09 Dec 2024 - Global markets face a pivotal week with key inflation data and central bank decisions ahead. The Fed weighs another rate cut amid mixed labor market signals, while geopolitical tensions in Syria push gold above $2,650. China battles deflation as its central bank resumes gold purchases, and the ECB considers rate cuts amid economic challenges. Oil prices remain volatile due to OPEC+ delays and Middle East uncertainty.
Day | Time (GMT) | Country | Event |
Mon | 07:50 | Japan | Gross Domestic Product (Q3) |
Mon | 09:30 | China | Consumer Price Index (Nov) |
Mon | 09:30 | China | Producer Price Index (Nov) |
Tue | 11:00 | China | Trade Balance (Nov) |
Tue | 11:30 | Australia | RBA Interest Rate Decision |
Tue | 15:00 | Germany | Consumer Price Index (Nov) |
Tue | 21:30 | US | Nonfarm Productivity (Q3) |
Tue | 21:30 | US | Unit Labor Costs (Q3) |
Wed | 17:00 | US | Consumer Price Index (Nov) |
Thu | 08:30 | Australia | Employment Change (Nov) |
Thu | 21:15 | Eurozone | ECB Interest Rate Decision |
Thu | 21:30 | US | Producer Price Index (Nov) |
Fri | 07:50 | Japan | Large Manufacturing Index (Q4) |
Fri | 15:00 | UK | Gross Domestic Product (Oct) |
Fri | 15:00 | UK | Industrial Production (Oct) |
Fri | 18:00 | Eurozone | Industrial Production (Oct) |
Fed's December Tightrope: Stabilizing Jobs Amid Inflationary Heat
The latest snapshot of the U.S. labor market, released on Friday, brought the Federal Reserve one step closer to potentially lowering borrowing costs once again on December 18. However, the final decision will hinge on the inflation data to be released this week.
Following a setback in October due to hurricanes and labor strikes, U.S. payrolls rebounded in November with 227,000 new jobs added. The report published by the U.S. Bureau of Labor Statistics also noted that the unemployment rate rose slightly to 4.2% and that wages exceeded expectations.
Over the past three months, U.S. employers have added an average of 173,000 jobs, signaling a slowdown from the robust pace earlier this year. This suggests the U.S. labor market is cooling moderately but remains solid. Several Fed officials echoed this sentiment in statements following the report.
Chicago Fed President Austan Goolsbee referred to the recent average payroll numbers, stating, "To me, that feels like it's in that sustainable, full employment kind of place." Goolsbee declined to comment on whether he would support a rate cut at next week's meeting but noted that any pause in the Fed's rate-cutting cycle would depend on conditions in inflation or the labor market. His colleague Mary Daly also expressed confidence in the labor market's strong position.
Meanwhile, Fed Governor Michelle Bowman acknowledged that despite the rise in unemployment, the rate remains historically low. However, she emphasized that inflation is still "uncomfortably" above the 2% target, prompting her to favor a cautious and gradual approach to rate cuts. Bowman was the sole policymaker in the September meeting to vote for a quarter-point rate cut instead of a half-point reduction.
In summary, recent statements from Fed policymakers indicate a shared view that future rate cuts should proceed at a cautious pace. However, the latest payroll report does not provide a definitive direction for this month's policy decision. Policymakers will closely monitor the upcoming critical inflation data ahead of next week's meeting to determine whether to implement another rate cut.
According to swap market data, market participants have increased their bets on a quarter-point cut following the payroll report, with probabilities rising from around 70% to 83.4%. Some economists argue that the recent job gains are below the level needed to stabilize the unemployment rate, suggesting that unemployment may continue to rise.
Given the Fed's reluctance to see further cooling in the labor market, they contend that a quarter-point cut next week would be justified. However, with the recent data highlighting increased risks to inflation, this week's figures will be critical for the Fed's decision this month.
Meanwhile, a report indicates that one in three American consumers has started stockpiling durable everyday goods, fearing higher prices due to President-elect Donald Trump's tariff policies. A survey by CreditCards.com found that 34% of respondents reported stockpiling products out of fear or uncertainty about the future. This behavior could lead to a surge in preloaded demand and contribute to rising inflation.
According to a Bloomberg survey of economists, Wednesday's data is expected to show a modest increase in headline inflation to 2.7%, while core inflation is projected to remain steady at 3.3%. The upcoming figures will serve as a key catalyst for Fed expectations and guide market pricing.
Inflation, Instability, and Gold: What's Driving the Surge?
As traders continue to assess critical data from the U.S. and the Federal Reserve's potential policy decision next week, developments from China and the Middle East have driven gold prices higher. Gold began the week with a 0.6% increase, briefly rising above $2,650 per ounce before settling into a steady range.
