Global equities cool ahead of US inflation and spending data
Dollar remains under pressure, gold buoyant as markets remain convinced the Fed is done with rate hikes
London — Global stocks steadied on Tuesday, underpinned by the conviction among investors that the Federal Reserve won’t raise rates again, which kept the dollar at three-month lows and supported gold above $2,000 an ounce.
Traders will have to weigh up data this week on how the US economy fared in the third quarter, along with consumer inflation and spending — both of which could be instrumental in setting expectations for the timing of the first rate cut.
The MSCI All-World index was steady on the day, still heading for its best month in three years and up 8.5% in November. The dollar, which has lost 3.2% in value against a basket of currencies this month, was 0.1% firmer but still around its weakest in three months.
European stocks fell 0.5%, driven by losses in pharmaceutical and consumer goods companies, while US stock futures were little changed.
The spotlight this week will be on Thursday’s US October personal consumption expenditures report (PCE), which includes core PCE — said to be the Fed’s preferred measure of inflation — and eurozone consumer inflation figures for further clarity on where prices and monetary policy are headed.
Consumer inflation, as measured by the consumer price index (CPI), is running at 3.2%, having dropped from 3.7% in September, and core PCE, at 3.7% in September, is unlikely to buck that trend. What might give traders more pause for thought is the spending component of the PCE report, according to Lombard Odier economist Sami Chaar.
“That is important because, basically, the market is totally anchored in that ‘soft landing’ scenario, where disinflation continues, with slow growth, allowing the Fed to cut four times next year starting March. That is a very complacent scenario,” he said.
“Everything has to go great and in the Fed’s direction for this scenario to actually materialise and play out. So the spending data is where we get some new information,” he said.
The resilience of the US consumer, thanks in part to a strong labour market, has helped the US outperform most other developed economies in the past year.
Futures markets show traders expect US rates to stay where they are at 5.25-5.5%, with a small chance of a first cut by March and at least three subsequent cuts that would take rates closer to 4.25-4.5% by the end of 2024.
Gold traders will also keep a close eye on the US inflation numbers. The price is at six-month highs above $2,000, driven by a weaker dollar and lower treasury yields.
Policymakers at several central banks have reiterated their commitment to keeping interest rates high enough to bring down inflation towards their targets.
Eurozone inflation data this week will keep that debate alive in European markets.
No let-up in inflation fight
On Monday, ECB President Christine Lagarde said the central bank’s fight to contain price growth was not over, citing persistently strong wage growth and an uncertain outlook even as inflation pressures in eurozone ease.
Fed chair Jerome Powell is scheduled to participate in a panel discussion on Friday and his words will be scrutinised by traders to gauge where rates may head.
Benchmark 10-year treasury yields, which this month have dropped the most in a month since March, were unchanged at 4.392%, holding onto price gains after data on Monday showed new home sales fell more than expected in October as higher mortgage rates reduced affordability.
Shorter-dated yields were a touch higher after auctions on Monday for more than $100bn of two- and five-year notes.
Japan’s yen, which often tracks US yields, strengthened, leaving the dollar 0.1% softer at ¥148.58/$ and putting the Nikkei under modest pressure, Still, the index is around its highest since the 1990s and is up 8% this month.
The euro was flat at $1.09505, and gold was up 0.1% at $2,015 an ounce.
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