Marketmind: Markets wary Powell may undermine rate-cut bets
After an incredible November, investors are anticipating a successful start to December in Europe, with hopes that central banks will soon begin reducing interest rates. However, a “fireside chat” with Fed Chair Jerome Powell later in the day could dampen the festivities.
A calendar chock full of manufacturing PMIs from European nations will paint a more accurate picture of the economy of the continent, but for now, futures point to a stronger open for European bourses.
Money markets are pricing in rate cuts of more than 100 basis points from the Federal Reserve and the European Central Bank for next year, after data released on Thursday from the euro zone and the United States indicated that inflation was decreasing.
The gap between the financial markets and central banks has only widened as the latter resist discussion of rate reduction and the former take in the comparatively milder-than-expected inflation statistics from recent weeks.
But this week, things took a little turn for the worst when prominent and hawkish Fed policymaker Christopher Waller expressed growing confidence that inflation would hit its 2% objective. This encouraged markets to venture into rate-cutting.
According to the CME FedWatch tool, markets are now pricing in a 46% possibility of a rate drop by the central bank in March. It was priced at 27% a week ago.
Powell will be the centre of attention when he enters the stage later on Friday, especially against that backdrop. Powell may decide to avoid discussing policy or rates, but that is still to be determined. The markets will react to everything he says or doesn’t say.
The final month of the year began tentatively in Asia, with shares declining, the currency being on the defensive, and oil prices continuing their recent downward trend.
In business news, Tesla has finally released the long-awaited Cybertruck. The sleek, stainless steel vehicle designed like a flat plane will set you back more over $50,000, or more than half of what CEO Elon Musk had promised back in 2019.