Germany's GDP shrank 0.3% in the fourth quarter, incited by falling domestic spending and high inflation, especially energy costs, that could prompt another round of recession. Output has stalled over the past four years, which moves business leaders to urge Chancellor Scholz to reform the industry for global competition. Suggested reforms are cheaper electricity, modern infrastructure, and tax changes to aid struggling sectors. Approaching lower inflation by mid-2024 should let the ECB cut interest rates to relieve distressed industries like construction. Upcoming Germany's CPI should confirm a potential rate cut in its next meeting in March, which most central banks are expected to cut by then.
The Dow Jones takes the show, while the S&P 500 and Nasdaq dipped as investors even as tech titans Microsoft and Alphabet beat estimates, while optimistic guidance from General Motors offset UPS's slump and layoff announcements on weaker revenue forecasts. Apple's Vision Pro, which will be officially released on February 2nd, offers little support as share prices fall for five straight sessions.
Gold prices stay above the $2000 level as demand is set to climb thanks to economic resilience and a potential shift to investment buying despite a projected dip in Indian jewellers' purchases due to record prices. However, central banks are still major buyers as geopolitical tensions and slowing growth accumulate into safe commodities.
Oil prices rose on Tuesday as the IMF upgraded global economic outlooks, offsetting demand concerns over the Chinese real estate crisis. Venezuelan sanctions were reimposed, and Aramco's maximum capacity was kept at 12 million bpd rather than 13 million, limiting supplies. A change in the OPEC+ decision in the February meeting on production is unlikely, as price growth is likely in the near term.
The US dollar is set to record its most significant monthly gain since September. The yen, however, is in its steepest monthly decline since June 2022, dropping over 4.5% against the dollar. Although the Fed meeting tomorrow offers no uncertainty, with a 43% probability priced in for a rate cut in March, the market reaction to the Powell speech right after and its spillover effects will likely be observed if a cut is entirely ruled out for March.