Riksbank published its minutes
  
• Caixin reported a weak December manufacturing PMI; Singapore reported solid Q4 GDP data

The dollar is starting the new year right where it left off. DXY is trading higher for the third straight day at a new cycle high near 108.812 and break above 108.972 sets up a test of the September 2022 high near 114.778. The euro is starting the year off at its weakest level since December 2022 near $1.0315, while sterling is at its weakest level since April 2024 near $1.2435 and on track to test that month’s low near $1.23. With Japan on holiday until Monday, the yen is treading water with USD/JPY flat near 157.25. We look for dollar dominance to continue in 2025 due to the ongoing economic and monetary policy divergence themes. Simply put, the strong U.S. fundamental story continues to favor higher UST yields and a higher dollar.

AMERICAS

Let’s take a quick look back at 2024 before we look ahead to 2025. Last year, DXY rose 7%. Within the majors, GBP, EUR, and CHF outperformed while NZD, NOK, and JPY underperformed. Within EM FX, MYR, THB, and PEN outperformed while ARS, BRL, and MXN underperformed. U.S. rates rose, with the 10-year up 69 bp and the 30-year up 75 bp. U.S. equities outperformed, with the S&P 500 up 23% and the NASDAQ up nearly 30%.

We expect these trends to continue in 2025. Strong data should carry over into Q1 and that means the dollar, U.S. yields and U.S. equities are likely to march higher. The euro is already starting the year off at its weakest level since December 2022 near $1.0315 and a break below $1.02 sets up a test of the September 2022 low near $0.9535. EM FX is likely to remain under pressure, with MXN starting the year off at its weakest level since July 2022.

Growth remains robust. The Atlanta Fed GDPNow model is tracking Q4 growth at 3.1% SAAR and will be updated today after the data. Elsewhere, the New York Fed's Nowcast model is tracking Q4 growth at 1.9% SAAR and Q1 growth at 2.1% SAAR and will be updated tomorrow.

Final December S&P Global manufacturing PMI will be reported today. The preliminary reading fell to a 3-month low of 48.3 vs. 49.7 in November. The December ISM manufacturing PMI will be reported tomorrow and the headline is expected to fall two ticks to 48.2. Keep an eye on prices paid and employment, which stood at 50.3 and 48.1 in November, respectively. Of note, the Chicago PMI was reported Monday at 36.9 vs. 43.0 expected and 40.2 in November. However, this series has not correlated with the national PMIs for the past couple of years and so offers little insight.

Weekly claims will also be reported. Initial claims are expected at 221k vs. 219k previously and continuing claims are expected at 1.890 mln vs. 1.910 mln previously. Of note, Bloomberg consensus for December NFP next Friday is 153k vs. 227k in November, while its whisper number stands at 195k.

Canada highlight will be December manufacturing PMI. Despite some signs of softness in the economy, all four major PMI readings for Canada have risen above 50. The Bank of Canada shifted to a less dovish stance at the December 11 meeting and the market is pricing in only 75 bp of further easing over the next six months.

EUROPE/MIDDLE EAST/AFRICA

Final December eurozone manufacturing PMIs were reported. Headline fell a tick from the preliminary to 45.1. Looking at the country breakdown, both Germany and France were steady from the preliminary at 42.5 and 41.9, respectively. Italy and Spain reported for the first time and came in at 46.2 and 53.3, respectively, and both improved from November. Final December services and composite PMIs will be reported next week. The market is fully pricing in a 25 bp cut at the next meeting January 30, as well as 125 bp of total easing over the next 12 months that would see the policy rate bottom near 1.75%.

Riksbank published its minutes. At the December 19 meeting, the Riksbank cut rates 25 bp to 2.50% but signaled the easing cycle is nearing an end as it maintained its projection for the policy rate bottoming at 2.25%. The bank said that “the policy rate may be cut once again during the first half of 2025” but the minutes show that several board members preferred the next cut early in the year rather than pausing. The market is now fully pricing in a 25 bp cut at the January 29 meeting along with over 50% odds of a larger 50 bp move. Looking ahead, the market sees the policy rate bottoming at 2.0% over the next 12 months and so there is room for market expectations to adjust higher in favor of SEK.

ASIA

Caixin reported a weak December manufacturing PMI. Headline came in at 50.5 vs. 51.7 expected and 51.5 in November, and basically reversed the November gain. Earlier this week, the official PMIs were reported and came in mixed. Manufacturing came in at 50.1 vs. 50.2 expected and 50.3 in November, while non-manufacturing came in at 52.2 vs. 50.2 expected and 50.0 in November. Despite the bump up in some recent data, this weak Caixin reading justifies our skepticism that stimulus measures seen so far will have much lasting impact. The Chinese equity markets would seem to agree with us, as the CSI 300 fell nearly -3% today in the worst start to the year since 2016.

Singapore reported solid Q4 GDP data. Growth came in at 4.3% y/y vs. 3.8% expected and 5.4% n Q3. On a q/q basis, GDP came in at 0.1% vs. -0.8% expected and 3.2% in Q3. Last week, November CPI data came in lower than expected, with core inflation of 1.9% y/y the lowest since November 2021. While the MAS does not have an explicit inflation target, low price pressures should allow it to ease policy in 2025 if the economy slows too much. The January meeting is likely to be too soon, as MAS chief Chia said just last week that its current policy setting is still appropriate for now.