18/12/2024 - 08:30 UTCThe U.S. dollar gained against most major currencies on Tuesday as U.S. retail sales surged 0.7% in November, exceeding expectations and bolstering economic optimism. This occurred as markets anticipated interest rate decisions from the Federal Reserve and other central banks. In the upcoming Fed meeting, while a rate cut is anticipated, there's concern that the Fed may signal slower rate reductions going forward.
Expectations for a 25-basis point rate cut at the upcoming FOMC meeting, currently stand at 95.4%, as indicated by the CME FedWatch Tool. Odds for rates to remain unchanged stand at 4.6%.
Later this week, the Bank of Japan is anticipated to maintain its current interest rate policy, aiming to assess global risks and domestic wage growth prospects for 2024. The Japan 225 index fell slightly, despite the fact that Nissan Motor Co., Ltd. and Mitsubishi Motors Corp. surged, posting gains of 23.05% and 19.54% respectively early on Wednesday. Honda and Nissan, facing increased competition from electric vehicles and Chinese automakers, are reportedly considering a merger, potentially involving Mitsubishi. Honda's shares were down 2%.
Market pessimism deepened as the US 30 closed lower for the ninth consecutive day on Tuesday. This marked its longest losing streak in over four decades, coinciding with the Federal Reserve's year-end meeting. Losses were also seen in the US tech 100 and the US 500 however, they remain in close distance to their all-time highs.
The tech sector paused its recent rally on Tuesday, as NVIDIA continued its downward slide. However, Tesla defied the broader market weakness after receiving an upgrade from Mizuho. Pfizer shares rallied on positive earnings outlook, while crypto-focused stocks line coinbase and MicroStrategy fell alongside Bitcoin's decline.
For Wednesday markets will most likely be focusing on FOMC’s interest rate decision due later in the day as well as the press conference that follows, for any clues as to the pace of future rate cuts. Some price action could also be observed upon the release of eurozone’s CPI numbers while for the week ahead, markets will most likely be focusing the Fed’s favorite gauge for inflation, the Core PCE Price Index.
The EUR/USD fell on Tuesday, giving back some of the gains seen in the previous 3 daily sessions. This move came following a release of Commerce Department data on Tuesday which showed U.S. retail sales surpassed expectations by jumping 0.7% in November, backed by an uptick in motor vehicle and online purchases.
Later today, US building permits and housing starts are due, but impact may be muted as markets focus on the Fed’s final rate decision of the year.
Gold prices fell slightly on Tuesday but paused their recent decline early on Wednesday as the Federal Reserve commenced its final policy meeting of the year. Despite expectations for a rate cut, market participants remain cautious about the Fed's future monetary policy stance.
Some price action in the precious metal could be seen upon the upcoming inflation release of the core PCE price index as well as rate decisions from the Bank of Japan and the Bank of England later this week.
Oil prices slipped further on Tuesday, with the two main benchmarks WTI and Brent down by 1.18 and 0.76% respectively, retreating from multi-week highs. The move came as initial optimism surrounding potential U.S. sanctions on Russian oil gave way to worries about slowing Chinese demand and a potential supply glut.
The stronger dollar, ahead of the Federal Reserve's decision, further pressured oil prices. Weekly crude oil inventories due late on Wednesday could also draw some attention.
The U.S. stock market extended its downward trajectory on Tuesday, underscoring growing concerns about the economic outlook and the potential impact of tighter monetary policy. The Federal Reserve's year-end meeting, remains a major focus for investors. While the central bank is widely expected to maintain its current interest rate, market participants are closely monitoring the Fed's forward guidance for clues about future rate hikes.
The technology sector, which has been a major driver of the market's rally this year, experienced a setback on Tuesday. NVIDIA, a key player in the semiconductor industry, continued its downward slide, reflecting concerns about slowing demand for chips. However, Tesla bucked the broader market trend, rising after receiving an upgrade from Mizuho Securities. In the healthcare sector, Pfizer shares surged following the company's positive earnings outlook. The drugmaker's strong performance was attributed to cost-cutting measures and the resilience of its core business.
Meanwhile, cryptocurrency-related stocks, including Coinbase and MicroStrategy, declined as Bitcoin retreated from its recent highs. The recent volatility in the crypto market has raised concerns about the sector's long-term prospects.
The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.
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