• Asia’s equities decline as Fed officials retreat from their bold wagers on rate cuts. Asian equities declined as Federal Reserve policymakers retreated from their wagers on significant rate reduction in 2019. With Hong Kong at the forefront, the MSCI Asia Pacific Index saw its largest decline since December 5 of up to 1.1%.
• Central bankers from the US, Europe, and Canada could shake the markets again. The president of the Atlanta Fed, Raphael Bostic, told reporters that he anticipates two rate decreases in 2024—but not until the third quarter. Bostic will vote on monetary policy next year. In a related development, Chicago Fed President Austan Goolsbee stated on Sunday that it would be exaggerated to think about lowering rates until officials are certain that inflation is headed towards its target. A similar opinion was voiced by Bank of Canada Governor Tiff Macklem.
The “tug of war” between Fed officials trying to dampen rate-cut anticipation and investors who have instead seen a validation of dovish bets from last week’s Dot Plot estimates could continue to dominate the next few days of market action before volumes dry up for Christmas.
• In US, This week’s market movements should be attributed to consumer confidence, personal expenditure, and PCE figures. Data has the power to tilt the scales in such circumstances.
• The dollar index started the week in positive territory, in the last few hours it has weakened again. Continuing the decline that started with the poor October employment data and accelerated with the Fed’s remarks last week, the euro has gained ground against the dollar in recent weeks.
This has caused the euro to gain ground against the dollar in recent weeks. Not only that, the divergent speech of Christine Lagarde, with respect to the speech of Jerome Powell, where the Fed seems more open to cut rates than the European Central Bank, which omitted any reference to this, has made us return to areas in EURUSD around 1.10.
• Europe, on Wednesday we will know the November CPI data for the Euro zone. We will also pay special attention to possible comments from the European Central Bank officials, as a similar situation to the one that has occurred in the Federal Reserve could occur, different bank officials have made comments contradicting the official message presented.
• UK CPI data will also be released on Wednesday. The Bank of England attempted to deter dovish bets during a meeting, but the markets are still pricing in four rate cuts this week. In the near term, the pound might gain somewhat from some aggressive repricing. By the end of December, the EUR/GBP lows from last week could very well be retested.
• In Japan, an official statement is expected early tomorrow morning (London time), and the Bank of Japan has begun its two-day meeting. Expectations of a rate hike this month have already been dampened by bank officials, who have stated that it is still too soon. Nevertheless, the rhetoric used at this meeting will be crucial for the short-term performance of the yen, as speculators are now aggressively betting on the end of negative rates in January.
Governor Kazuo Ueda has two choices: either he delivers signals about the status of the rate rise discussion and possibly even suggests a preliminary timetable, or he keeps the message largely constant and disappoints the market’s aggressive expectations. Although some pressure is undoubtedly being released due to the yen’s recent strong performance as global rates have dropped, data is beginning to show growing discrepancies with the BoJ’s ultra-dovish position.