The United States faces significant economic challenges as it grapples with historically high real estate values and equity valuations, compounded by global debt reaching a record percentage of GDP. This precarious economic landscape is further influenced by Donald Trump's anticipated return to the White House, which is expected to impact the trading environment significantly. Amidst these developments, inflation continues to erode the purchasing power of the middle class and lower-income groups, with consumer confidence taking a hit, falling to 73.2 in December. As inflation expectations rise to 3.3% in December from 2.8% the previous month, there is growing concern over the Federal Reserve's apparent lack of urgency in addressing these inflation and insolvency issues.
In December, core Consumer Price Index (CPI) figures showed a year-over-year increase of 3.2%, while the headline CPI stood at 2.9%. Despite these figures, the Federal Reserve remains unfazed, sticking to its 2% inflation target even as neither the headline nor core rate comes close to this goal. Meanwhile, the US 30-year bond yield has surged to 5% following better-than-expected labor news, adding another dimension to the complex economic scenario.
The global economic landscape also plays a role in shaping domestic policies. Canadian and New Zealand CPI data are poised to influence expectations for the Bank of Canada (BoC) and the Reserve Bank of New Zealand (RBNZ), respectively. The divergent monetary policies between a hawkish Federal Reserve and a dovish European Central Bank have put pressure on the EUR/USD, which is set to test parity after piercing the year low at 1.0177.
Employment figures in the US further illustrate the economic strain, with corporations announcing plans to hire 769,953 workers last year—the lowest since 2015. Conversely, the ADP report indicated that 122,000 jobs were created in December, marking the highest consumer inflation expectation since 2008.
Donald Trump's policies are expected to overshadow macroeconomic releases as he prepares for his second term in office. His administration's approach could significantly influence markets and investor sentiment, adding another layer of complexity to the already intricate economic environment.
The World Economic Forum in Davos has also captured attention as global leaders convene to discuss pressing economic issues. The discussions at Davos are expected to provide insights into potential strategies to address the economic challenges faced by the US and other nations.