Markets have rallied on hopes for aggressive Fed easing, pricing in deeper cuts than the central bank's official guidance. Despite dovish commentary from Chair Powell, some officials express unease with this exuberance, hinting at a disconnect between market expectations and the FOMC's measured approach. Citi predicts cuts could come sooner than March if the data supports it, but warns that continued market exuberance might force the Fed's hand, potentially leading to earlier action to prevent a jarring reversal. The seemingly ever-growing market, however, gives no reason for a cut as long as the narrative is maintained and there is no shock spiral in valuation.
EQUITY
A profit-taking spree swept Wall Street, snapping a nine-day winning streak. Despite robust consumer confidence and housing data, FedEx's weak outlook and General Mills's guidance cut cast a shadow, raising concerns about holiday spending and broader economic resilience. Consumer confidence soared, but concerns about holiday spending and inflation lingered.
GOLD
Gold prices gained slightly on Thursday, consolidating in the search for conviction that the Fed will pivot to rate cuts next year. UK inflation's recent plunge to a two-year low overshadowed Fed officials' cautionary whispers against swift rate reductions. However, with key US data releases on the horizon, investors remain wary of potential headwinds that could stall gold's rally.
OIL
Crude's five-day winning streak halted today as concerns over sluggish global demand and a U.S. inventory buildup outweighed fear from Middle Eastern tensions. Though Red Sea shipping disruptions added a geopolitical premium, fears of a wider supply crunch waned, with most Middle Eastern oil flowing freely via the Strait of Hormuz. Investors now brace for rangebound prices until year-end, with key economic data and the dollar's reaction holding the spotlight.
CURRENCY
Currencies traded cautiously ahead of Friday's U.S. inflation data, with sterling coping with losses and the yen finding some footing in holiday-thinned markets. The dollar remained on the back foot despite risk aversion stemming from equity selloffs, as bets for Fed rate cuts next year held firm. China's yuan eased on softer offshore funding costs and weak stock performance, though analysts anticipate a shift in the U.S. and China's monetary policy to become more supportive of the yuan in the long run.
