In the past week, Wall Street sustained its November bull run, propelled by the bullish momentum of tech stocks. Nvidia wrapped up the US earnings season with another remarkable result. The US dollar remained at a month-low level as markets continued to bet on peaking interest rates by the Fed.
This week, the macroeconomic landscape is poised to play an important role in shaping market trends. The US is set to unveil its advanced third-quarter GDP, and the US October PCE Price Index, considered the Fed’s favourite inflation gauge, will offer insights into the nation’s inflation trajectory, subsequently influencing the Fed's policy direction.
Consensus forecasts project a 5% annualized GDP growth for the US and a moderated year-on-year PCE of 3.1% in October, down from 3.4% in September. These predictions may signal a potential "soft landing" and hint at an easing of the Fed's hawkish stance—an encouraging sign for equities and a dovish signal for the US dollar.
Chinese stock markets welcomed fresh government support for the housing market, with the Hang Seng Index consolidating above the crucial 17,000 level. The Chinese Yuan strengthened against the US dollar, reaching its highest level since July, suggesting that sentiment may have reached a turning point.
In this week, China's November Manufacturing and Non-Manufacturing PMI will gauge the country's economic landscape. A positive reading is anticipated to boost local stock markets and currencies even further.
The ASX 200 decelerated this week following the release of RBA minutes from November, signaling the potential for additional rate hikes. The Australian dollar gained momentum, propelled by expectations of prolonged higher rates, while base metal prices demonstrated resilience amid the weakening USD.
This week, a barrage of critical economic data is set to be unleashed on the local markets. Of paramount importance is the monthly CPI for October, forecasted to be at 5.2% year on year, a marginal decrease from 5.6% in September. This could be viewed positively, as easing inflation might prompt the RBA to reconsider its hawkish stance on rate hikes. Additionally, October's retail sales data is expected to exhibit a weakening trend, potentially good news for the markets, as the Reserve Bank aims to observe a meaningful impact of its rate hikes on consumer spending.
The Reserve Bank of New Zealand (RBNZ) is poised to decide on its Official Cash Rate (OCR) after halting rate increases for the past three meetings. Market sentiment suggests that the RBNZ has reached the peak of its hiking cycle due to rising economic risks and cooling inflation. The New Zealand 1-year and 2-year swap rates, key indicators, both peaked in October, indicating that the RBNZ is unlikely to persist with OCR hikes, and a rate cut could be on the horizon as early as mid-2024.
Major European countries are set to unveil their estimated monthly Consumer Price Index (CPI) for November this week, providing insights into the region’s inflation trajectory. Consensus forecasts anticipate a further decline to 2.7% from 2.8% in the Eurozone. In the backdrop of cooling inflation, the European Central Bank paused its policy rate hikes in October after ten consecutive increases. Notably, the Eurodollar has been undergoing a reversal trend against the US dollar since October amid the softening of the greenback.
What are we watching?
- US Dollar Softens: The US dollar index has softened to just above 103 from a peak of 107 in October. This decline reflects subdued expectations for the Federal Reserve to persist in raising interest rates.
- Microsoft Hits a New High: Microsoft's share price continuously reached new record highs amid the AI frenzy and the recent OpenAI drama. The tech giant fully capitalized on this year's rapidly generative AI technology, surpassing Apple in year-to-date performance.
- Gold Topps 2,000: Not only precious metals but also base metals such as copper and iron ore have been on the rise since October, thanks to the downtrend in the US dollar. The rebound of these metals supported major Australian mining stocks, including BHP and RIO, rallying throughout November.
- Base Metals on the Rise: Not only precious metals but also base metals such as copper and iron ore have been on the rise since October, thanks to the downtrend in the US dollar. The rebound of these metals supported major Australian mining stocks, including BHP and RIO, rallying throughout November.
- Crude oil Under Pressure: The crude oil market faced pressure due to OPEC+'s decision to postpone its output meeting. The escalation of US inventories and the stumbling Chinese economy were all bearish factors contributing to the decline.
- Bitcoin Tops 38,000: Despite the resignation of Binance CEO amid regulatory charges, the crypto market did not experience a significant impact. Instead, Bitcoin might have experienced a relief bounce, briefly surpassing 38,000 before retracing to about 37,900 on Friday.