Stocks and bonds around the world are showing a lack of activity on Monday, as investors approach a week full of central bank meetings and U.S. inflation data that could have a significant impact on hopes for interest rate cuts early next year. Although the Federal Reserve is expected to keep its rates at 5.25-5.50% this week, the focus is on the dot plots for rates and Chair Jerome Powell’s press conference. The consumer price report for November is also set to influence the outlook, with analysts predicting an unchanged headline rate and a 0.3% increase in the core.
John Briggs, the global head of strategy at NatWest Markets, anticipates the policy statement from the Federal Reserve to signal that economic conditions have not changed enough for officials to drop their tightening bias just yet. He believes that Powell will leave the possibility of a rate hike on the table, but the hurdle for the Fed to follow through seems quite high.
On Thursday, the European Central Bank, Bank of England (BoE), Norges Bank, and the Swiss National Bank (SNB) will also hold their meetings. Norway is the only one expected to possibly raise rates, while the SNB may consider renewed intervention to weaken the franc. Given the significance of these events, cautiousness is pervading the market. MSCI’s broadest index of Asia-Pacific shares outside Japan decreased by 0.29%, and Europe’s benchmark STOXX index slightly declined by 0.06%. In the U.S., stock index futures also remained subdued.
The Treasury market faces its own challenge with $108 billion in new supply of three-year, 10-year, and 30-year bonds. Yields on 10-year notes held steady at 4.25% after rising on Friday following the jobs report. Euro zone bond yields slightly decreased as investors await the central bank data later in the week.
In the currency markets, all eyes are on the yen as speculations arise regarding whether the Bank of Japan will signal a move away from its super easy policy at an upcoming meeting. The dollar has risen against the yen, reaching 146.12 on Monday. However, analysts at Goldman Sachs have noted that the Bank of Japan may disappoint overseas investors by not making any moves this month. Last week, the dollar experienced a sharp decline against the Japanese currency due to growing bets that the Bank of Japan might end negative interest rates in the near future. The dollar also gained against the euro, as market pricing suggests early rate cuts by the European Central Bank.
In the commodity markets, gold prices have been affected by the jobs report, dropping to $1,997 an ounce. Oil prices, on the other hand, remained steady after a 3.9% decline last week to five-month lows. Doubts have emerged regarding whether all OPEC+ members will adhere to the agreed supply cuts. However, prices received some support when Washington announced plans to rebuild its strategic oil reserves.
In addition to the financial events, the market is closely watching the COP28 climate summit, which aims to negotiate a deal to phase out the world’s use of fossil fuels. Brent crude fell 54 cents to $75.3 a barrel, while U.S. crude dropped 60 cents to $70.65.
Note: The information in this article is based on reports from Wayne Cole and Lawrence White, with editing by Sam Holmes, Edwina Gibbs, Alex Richardson, and Susan Fenton.
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