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Fed Minutes & China PMI Releases

Plus500 | Thursday 04 January 2024

This week, crucial economic data emerged from both the US and China, shedding light on the economic landscapes of the two biggest economies in the world. 

The Federal Reserve (FOMC) minutes and China's Services Purchasing Managers' Index (PMI) were released on Wednesday and Thursday respectively and may have provided valuable information about the possible trajectory of these economies as we dive deeper into the new year. 

Here’s what you need to know about these reports:

An image of the Chinese and American flags

What Are the Fed Minutes?

Simply put, the Fed minutes are a summary of the Federal Reserve’s Open Market Committee’s monetary policy meeting. They are typically published three weeks after the meeting and reflect the Fed’s monetary policy stance. Additionally, these minutes can be used to potentially gauge the future monetary stance of the US central bank.

The Fed’s latest minutes release took place on Wednesday, January 3, 2024, and summarized the Fed’s last monetary policy meeting of 2023 on December 12-13.

Is the Federal Reserve Conflicted on Rate Hikes?

While many anticipate rate cuts from the Fed in 2024, as even Fed Chair Jerome Powell signaled that the Fed could cut rates, the latest minutes release reveals a divided front within the Fed itself. 

According to yesterday’s minutes, while “almost all” officials favor rate cuts in 2024, the minutes revealed increased uncertainty and ambivalence within the US central bank. Many Fed officials may be torn regarding the possibility of dovish rate cuts in the new year.

Despite predictions, it is important to note that the Fed’s trajectory is yet to be determined. In actuality, some market experts like Tim Urbanowicz, Head of Research & Investment Strategy at Innovator Capital Management, believe that rates “will peak this year.”

Urbanowicz stated that while many may be anticipating rate cuts, this route should only be taken after ensuring that inflation is decreased and emphasizes the importance of “humility” at such an uncertain time. 

On the flip side, data like the US Personal Consumption Expenditures (PCE) and core inflation may be showing a drop in inflation, hence increasing the possibility of Fed cuts in the new year. Only time will tell what route the Fed will take in the end. 

How Did the Markets React to the Fed’s Uncertainty?

Following the release many stocks plummeted. Accordingly, the Nasdaq (US-TECH 100), the Dow Jones Industrial Average (USA 30 - Wall Street), and the S&P 500 (USA 500) fell by approximately 1.1%, 0.7%, and 0.8% respectively on Wednesday. 

China’s Economic Update

After a less-than-rosy year for the world’s second-biggest economy, private data from China may indicate a slight rebound. On Thursday, December 4, it was suggested that the Chinese services sector grew in December, with the Caixin Services Purchasing Managers’ Index (PMI) rising to 52.9 from November’s 51.5. 

However, official data paints a different picture. Recently released official data shows that China’s factory activity continued to shrink in December, reaching its lowest level in six months, and services activity remained contracted.

As such, akin to the air of uncertainty in the US, these conflicting results may indicate uncertainty in China’s economy as well. Only time will reveal what the future holds for China. (Source: Bloomberg)

Conclusion 

This week's economic data from the US and China reveals uncertainty in both economies. The Federal Reserve's minutes indicate a divided stance on rate cuts, leading to market declines. On the other side of the globe, China's mixed PMI data from private and official sources underscore uncertainty in its economic outlook. 


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