Last week, the international market was in turmoil, and the three major central banks of the United States, Europe and the United Kingdom all kept interest rates unchanged, but the Federal Reserve went further in its interest rate cut expectations.
In the market, U.S. stocks continued to be strong, with the Dow rising 2.93% for the week. The Nasdaq rose 2.85% for the week, the S&P 500 rose 2.49%, the three major European stock indexes were mixed, the UK's FTSE 100 index rose 0.29% for the week, the German DAX 30 index fell 0.05% for the week, and the French CAC 40 index fell 0.93% for the week.
There will be a lot to watch this week, with the inflation indicator that the Fed is most concerned about coming out, and the impact of the data on the outlook for interest rate cuts. Will the UK consumer price index (CPI) for November rekindle hopes for policy easing after a surprise economic downturn. Nike will release its latest earnings report, and the outside world will pay close attention to the direction of consumer spending, which will be an important reference factor for the direction of the economy at the end of the tightening cycle.
At the same time, the Bank of Japan will hold an interest rate meeting, and as the last advanced economy to announce an interest rate decision this year, Japan, which is at the tipping point of the easing cycle, is even more interesting, and the inflation that is beginning to rise is also putting pressure on interest rates to turn. Bank of Japan Governor Kazuo Ueda previously said that there will be greater challenges in the handling of monetary policy from the end of the year to next year, which once led to a sharp surge in the yen against the dollar. Then the media, citing officials, said that the central bank did not see the need to end negative interest rates this month. The market expects the Bank of Japan to continue its ultra-loose stance this week and may set the stage for a potential interest rate and yield curve adjustment next year.
The U.S. welcomes key inflation indicators
The Federal Reserve left interest rates unchanged for the third time in a row last week, raising interest rates by 100 basis points this year. The dot plot shows that Fed officials expect a possible 75 basis point rate cut in 2024. Fed Chair Jerome Powell said at the press conference that interest rates are close to peaking.
Regarding monetary policy and the economic outlook, U.S. Treasury Secretary Janet Yellen said that as inflation eases, it makes sense for the Fed to consider lowering interest rates to keep the economy running smoothly. "To some extent, as inflation falls, interest rates naturally fall somewhat, because real interest rates rise, leading to tighter financial conditions. She further said, "My expectation is that inflation will fall to around 2% by the end of 2024." ”
The personal consumption expenditures price index (PCE) for November will be the biggest focus this week, while personal income and spending data for the month will also be released. The core CPI in the United States increased by 4.0% in November, unchanged from the previous one, and the agency predicts that the upcoming core PCE price index may also stabilize at 3.5%, considering consumer spending and labor market resilience, showing certain sticky characteristics.
Meanwhile, the U.S. will release the final reading of the third quarter gross domestic product (GDP), with the Commerce Department raising the last quarter's GDP growth to 5.2% from 4.9% earlier this month, although personal consumption was revised down to 3.6% from 4%. The data was boosted by increases in fixed investment, inventories and health care and government spending. The agency predicts that this week's data will not change much. In addition, a number of U.S. real estate data will be released, and the impact of high mortgage rates on housing starts, building permits and existing home sales in November may continue.
In terms of corporate earnings, companies to watch this week include FedEx, Micron Technology, General Mills and Nike.
Crude Oil & Gold
Crude oil futures rose for the first time in nearly eight weeks, with a weaker dollar boosted commodity prices after the Federal Reserve's decision. The WTI front-month contract rose 0.28% to $71.43 a barrel, and the Brent front-month contract rose 0.94% to $76.55 a barrel.
Oil prices have experienced the worst consecutive decline since 2018, despite OPEC+, an organization of oil producers, announcing additional voluntary production cuts. Institutions believe that last week's rally was largely attributed to short covering and a pullback in the US dollar, with the US dollar index falling 1.3% over the past week.
Geopolitical factors are also worth watching, with Yemen's Houthi attacks on ships transiting the Red Sea over the past week, increasing the likelihood of disruptions to oil and other cargo shipments, providing some support to prices. Danish shipping company Maersk said it would suspend all container traffic through the Red Sea and instead detour through Africa until further notice due to the rising risks posed to its fleet by Houthi rebels.
Manish Raj, managing director of Velandera Energy Partners, said the Red Sea is one of the hotspots for offshore crude flows, accounting for about 10% of global crude oil production. A potential blockage of the Red Sea route does cause chaos, but not as much as a blockage in the Strait of Hormuz near Iran, where there is no viable alternative.
The international gold price stood at the $2,000 mark, and the Federal Reserve's decision boosted market buying. Gold futures for February delivery on the New York Mercantile Exchange closed at $2,035.70 an ounce, up 1.1% for the week.
Everett Millman, chief market analyst at Gainesville Coins, said: "The gold market will continue to reflect the Fed's expectations. If the U.S. economy does not improve at the beginning of 2024, then this is a very positive sign that gold will continue to approach all-time highs. ”
The 10-year Treasury yield had its worst week since March, weighed down by expectations of a rate cut. "If more Fed officials hit back at Powell's comments at the FOMC before Christmas, then we could see a deeper pullback in gold prices, which will make investors more cautious," said independent metals trader Tai Wong. ”
The British and European central banks weighed on the prospect of interest rate cuts
The European Central Bank (ECB) announced its latest interest rate decision, keeping the three main interest rates unchanged and planning to stop its last bond-buying program, the Emergency Pandemic Purchase Programme (PEPP), early in mid-2024. The ECB also lowered its growth forecast, expecting GDP growth of 0.8% in 2024, compared to 1% previously.
Despite the pressure on the economy, ECB President Christine Lagarde remains firm on interest rates. She said the ECB would not "let its guard down" and claimed that ECB officials were not even discussing a rate cut.
Last week's Eurozone Purchasing Managers' Index (PMI) report for December showed that economic activity in the region contracted for the seventh consecutive month and beat expectations, with data from two major economies, Germany and France, particularly weak. European bond yields plunged in late trading, with German 10-year government bonds falling to 2.03%, the lowest since January this year, sparking hopes for an early rate cut in 2024. HSBC believes that the ECB may cut interest rates three times in the first half of the year.
The Bank of England adopted the decision to keep interest rates unchanged by a split vote. The Bank of England's Monetary Policy Committee believes it is too early to believe that services inflation and wage growth are steadily declining. Bank of England Governor Bailey did not announce the end of the era of high interest rates, "We have come a long way this year, but there is still some way to go." ”
According to UK overnight swap futures quotes, the market still believes that the rate hike cycle is over and that a rate cut of about 115 basis points may be needed by December next year. The outside world seems to be more concerned about the performance of the stagnant British economy. This week, market attention will turn to November inflation data. Despite a significant improvement in price growth compared to last year, inflation in the UK is much higher than in other major economies. The agency forecasts that inflation will edge down to 5.5% in November, while core CPI will be around 4.4%.
What to watch for this week
