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Key Focus This Week: U.S. New Home Sales & China Industrial Profit
Last week, the Federal Reserve’s hawkish rate cut led to noticeable declines across U.S. equity sectors, with the S&P 500 index falling 2%, closing at 5930.85 points. In the bond market, the 10-year U.S. Treasury yield climbed back to approximately 4.53%, reflecting a narrower rate-cut trajectory. Simultaneously, the U.S. Dollar Index surged, nearing the 108 threshold, supported by rising Treasury yields.
Key Economic Data from Last Week
U.S. Federal Reserve Rate Decision: The Federal Reserve announced a 25-basis-point rate cut, lowering the target range to 4.25%–4.5%. The accompanying statement introduced the phrase “extent and timing” of future rate cuts, signaling a slower pace of monetary easing.
In its latest Summary of Economic Projections, the Federal Reserve revised upward its U.S. GDP growth forecasts for this year and next, reflecting the robust performance of recent economic data. The GDP growth projection for 2024 was raised to 2.5% (prior: 2.0%), while the 2025 forecast was increased to 2.1% (prior: 2.0%).
However, the slow decline in core services inflation and uncertainties stemming from Trump-era tariff policies prompted the Federal Reserve to revise its core inflation projections for 2024–2026 upward. Core inflation is now expected to reach 2.8% (prior: 2.6%) in 2024, 2.5% (prior: 2.2%) in 2025, and 2.2% (prior: 2.0%) in 2026, with inflation projected to return to the 2% target range by 2027.
The latest Dot Plot indicates that the policy rate for 2025 is projected to decrease by 50 basis points to a range of 3.75%–4.00% (prior: 3.25%–3.50%), while the rate for 2026 is expected to be further reduced by 50 basis points to 3.25%–3.50% (prior: 2.75%–3.00%). Additionally, the long-term neutral rate has been lowered by 25 basis points, now falling within a range of 3.00%–3.25% (prior: 2.75%–3.00%).
The overall rate path has narrowed by 50 basis points compared to the September projection, reflecting the anticipated decline in core inflation and uncertainties associated with Trump-era policies. This adjustment highlights a more hawkish stance by the Federal Reserve, aiming to preemptively temper market expectations for future rate cuts.
Japan Rate Decision: The Bank of Japan (BOJ) decided to keep its interest rate unchanged at 0.25% during its December meeting. The BOJ stated that domestic wage growth and uncertainties surrounding the outlook for the global economy were the primary reasons for maintaining the current rate.
BOJ Governor Kazuo Ueda noted that the central bank aims to gather more information on domestic wage growth before considering the next rate hike. Additionally, policies under the next U.S. president, Donald Trump, were also highlighted as a factor in the BOJ’s deliberations.
Governor Ueda further explained that the trajectory of wage growth would likely become clearer after the preliminary negotiations during the “Shunto” spring wage discussions in March and April. Consequently, markets have adjusted their expectations, now anticipating the BOJ’s next rate hike to occur after March.
U.S. Retail Sales: U.S. retail sales in November increased by 3.8% year-over-year (prior: 2.9%) and 0.7% month-over-month (prior: 0.5%), both exceeding market expectations of 3.6% and 0.6%, respectively. The growth in retail sales was primarily driven by a 6.5% increase in automotive-related sales (prior: 3.7%) and a 9.8% surge in online store sales (prior: 6.9%).
Excluding automobiles and gasoline stations, core retail sales rose by 3.9% year-over-year (prior: 3.8%) and 0.2% month-over-month (unchanged from the prior figure). Further excluding food services and building materials, the control group core retail sales grew by 4.3% year-over-year (prior: 3.7%) and 0.4% month-over-month (prior:-0.1%), indicating that overall consumer spending remains resilient.
Key Economic Data for This Week
U.S. Conference Board Consumer Confidence Index (12/23): The U.S. Consumer Confidence Index rose to 111.7 in November (prior: 109.6), marking the second consecutive month of improvement, driven by better assessments of current labor market conditions and future expectations. The market anticipates the index will further increase to 112.9 in December.
U.S. New Home Sales (12/24): New home sales in October fell short of market expectations, impacted by hurricane disruptions. As these short-term effects subside, the market expects U.S. new home sales to rebound to 666,000 units in November (prior: 610,000 units).
China Industrial Profits (12/27): Weakened domestic demand dragged cumulative industrial profit growth in China down to -4.3% year-over-year in October. The Producer Price Index (PPI), reflecting corporate pricing, showed no significant improvement, with November PPI declining by 2.5% year-over-year, a 0.4 percentage point drop from the prior month. The market expects cumulative industrial profit growth in November to decline further.
Japan Tokyo Core CPI（12/27）：With the gradual phase-out of energy subsidy policies starting in November, electricity and city gas prices are expected to drive further increases in energy-related costs. The market forecasts Tokyo’s core CPI to rise to 2.5% year-over-year in December (prior: 2.2%).