On Saturday, the People's Bank of China (PBoC) reported purchasing 160,000 fine troy ounces of gold in the past month. The PBoC had paused additions to its gold reserves since April following record purchases earlier this year. However, even a relatively small amount of renewed buying is seen as a positive signal for gold's outlook.
Meanwhile, traders closely monitored developments in Syria over the weekend. Following the seizure of the capital, Damascus, by rebel forces, President Bashar al-Assad fled the country, ending his 24-year rule. The nation had been embroiled in a civil war for nearly a decade.
This upheaval, occurring shortly after a ceasefire was declared between Israel and Hezbollah, has further destabilized the Middle East. Many Arab and U.S. officials have expressed concerns that a power vacuum in Syria could be dangerous, increasing the likelihood of further uprisings and violence as various groups vie for control. This heightened uncertainty has bolstered demand for safe-haven assets, supporting gold prices.
Additionally, gold traders are eagerly awaiting U.S. inflation data due on Wednesday. A report that increases the likelihood of another Fed rate cut next week could deepen the decline in U.S. Treasury yields, which tends to push gold prices higher due to its non-yielding nature.
Geopolitics Meets Deflation: Oil Prices Caught in a Global Crossfire
Oil prices rose as geopolitical risk premiums increased, driven by the fallout from the Syrian government's collapse, while traders assessed the potential implications. However, market observers predict that the tensions in Syria will remain localized and are unlikely to disrupt oil supplies. As a result, the impact on prices may be limited.
Meanwhile, last week, OPEC+ decided to delay its production hike plans for another three months, while concerns over Chinese demand continued to overshadow the market. Over the weekend, Saudi Arabia surprised the market by cutting oil prices for Asian buyers more than expected, highlighting the persistently weak outlook.
Earlier in the day, a report from China revealed that consumer inflation unexpectedly slowed in November, while factory gate deflation eased slightly. Consumer prices fell by 0.6% month-on-month in November, deepening the deflation seen in October, which recorded a 0.3% drop. This exceeded economists' median forecast of a 0.4% decline.
On an annual basis, inflation dropped to 0.2% from the previous 0.3%, missing expectations of a 0.5% increase.
The data from China underscores that while Beijing's flood of stimulus measures has slightly improved sentiment, they have not been sufficient to reverse deflationary trends. Market observers are now closely watching the Central Economic Work Conference, set to begin Wednesday, for announcements of additional stimulus measures.
Analysts predict that the Chinese central bank will cut reserve requirement ratios further this month. Wall Street banks have also increased their bets on significant rate cuts next year. Projections from Goldman Sachs and Morgan Stanley suggest a 40-basis-point reduction by 2025.
This week's conference could mark a critical turning point for the Chinese economy ahead of Donald Trump's tariff policies. Should Beijing announce measures that boost optimism regarding the Chinese economy, oil prices could gain upward momentum.
The Final Countdown: Global Policymakers Tackle Year-End Challenges
This week's economic calendar may be light on data releases, but the agenda remains packed. While markets await U.S. inflation figures and next week's Federal Reserve monetary policy meeting, central banks from four continents are set to make their final policy adjustments ahead of the Fed's decision and Donald Trump's looming presidency.
Central bank officials from Australia, Canada, Brazil, and the Eurozone will meet this week to discuss their final policy decisions of the year. These meetings will undoubtedly consider the significant uncertainties posed by Donald Trump's upcoming inauguration and the potential for global trade disruptions he might initiate.
Economists expect the Reserve Bank of Australia (RBA) to keep interest rates steady on Tuesday. However, last week's disappointing growth figures have fueled speculation that the RBA may adopt a more dovish stance, potentially easing policy early next year. This has reinforced expectations that the Australian dollar will remain under pressure against the U.S. dollar.
According to forecasts by Westpac Banking Corp., if Donald Trump raises tariffs on China and China's stimulus measures fall short, the Australian dollar could drop to as low as 62 cents against the U.S. dollar.
Another critical decision will come from the Eurozone. Recent data from the region has shown a significant decline in inflation and contraction in economic activity. While this has led to bets that European Central Bank (ECB) policymakers might cut rates by as much as half a percentage point at this week's meeting, the prevailing uncertainty appears unlikely to permit such a deep cut.
Eurozone inflation data for November showed an increase to 2.3% from 2% in October. Many ECB officials have voiced support for further easing of borrowing costs to support growth, but the pace of easing remains uncertain. ECB policymakers face a challenging task of evaluating sticky core inflation, rising wage growth, political uncertainties in France and Germany, geopolitical risks, and the potential impact of Donald Trump's policies.
Market participants are betting on a quarter-point rate cut and are looking to the Governing Council's 2025 projections to shape expectations for the coming year. Expectations suggest a series of consecutive quarter-point rate cuts until borrowing costs reach 2%. This likely means continued pressure on the euro against the U.S. dollar.
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