Global Market Insights: Inflation Trends, Central Bank Policies, and Geopolitical Impact

Zforex Representative
Fed officials have countered recent market optimism following the Federal Open Market Committee (FOMC) meeting, where three rate cuts were promised for 2024, sparking a rally in the financial markets. Currently, market participants are assuming a 69% probability that the first rate cut will take place at the Fed's March meeting, followed by a 63.3% probability of a further cut in May. As a result, traders are showing caution when it comes to taking aggressive directional positions, preferring instead to wait for the release of the US Core Personal Consumption Expenditure (PCE) Price Index.
Meanwhile, the latest data from Eurostat for the Eurozone showed that inflation fell short of market expectations in November, primarily due to falling energy prices. The Harmonized Index of Consumer Prices (HICP) for the Eurozone recorded a month-on-month reading of -0.6% in November, weaker than the previous -0.5% but in line with analysts' forecasts. The annual Eurozone inflation rate remained steady at 2.4%, consistent with expectations. Notably, Core HICP figures, which exclude the volatile food and energy components, posted a 3.6% year-on-year (YoY) reading, the lowest since April 2022. Additionally, Germany's Producer Price Index (PPI) also decreased, further indicating disinflationary trends in Europe. These developments have led the market to price in more rate cuts in 2024, with a potential early cut in March.
In the UK, the Office for National Statistics reported that the Consumer Price Index (CPI) for November recorded a -0.2% MoM figure, missing the anticipated 0.1%, while the annual CPI rate dropped to 3.9% from the previous 4.6%, falling below the market consensus of 4.4%. The Core CPI, which excludes food and energy prices, declined from 5.7% in October to 5.1% in November, below the expected 5.6%. Bank of England (BoE) Deputy Governor Sarah Breeden commented that while she had no predetermined path for interest rates, a restrictive policy stance was necessary to manage inflation pressures.
The Bank of Japan (BoJ) maintained its dovish policy stance, which, combined with the prevailing risk-on sentiment, has weakened the safe-haven Japanese Yen (JPY). Data from Japan showed both imports and exports for November falling more than anticipated. BoJ Governor Kazuo Ueda reiterated the central bank's readiness to implement additional easing measures and continue monitoring the wage-price dynamics.
The growing consensus that the Federal Reserve (Fed) will shift away from its hawkish stance early next year has bolstered gold prices. US Treasury bond yields and the US Dollar (USD) are nearing multi-month lows, providing support for gold, which is a non-yielding asset.
Geopolitical tensions have also impacted oil prices, stemming from attacks on commercial vessels in the Red Sea attributed to the Iran-led Houthi militant group. In response, the United States established a task force to safeguard Red Sea commerce. However, the US is expected to increase oil production, potentially leading to significant supply growth that could surpass global demand in the coming year, which might limit the upward trajectory of crude oil prices.