As of Wednesday's stock market close, the Dow Jones Index (US30) was up by 1.40%, while the S&P 500 Index (US500) increased by 1.37%. The NASDAQ Technology Index (US100) closed positive by 1.38% yesterday. Stocks rallied sharply on Wednesday, with the S&P 500 (US500) and NASDAQ (US100) rising to near 2-year highs and the Dow Jones Industrials (US30) soaring to an all-time high. Stocks opened higher on Wednesday on the back of a favorable US producer price index (PPI) report for November that showed easing price pressures on manufacturers, a dovish factor for Fed policy. Stock gains accelerated in the afternoon after the Fed signaled the end of its interest rate hike cycle and projected a 75 bps rate cut next year.
The FOMC lowered its median forecast for the federal funds interest rate at the end of 2024 to 4.625% from 5.125% in September, implying a 75 bps rate cut next year. Fed Chairman Powell said that inflation has eased but is still too high and that easing inflation without a jump in unemployment is good news. He also said that he believes the rate is at or near the peak for this cycle and that policymakers are discussing the timing of a rate cut.
There is a 14% chance of a 25 bps rate cut at the January 30-31, 2024 FOMC meeting. Markets then factor in an 85% probability of the same 25 bps rate cut at the March 19-20, 2024 FOMC meeting and a 73% probability of a 50 bps rate cut at the April 30-May 1, 2024 FOMC meeting.
Equity markets in Europe were mostly down yesterday. Germany's DAX (DE40) was down by 0.15%, France's CAC 40 (FR40) fell by 0.16%, Spain's IBEX 35 (ES35) lost 0.22% and the UK's FTSE 100 (UK100) closed positive by 0.08%.
The ECB's monetary policy meeting will take place today. As with the October meeting, investors are confident that the ECB will leave key interest rates unchanged. Indeed, further signs of a looming recession in the Eurozone and an unexpectedly sharp fall in inflation have most forecasters focused on when the first rate cut in 2024 will occur and how many there might be. Nevertheless, while financial markets ponder the possible profile of easing next year, the ECB is expected to state unequivocally that current levels should be maintained for some time to ensure that inflation returns to target in time.
Also, today is the Bank of England's monetary policy meeting. Likely, the majority of MPC members will again decide not to change the bank rate to 5.25%. It should be noted that in November, three MPC representatives still voted in favor of a 25 basis point rate hike. In any case, the MPC is expected to emphasize the need to maintain restrictive policy for an extended period of time to ensure that the inflation target is achieved within an acceptable time frame.
The SNB will also hold its interest rate meeting today. The Swiss central bank is expected to leave the rate unchanged at 1.75%. Despite some early hawkish statements, the downward revision to the central bank's inflation forecast, coupled with the deteriorating economic outlook, has been enough to convince the monetary authorities that their stance is already quite tight. Economists predict that the SNB will start cutting rates as early as March 2024, with rates falling to 1.0% by the end of next year. However, this scenario is too aggressive for the central bank at this stage, so the Swiss franc remains more stable against the euro and the dollar.
Crude oil (WTI) and gasoline prices recovered from early losses on Wednesday and closed moderately higher after the EIA's weekly crude inventories data fell more than expected. The weekly EIA report was bullish for crude oil. On the bullish side was a 4.26 million barrel decline in crude oil inventories, more than the 2.0 million barrel decline expected. A weaker dollar on Wednesday also supported crude oil prices.
Asian markets traded flat yesterday. Japan's Nikkei 225 (JP225) rose by 0.25%, China's FTSE China A50 (CHA50) fell by 2.09% on Wednesday, Hong Kong's Hang Seng (HK50) lost 0.89% on the day, while Australia's ASX 200 (AU200) was positive by 1.53%.
The Hong Kong Monetary Authority (HKMA) on Thursday left its benchmark rate unchanged at 5.75%, following the US Federal Reserve's lead in keeping rates unchanged. The HKMA said in a statement that financial and monetary markets continue to operate in a smooth and orderly manner; the Hong Kong dollar exchange rate remains stable, and Hong Kong dollar interbank rates may remain high for some time.
Japan's Central Bank is likely to end the year as one of the most dovish in the world. With consumption showing signs of weakness and the wage outlook for next year remaining uncertain, the Bank of Japan is expected to maintain ultra-soft policy settings next week. Instead, markets are focused on any hints Bank Governor Kazuo Ueda may make at his post-meeting briefing regarding the timing of the exit from negative interest rates.
S&P 500 (US500) 4,707.09 +63.39 (+1.37%)
Dow Jones (US30) 37,090.24 +512.30 (+1.40%)
DAX (DE40) 16,766.05 −25.69 (−0.15%)
FTSE 100 (UK100) 7,548.44 +5.67 (+0.08%)
USD Index 102.60 −0.27 (−0.27%)
- – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
- – Hong Kong Interest Rate Decision at 04:30 (GMT+2);
- – Japan Industrial Production (m/m) at 06:30 (GMT+2);
- – Sweden Inflation Rate (m/m) at 09:00 (GMT+2);
- – Switzerland SNB Interest Rate Decision at 10:30 (GMT+2);
- – Switzerland SNB Monetary Policy Assessment at 10:30 (GMT+2);
- – Switzerland SNB Press Conference at 11:00 (GMT+2);
- – Norwegian Interest Rate Decision at 11:00 (GMT+2);
- – UK BoE Interest Rate Decision at 14:00 (GMT+2);
- – UK BoE MPC Meeting Minutes at 14:00 (GMT+2);
- – Eurozone ECB Interest Rate Decision at 15:15 (GMT+2);
- – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+2);
- – US Retail Sales (m/m) at 15:30 (GMT+2);
- – US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
- – Eurozone ECB Press Conference at 15:45 (GMT+2);
- – Eurozone ECB President Lagarde Speaks at 17:15 (GMT+2);
- – US Natural Gas Storage (w/w) at 17:30 (GMT+2).
by , 2023.12.14
We advise you to get acquainted with the daily forecasts for the major currency pairs.This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
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