Fed Chair Jerome Powell laid out his views on interest rates during a Federal Reserve event in Dallas on Thursday, making it clear that rate cuts won't come down as fast as some hoped. The Fed chief pointed to strong economic growth and declining inflation in its projection as key reasons to stay patient. The job market remains solid, with unemployment at 4.1%, while the economy keeps growing at a healthy 2.5% pace, ensuring Powell and his team have breathing room to take their time with any rate decisions. Recent data shows inflation staying stuck around 2.8% when looking at core prices, suggesting the Fed's work isn't done yet. Markets are now betting rates might stay higher for longer, with predictions showing them possibly landing around 3.9% by 2026 instead of the earlier 2.9% estimate. The incoming Trump presidency adds another layer to the cake, with proposed policies on tariffs and immigration that could affect both growth and inflation in ways the Fed will need to carefully consider.
EQUITY
Markets reacted negatively to Fed Chair Powell's call for a slower rate cut, pointing toward satisfactory economic growth and projected inflation. The S&P 500 fell 0.6%, downed by industrial stocks, especially defence companies that had rallied after last week's election. Producer prices rising 0.2% in October and weekly jobless claims dropping to 217,000 supported Powell's cautious stance. Disney recovered 6.2% after better earnings, while Tesla along with other EV makers suffered after reports that President-elect Trump's transition team plans to eliminate EV tax credits.
GOLD
Gold prices continued its downfall to a low of $2,550 per ounce, marking their worst weekly performance since June 2021. Its reversal from an all-time high started in late October and continued after Donald Trump's return to the White House sent the dollar flying to one-year highs. Fed Chair Powell's comments for slower rate cuts had also pressured its price. Market expectations for a December rate cut dropped from 80% to 58% following inflation data and Powell's hawkish remarks.
OIL
Oil prices are fluctuating around $68-72 per barrel as markets assess the severity of a supply glut looming on the horizon. The International Energy Agency dropped a bombshell forecast predicting global oil supply will exceed demand by more than 1 million barrels per day in 2025, largely driven by production from the Americas, including the U.S., Canada, Guyana, and Argentina. To exacerbate, China's oil imports fell 9% year-over-year in October, and overall crude stockpiles increased more than expected by 2.1 million barrels.
CURRENCY
The U.S. dollar shot to a fresh 2024 high this week, pressuring the Malaysian ringgit that has fallen 3.6% since Trump's win as markets prepare with his proposed tariffs of up to 20% on U.S. imports and 60% on Chinese goods. Cryptocurrency Bitcoin continued its rally to a high of $93,000, while Asian currencies like the Japanese yen weakened past 156 per dollar for the first time since July.
