As we head into the holiday period, the market focuses entirely on the US. Last week was a big week for news that we can build on to find a good focus for 2025. Minutes from the FOMC suggest that Governors remain concerned about inflation, looking at fewer rate reductions in 2025 with a chance shift to a neutral stance and an outside feeling of developing a hawkish argument. PCE Data, one of the Federal Reserve’s preferred indicators, was softer than expected. The MoM read was 0.2% less than the forecast 0.3% and came in at 0.1%, while the YoY print was 0.1% less. Perhaps the most interesting news was comments from US President-elect Donald Trump and Elon Musk concerning the US Government Debt. Trump urged Republicans not to agree to move the debt ceiling. Remember that in Trump’s first term as President in 2019, the government was shut down for 34 days, the longest in US history, and perhaps a sign that the new president wants to reduce the debt when firmly in the White House. The current US President Biden signed the US Government Budget into law to avoid a weekend shutdown. The current debt stands at $36 trillion (see Chart below). The government spends more money on paying interest than on homeland security. It’s an issue that needs to be resolved. It’s worthwhile to dive a little deeper into the new presidency and his potential outlook for the burgeoning debt.

As we are about to head into a new Presidency, it is probably worth reflecting on Trump’s last administration to understand the potential mischief he will get up to in his new term, especially as he has the mandate to make change. Trump will begin his new term with the Republican Party controlling both chambers of Congress—the House of Representatives and the Senate—establishing a unified government often referred to as a "trifecta." This will give him a strategic advantage in enacting his administration's policy objectives. This means he can enact change and push policy through both houses. Apart from the odd filibuster, it gives him a clear path on policy, which could be volatile.

US Government Debt v Dow Jones (Trading Economics)

Trump’s previous presidency, from 2017 to 2021, was marked by a mix of unconventional governance, major economic initiatives, and significant political controversies. We should expect the same in this term, albeit with more punch! The government shut down for a historical 34 days due to the level of debt, which was a substantial step by his administration to try to address the debt issue. As a businessman, he knows that continually raising debt levels could dampen investor confidence in U.S., fiscal stability, potentially weakening the U.S. dollar. Further, allocating more funds toward interest payments reduces the government’s capacity to invest in infrastructure, education, and other growth-promoting initiatives. While fiscal discipline is necessary to curb debt growth, excessive austerity could slow economic recovery and limit opportunities for new public investments.

Trump has asked Elon Musk to co-lead the newly established Department of Government Efficiency (DOGE) to find a balance. This advisory body is tasked with streamlining federal operations by dismantling bureaucracy, reducing excessive regulations, cutting wasteful expenditures, and restructuring federal agencies. The Budget deficit will be firmly in his sights, so we can expect fireworks once Trump/Musk is in office. Trump has consistently emphasized the importance of economic growth as a key strategy for addressing fiscal challenges. He believes that a stronger economy will generate higher tax revenues, thereby reducing the budget deficit and, eventually, the national debt. Reducing government spending is another method Trump might employ to lower the debt. The debt at its current rate is not sustainable. The United States recorded a Government Debt equal to 122.30 percent of the country's Gross Domestic Product in 2023. Government Debt to GDP in the United States averaged 65.70 percent of GDP from 1940 until 2023, reaching an all-time high of 126.30 percent of GDP in 2020 and a record low of 31.80 percent of GDP in 1981. It can be done and Trump is someone that could probably do it. Expect to see a political gridlock over the debt ceiling re-emerge in 2025, this could lead to significant market volatility and even a temporary government shutdown. Investors may seek safer assets, such as U.S. Treasuries, though prolonged uncertainty could push yields higher. However, whatever the Trump/Musk team does it will be a contentious decision but one the US needs to face as the Trump “spin doctors” will put it, which is a little reminisce of the Keating byline “the recession we had to have! (1990). We wait and see!

This week is a shortened week due to the Xmas holiday period. From experience, trading is usually marked with a fair bit of volatility as volumes will be low, always best to have extra funds in the account so you can handle the volatility. On the data front, the RBA tomorrow will release the Minutes from its last meeting. The cash rate remained at 4.35% during its final meeting of 2024, keeping borrowing costs unchanged for the ninth straight gathering, in line with market forecasts. The central bank stated that while headline inflation has eased substantially and will remain lower for some time, underlying inflation stays too high before reaching the midpoint of 2 to 3% in 2026. US Durables goods data is due on Wednesday, 25 traders are looking for a hefty drop of -0.4% a turnaround from the 0.2% gain in the previous month. On the same day we have US New Home Sales, this is a leading indicator and gauge as to the health of the real estate markets; the previous print was -17,3% MoM. The market is looking for a turnaround. Later in the week we have inflation, industrial, manufacturing and retail sales from Japan.

On the position …, we are still … on small, … equity positions (ASX … and SP…). The ASX 200 broke through … and traded to … We continue to … the position and expect … to be sold into. Wheat, we remain … but are still happy to … off doing anything for a … period. Gold and Silver traders, we also stay … and happy to…  The AUD/USD remains a concern; however, if we get a bounce this week, it should cement a critical low. We have … off this level three times in the past. 

Trade Focus:

USDX

Fundamentals:

The dollar index steadied around … on Monday after PCE inflation data came in slightly … than expected, offering some relief about the pace of Federal Reserve rate cuts in the year ahead. The data print raised hopes of disinflation after concerns of stubborn price growth drove the FOMC to signal fewer rate cuts than expected next year in its latest Summary of Economic Projections. Investor sentiment was also … when a U.S…

Technical Analysis:

A clear rejection of … on a daily close suggests a high of importance is in place. Once we get a break below 107 we can suggest we are in a range. A … USD will be good for our AUD/USD and precious metal positions…

Support              …

Resistance         …

Momentum        …