13/12/2024 - 10:30 UTCThe U.S. dollar gained strength once again on Thursday, appreciating against most major currencies. The dollar index has risen by 0.31%, crossing above the 107.0 mark ahead of the Federal Reserve's interest rate decision next week. The market's outlook for future rate cuts in 2025 was tempered by the release of higher-than-expected producer price index data and largely in-line consumer inflation figures for November.
Expectations for a 25-basis point rate cut at the upcoming FOMC meeting, currently stand at 96.4%, as indicated by the CME FedWatch Tool. Odds for rates to remain unchanged stand at 3.6%.
The UK economy experienced another contraction in October, with economic activity remaining sluggish. The Office for National Statistics reported a 0.1% decline in GDP for the month, matching the previous month's contraction. This was significantly weaker than the expected 0.1% growth. As a result, the annual growth rate for the UK economy slowed to 1.3%, falling short of the projected 1.6%. This disappointing economic performance increases the likelihood of further interest rate cuts by the Bank of England in 2025.
The main U.S. stock indices closed lower Thursday as Treasury yields climbed following a hotter-than-expected inflation report. While the upside surprise in the Producer Price Index (PPI) report is not anticipated to derail market expectations for another interest rate reduction by the Federal Reserve at its upcoming meeting next week, it reinforces the notion of a slower pace of disinflationary improvement.
In corporate news, Adobe Systems Incorporated's stock price plummeted by over 14% following the company's release of a disappointing annual sales forecast. The software giant attributed this decline to the prolonged timeframe required to integrate artificial intelligence into its product offerings and generate substantial returns.
For Friday, markets will most likely be focusing on Eurozone industrial production and US import prices.
The EUR/USD pair experienced a decline on Thursday, reaching a nine-day low, as the European Central Bank (ECB) implemented its fourth interest rate cut of the year on Thursday. This move was accompanied by a signal that further monetary easing measures may be forthcoming as the eurozone economy continues to grapple with domestic political instability and the looming threat of a new trade war with the United States.
According to reports, EUR/USD traders appear cautious and refrain from making significant market moves ahead of the upcoming U.S. Federal Reserve meeting, where a 25 basis point interest rate cut is widely expected.
Gold prices retreated on Thursday, with the precious metal losing 1.45% of its value, to end the session right below the $2,700 per ounce mark.
Despite support seen in recent sessions, as safe haven demand was underpinned by heightened geopolitical tensions in the Middle East, gold is receiving pressure from a stronger dollar as the upcoming Fed meeting approaches. While the central bank is widely expected to cut rates by 25 basis points, markets have grown more uncertain over its long-term plans for rates, especially as data this week showed U.S. inflation remained sticky.
Next week, interest rate decisions from the Bank of Japan and the Bank of England will also be closely watched.
Oil prices posted a moderate decline on Thursday, with the WTI and Brent down by 0.60% and 0.33% respectively as expectations of a global oil supply surplus in 2025 weighed on prices. However, optimism surrounding China's recent stimulus measures to bolster its struggling economy helped to limit losses.
In other news, the International Energy Agency (IEA) slightly increased its forecast for global oil demand in the coming year. However, the agency maintained its projection of an adequately supplied oil market. Nonetheless, market sentiment has been dampened by concerns over weaker-than-expected demand growth in China, a major driver of global oil consumption.
The main US stock indices ended moderately lower on Thursday, with the US 500 down by 0.35%, the US 30 losing 0.51% and the US tech 100 posting a minor decline of 0.06% still supported by the recent tech rally. Surprising news of producer prices rising more than expected in November, while negative for stock markets, was not enough to derail expectations for a rate cut at the upcoming Fed meeting.
Adobe Systems Incorporated experienced a significant decline in its stock price after releasing an underwhelming annual sales forecast. The software giant attributed this disappointing performance to the extended timeline required to successfully integrate artificial intelligence into its products and realize substantial returns.
Attention now shifts to the Fed’s final policy decision for the year, which is due next week, where the prospect of lower interest rates could provide a strong boost to technology stocks, which saw significant gains in the past year.
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