Canadian Dollar Weakens Amidst Poor GDP Figures; Qatar Challenges EU's Gas Supplies

On Monday, the financial markets saw varied movements across the major indices. The Dow Jones Index (US30) rose by 0.16%, while the S&P 500 Index (US500) increased by 0.73%. The Nasdaq Technology Index (US100) experienced a notable jump of 1.01%. The gains in the stock market were largely driven by strong performances from technology and chip companies, with significant rises in shares of Nvidia by 3% and others like TSMC, Broadcom, and AMD which all climbed nearly 5%. This growth underlines the technology sector's role as a key contributor to market resilience heading into 2024.

Additionally, the U.S. Congress successfully passed a temporary funding bill that prevents a government shutdown, which could have had a negative effect on the economy. This funding will continue until mid-March 2025.

However, the latest report on durable goods orders from the U.S. showed a downturn, falling by 1.1% month-on-month for November, significantly more than the expected drop of 0.3%. On a brighter note, capital goods orders exceeded expectations, providing some balance. The New Home Sales figures for November reported a decline of 5.9% to 664,000, falling short of forecasts of 669,000. The Conference Board’s Consumer Confidence Index for December showed a drop to 104.7, well below the anticipated rise to 113.2, hinting at growing concerns amongst consumers.

Turning to Canada, the Canadian dollar fell to 1.44 per U.S. dollar, approaching its lowest point since March 2020. This decline was primarily attributed to disappointing GDP data indicating a month-on-month contraction of 0.1% in November. This marks the first decrease in Canada’s GDP for the year, coinciding with warnings from the Bank of Canada regarding potential rate adjustments. The Canadian government has also revised its growth projections downwards for the next couple of years.

The economic backdrop led to rising expectations that the Bank of Canada might further ease interest rates to spur growth, potentially widening the gap with U.S. interest rates, making the Canadian dollar less attractive to investors.

Across the Atlantic, European equity markets trended mostly downward on Monday. Germany's DAX (DE40) slipped by 0.18%, while France's CAC 40 (FR40) fell marginally by 0.03%. The UK’s FTSE 100 (UK100) was an exception, gaining 0.22%. Rising yields on European government bonds followed remarks from ECB President Christine Lagarde, highlighting persistent price pressures in the services sector yet confidence that inflation is nearing the target set by the ECB. Expectations for a 25 basis point rate cut by the ECB at their next meeting on January 30 have reached 100%, with a smaller chance of a 50 basis point cut at 9%.

Meanwhile, oil markets felt pressure as WTI crude oil prices decreased by 0.3% to settle at $69.2 per barrel. Concerns grew over a possible supply glut in 2025, compounded by a stronger U.S. dollar, which is making oil relatively expensive for foreign buyers.

Amidst these developments, geopolitical tensions heightened as former U.S. President Donald Trump urged the EU to increase imports of U.S. energy, warning that failure to do so would result in tariffs.

In relation to energy supplies, Qatar has issued a warning threatening to halt natural gas exports to the European Union should the EU decide to impose sanctions linked to new environmental review legislation. This directive, active since July, enforces strict penalties for companies failing to mitigate negative impacts on human rights or the environment. Qatar is a significant supplier of liquefied natural gas (LNG) to Europe, particularly as the region seeks to reduce reliance on Russian energy sources.

In Asia, stock markets displayed positive trends as Japan’s Nikkei 225 (JP225) surged by 1.19%, and China’s FTSE China A50 (CHA50) rose by 0.91%. The Hang Seng Index (HK50) climbed by 0.82%, while Australia's ASX 200 (AU200) reported an increase of 1.67%. Investors maintain an optimistic outlook for China’s capital markets as the economy stabilizes.

The Reserve Bank of Australia’s December meeting minutes indicated an ongoing need for a restrictive monetary policy approach, stating that future rate decisions will depend heavily on economic data. The bank noted that while inflationary risks are tapering, uncertainties remain due to global economic conditions and high service-sector inflation.

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