This is a crucial week for the United States, as it prepares to release the November Consumer Price Index (CPI) data, closely followed by the Federal Reserve's decision on interest rates. These events carry significant weight, potentially shaping market movements as we approach the year-end. Despite a slowed pace, Wall Street's Christmas rally appears promising, with all three benchmark US indices extending weekly gains.
Consensus expectations point toward a further easing of inflation to 3.1% year on year in November, down from 3.2% in the prior month. This could bolster market confidence in the view that interest rates have reached their peak. While the Federal Reserve is widely anticipated to pause rate hikes this week, Chairman Powell is likely to maintain his stance on "higher for longer" rates.
Chinese stock markets have experienced deeper losses, with the Hang Seng Index plummeting to a one-year low following a series of disappointing economic data. Moody's downgrade of China's sovereign debts has further dampened investment sentiment. However, there might be a potential rebounding opportunity on the horizon as markets could be oversold. Consensus expectations foresee improvements in upcoming bellwether economic indicators, including industrial production, retail sales, and fixed asset investment for November.
Several key economic indicators will shed light on the Australian stock markets and local currencies this week. Notable releases include the Westpac Consumer Sentiment for December and Unemployment data for November. The former will provide insights into spending power, offering clues about inflation outlooks, while the latter is a crucial factor for the Reserve Bank of Australia (RBA) in adjusting its monetary policy. Forecasts suggest a slight uptick in the unemployment rate to 3.8% in November from the previous month's 3.7%, signaling positive signs for inflation.
The ASX 200 outperformed its US counterparts last week, following the RBA's dovish pause and weaker-than-expected Q3 GDP. Interestingly, "bad news" is seen as "good news," strengthening expectations for an earlier end to the rate-hiking cycle. However, this did not support the Australian dollar, which experienced a sharp retreat against the USD.
New Zealand is set to report its third-quarter GDP this week, with expectations of a sequential slowdown to 0.1% from the second quarter's 0.9%. Despite this, local stock markets and the New Zealand dollar have benefited from the global risk-on sentiment, showcasing robust movements since November.
Apart from the Federal Reserve, three other major central banks—the European Central Bank (ECB), the Bank of England (BOE), and the Swiss National Bank (SNB)—are also scheduled to decide on their respective policy rates. These decisions will undoubtedly have far-reaching implications for the global financial landscape.
What are we watching?
AI Excitement Returns to Wall Street: The recent surge in AI-powered technology kept boosting Wall Street's positive momentum. However, a surprise increase in job data on Friday led to a rise in bond yields, putting the brakes on the AI frenzy.
USD/JPY Takes a Dive:The Japanese Yen strengthened as the Bank of Japan (BOJ) governor hinted at a potential policy shift. Traders are speculating on the end of the bank's negative interest rate, possibly as early as its December meeting.
Gold Takes a Step Back: Gold futures retreated from their all-time highs, losing gains from the previous week. This was influenced by a rebound in the US dollar and bond yields after strong job data was reported on Friday.
Oil Receives Some Support:Crude oil experienced a drop for the week but found technical support, bouncing back in the last two trading days. China reported weakening Consumer Price Index (CPI) data throughout the week, potentially impacting oil markets at the Monday open.
Bitcoin Surpasses 44,000: Bitcoin continued its upward trend, surpassing 44,000, marking the highest level since April 2022. While improved liquidity conditions and optimism surrounding the spot ETF may keep driving its bullish cycle, a potential overbought signal could lead to a short-term pullback.
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