Canadian Dollar Weakens Amid GDP Concerns; Qatar Warns EU on Gas Exports

At the close of trading on Monday, the Dow Jones Index (US30) saw a modest increase of 0.16%. The S&P 500 Index (US500) rose by 0.73%, while the Nasdaq Technology Index (US100) jumped by 1.01%. The rise in equity markets can largely be attributed to gains in technology stocks and chipmakers. Notably, shares of Nvidia climbed 3%, and companies like TSMC, Broadcom, and AMD experienced nearly 5% gains, reinforcing their pivotal role in market expansion heading into 2024. Additionally, Congress was able to approve a temporary funding bill, successfully preventing a government shutdown that could have negatively impacted the U.S. economy. This bill ensures government funding extends until mid-March 2025.

On the economic front, the latest report on U.S. durable goods orders showed weaker-than-anticipated results. November's orders fell by 1.1% month-on-month, whereas a moderate rise of 0.3% had been expected. However, the previous month’s figure for October was adjusted upwards from 0.3% to 0.8%. Additionally, the report on new home sales for November indicated a decrease of 5.9%, landing at 664,000 instead of the anticipated rise to 669,000. The Conference Board’s U.S. Consumer Confidence Index for December was also disappointing, falling to 104.7 compared to expectations of an increase to 113.2. Due to these economic indicators, markets are currently assessing a 9% likelihood of a 25 basis point rate cut during the Federal Open Market Committee (FOMC) meeting scheduled for January 28–29.

In Canada, the Canadian dollar took a hit, weakening to 1.44 USD, nearing its lowest level since March 2020. This decline comes as investors reacted to disappointing GDP data; Canada’s GDP reportedly contracted by 0.1% month-on-month in November, marking the first decline of this year. The figures coincided with warnings from the Central Bank and recently lowered growth forecasts. The Canadian government has revised its GDP growth predictions for 2025 from 1.9% down to 1.7% and for 2026 from 2.2% to 2.1%. With growing expectations that the Bank of Canada may continue to lower interest rates to stimulate economic growth, this could further widen the interest rate gap with the U.S., subsequently reducing the appeal of the Canadian dollar.

On the European side, equity markets faced a downturn on Monday. Germany’s DAX (DE40) fell by 0.18%, France’s CAC 40 (FR40) ended down 0.03%, Spain’s IBEX 35 (ES35) declined by 0.28%, while the UK’s FTSE 100 (UK100) managed to close higher by 0.22%. European government bond yields rose after ECB President Lagarde stated that ECB officials remain cautious about lingering inflation pressures in the services sector, although they believe the Consumer Price Index is nearing the ECB’s target level. The market currently places a 100% probability on a 25 basis point rate cut by the ECB at the next meeting on January 30, with only a 9% chance of a 50 basis point cut at that meeting.

In commodities, WTI crude oil prices fell 0.3%, settling at $69.20 a barrel. This decline is attributed to concerns about a potential supply glut in 2025 and a stronger U.S. dollar affecting markets during this pre-holiday trading period. Analysts pointed out the increasing likelihood of a supply surplus next year. Furthermore, geopolitical tensions have escalated, with Donald Trump suggesting that the EU must increase their imports of U.S. energy, or they will face tariffs.

Meanwhile, Qatar issued a warning that it will cease natural gas exports to the European Union if member states impose sanctions in response to the newly enacted environmental review legislation. This EU directive on environmental impact assessments, which took effect in July, threatens fines of up to 5% of a company’s annual global revenue if negative impacts on human rights or the environment are not adequately addressed. Qatar has gained importance as a major LNG supplier to Europe as nations work to reduce their reliance on Russian energy supplies.

In Asia, markets showed positive movement. Japan’s Nikkei 225 (JP225) increased by 1.19%, China’s FTSE China A50 (CHA50) saw a rise of 0.91%, Hong Kong’s Hang Seng (HK50) rose 0.82%, and Australia’s ASX 200 (AU200) added 1.67%. Foreign investors appear optimistic about China's capital market prospects in 2025, as the economy is expected to stabilize gradually.

Minutes from the December meeting of the Reserve Bank of Australia (RBA) indicated a need to maintain a restrictive monetary policy for the time being. The Board noted that future decisions regarding rates will rely on incoming data, highlighting that while inflation risks have diminished, uncertainties persist due to international conditions and high service inflation.

GDP, Dollar, Gas, Stocks, Market