The latest inflation numbers are hawkish, yet expectations are going the opposite way. Price inflation grew 2.6% compared to last year, up from 2.4% last month and marking the first expansion since March. Wall Street seems unfazed, but instead betting on the opposite, as evidenced by an 82% chance the Federal Reserve will cut rates at their December meeting, up from 60% before the inflation report came out. The Fed started to easing in September 2024 by lowering rates for the first time in four years, and the market expects this trend to continue into 2025. Looking at historical patterns, some analysts worry the Fed didn't keep rates high enough or long enough to fully tame inflation, although previous inflation struggles required pretty much the same rates. While the Fed aims for 2% inflation, their recent shift to rate cuts could reverse this, with the full effects of easier money likely showing up in late 2025 and really kicking in during 2026. Fed Chair Powell has made it clear that deflation isn't on the table, suggesting we're more likely to see continued price growth than any meaningful improvements in the cost of living.
EQUITY
Stocks were stagnant after new inflation numbers came in exactly as expected. The Nasdaq slipped 0.3% as tech stocks shaved off election gain, while the S&P 500 barely budged and the Dow added a modest 0.1%. Consumer companies led the day's winners, with both the consumer discretionary sector and major tech stocks hitting record highs as investors bet on future interest rate cuts. Rivian shares stood out as a big winner, surging nearly 14% after Volkswagen increased its planned investment in the electric vehicle maker to $5.8 billion.
GOLD
The precious metal continued taking hits after another, nearing $2,550 and marking its fifth straight day of losses to reach an eight-week low. What started as a 3% drop since the election result has turned into a broader slide, with markets assessing its potential impact on Fed policy may be inflationary, which would not benefit non-yielding assets. Traders are now betting heavily on a December rate cut, with the odds jumping to 80% after the latest inflation numbers came in as expected.
OIL
Benchmark crude prices found support at $67 per barrel after falling on fears of an imminent supply glut. The US Energy Information Administration (EIA) just adjusted its production forecasts, now expecting higher global output to reach nearly 105 million barrels per day next year. While Saudi Arabia and Russia talked about production limits, it hasn't been enough to overcome the oversupply issue in the market. Morgan Stanley is now predicting crude will only hit $72 per barrel in early 2025, down from their earlier $77.50 forecast.
CURRENCY
The dollar hit a one-year high today, reaching a high of 106.7 on a bet that Trump's planned policies, including higher tariffs and tax cuts, could keep inflation running hot and force the Fed to slow down its rate-cutting plans, hopefully not a hike. It pushed the euro down to $1.05 and yen to its weakest level since July. Bitcoin made headlines after reaching a record of $93,483, backed by Trump's promise to make the US "the crypto capital of the planet."
