On December 19, 2024, the Federal Reserve convened for its scheduled meeting and decided to cut interest rates by 25 basis points. However, they altered their projections for future rate cuts in 2025, reducing the anticipated reductions from four to just two. As a result, the central tendency for the 2025 interest rates was adjusted upward by 50 basis points to 3.9%. Fed Chair Jerome Powell emphasized that the economy is “near, or has reached” a point where further cuts would be paused and that any future reductions would depend significantly on observing notable progress in inflation. This shift indicates a broader reevaluation of the Fed's monetary policy focus, transitioning from stabilizing the labor market to striving for a balance between inflation control and employment stability.

Recent trends point to rising inflation expectations in the U.S., prompting the Fed to adopt a more hawkish stance. During the meeting, they also revised upward their economic growth and inflation forecasts for both 2024 and 2025. It’s notable that the GDP growth expectation for 2024 was raised by 0.5 percentage points to 2.5%, while for 2025, it was adjusted up by 0.1 percentage points to 2.1%. Additionally, inflation projections showed a 0.1 percentage point increase for 2024 to 2.4%, and a 0.4 percentage point lift for 2025 to 2.5%. The market's current performance indicates increasing yields, with the difference between the 10-year and 2-year U.S. Treasury yields reaching 0.32%, a high for 2024. The implied inflation rate for 10-year Treasury bonds rose to 2.34%, up from a low of 2% observed in early September 2024. These figures demonstrate the Fed’s ongoing caution regarding the resilience of inflation and the potential risks of resurgence.

The roots of inflation in the U.S. could be traced back to immigration and tariff policies. According to data from the U.S. Census Bureau, about 3.3 million people are expected to be added to the U.S. population in 2024, with nearly 85% of this increase attributed to immigration. This surge in net international migration is facilitating the fastest population growth since 2001. The influx of immigrants is alleviating labor shortages in the American job market, which has somewhat eased wage growth rates and inflationary pressures. As of October 2024, the number of job openings in the U.S. stood at 77.44 million, a decline of 10.04 million compared to the start of the year; simultaneously, the average year-on-year growth in non-farm payroll wages decreased from 4.52% in 2023 to 4% in 2024. Policymakers, who have expressed intentions to tighten immigration policies, may reignite labor shortages that would further complicate the Fed's path for interest rate reductions, introducing greater unknowns into the economic outlook.

The recovery trajectory for manufacturing sectors in both the U.S. and Europe continues to be tumultuous, with speculative funds remaining particularly cautious. On December 2, 2024, IHS Markit reported that the final Manufacturing Purchasing Managers' Index (PMI) for the U.S. in November stood at 49.7, edging close to the neutral mark of 50. Yet, on December 16, the PMI for December dropped again to 48.3, falling below both its previous value and market expectations. This decline reflects a significant downturn in manufacturing output, reaching lows unseen in nearly four years. While manufacturing struggles, the services sector is enjoying a contrasting performance with a PMI of 58.5, indicating its highest reading since October 2021. This divergence in performance underscores the ongoing bifurcation within the U.S. economy, as manufacturing remains volatile while services thrive.

Similarly, the Eurozone's manufacturing sector is experiencing sluggishness, marked by a preliminary December PMI of 45.2, slightly missing expectations. The resilience of European manufacturing further complicates an already precarious economic outlook. Under such erratic conditions in international financial markets, speculative capital appears cautious. By the end of December 2024, looking specifically at the COMEX market, non-commercial net long positions dwindled to just 1,804 contracts, a staggering decline of 8,121 contracts from the end of November, reflecting a clear retreat of funds. In the LME market, net long positions also fell, down 1,598 contracts from the previous month to a total of 20,095. Historical trends show that the movement of speculative capital often aligns closely with fluctuations in manufacturing PMIs, and currently, the subdued activity in U.S. and European manufacturing is causing funds to reconsider their strategies and potential entry points, opting instead for a wait-and-see approach.

As we approach January, macroeconomic uncertainties loom, particularly concerning copper prices, which may experience fluctuations in the medium to long term. On one hand, implied inflation expectations in long-term U.S. Treasury bonds have seen a gradual uptick since December 2024, with the Fed adjusting its inflation predictions. On the other hand, the inconsistent recovery of manufacturing activity persists, evidenced by the contraction signals emanating from the PMI data for both the U.S. and the Eurozone. With the potential for quick implementation of tariff and immigration policies post-January 20, the U.S. dollar may face further strengthening risks. Additionally, as January unfolds, the domestic demand for copper is likely to decline into a seasonal lull, resulting in limited microeconomic drivers for copper prices. Therefore, as uncertainties in the overseas macroeconomic environment begin to rise, enterprises must remain vigilant toward the short-term risks that may influence market dynamics.