Stocks stable as dollar fluctuates ahead of US data

Stocks stable as dollar fluctuates ahead of US data

LONDON (Reuters) – Global stocks stabilized on Tuesday, supported by investors’ conviction that the Federal Reserve (US central bank) will not raise interest rates again, which kept the dollar at its lowest levels in three months and supported gold above $2,000 an ounce.

Traders will have to evaluate data this week on how the US economy performed in the third quarter, along with the headline reading on consumer inflation and spending – both of which could be instrumental in setting expectations for the timing of the first rate cut.

The MSCI World Index (.MIWD00000PUS) was last flat during the day, still on track for its best month in three years, up 8.5% in November. The dollar, which lost 3.2 percent of its value against a basket of currencies this month, rose 0.1 percent, near its lowest levels in three months.

European stocks fell 0.5 percent, driven by losses in pharmaceutical and consumer goods companies, while US stock futures saw little change.

This week, the spotlight will be on the US October Personal Consumption Expenditures (PCE) report due on Thursday, which includes core PCEs, said to be the Fed’s preferred measure of inflation, and Eurozone consumer inflation figures for greater clarity on… The direction in which prices and monetary policy are heading. .

Consumer inflation, as measured by the Consumer Price Index, is 3.2%, having fallen from 3.7% in September, and the core personal consumption expenditures index, which reached 3.7% in September, is unlikely to buck this trend. What may give traders more pause for thought is the spending component of the personal consumption expenditures report, according to Lombard economist Odier Sami Char.

“This is important because the market is, essentially, entirely based on a ‘soft landing’ scenario, where inflation continues to decline, with slow growth, allowing the Fed to cut rates four times next year starting in March. This is a very complacent scenario.” He said.

“Everything has to go right and in the Fed’s direction for this scenario to play out and actually come true. So the spending data is where we get some new information,” he said.

The resilience of the American consumer, thanks in part to a strong labor market, helped the United States outperform most other advanced economies last year.

Futures markets show that traders expect US interest rates to remain at 5.25-5.50%, with a slim chance of a first cut by March and at least three subsequent cuts that would bring interest rates closer to 4.25-4.5% by the end of 2024.

Gold traders will also be closely monitoring US inflation numbers. The price reached six-month highs above $2,000, driven by a weaker dollar and lower Treasury yields.

Policymakers at a number of central banks have reiterated their commitment to keeping interest rates high enough to bring inflation down towards their targets.

Eurozone inflation data this week should keep this debate alive in European markets.

Relentless in the fight against inflation

European Central Bank President Christine Lagarde said on Monday that the central bank’s battle to contain price growth is far from over, pointing to continued strong wage growth and an uncertain outlook even as inflation pressures ease in the euro zone.

Federal Reserve Chairman Jerome Powell is also speaking on Friday and traders will scrutinize his words to gauge which direction interest rates may be headed.

10-year Treasury yields, which fell by the most in a month since March, were unchanged in November, at 4.392%, holding on to price gains after data on Monday showed new home sales fell more than expected in October as high mortgage interest rates eased. . Affordability.

Short-term yields were slightly higher, following auctions on Monday of more than $100 billion of new supply of two- and five-year bonds. ,

In currencies, the Japanese yen, which often tracks US yields, strengthened, leaving the dollar down 0.1 percent to 148.58 and putting the Nikkei (.N225) index under modest pressure, although the index is approaching its highest levels since the 1990s, rising 8 percent since the beginning of the year. General. Month.

The euro settled at $1.09505.

As the dollar fell slightly during the day, oil prices rose, with Brent crude rising 0.7% to $80.57 per barrel, while US crude futures rose 0.9% to $75.49.

Volatility in the oil market increased this week due to the OPEC+ group of major exporters meeting this week to discuss production targets.

“The Saudis and OPEC+ have become accustomed to surprising the markets in recent years when it comes to their meetings. However, with aggressive cuts already in place, it leaves one wondering to what extent the group can surprise the market with deeper cuts than others,” said Warren Patterson, a strategist at ING: “Cutbacks are expected.”

Meanwhile, gold rose 0.1% to $2,015 per ounce.

Additional reporting by Ankur Banerjee; Editing by Sam Holmes, Kim Coghill and Ed Osmond

Our Standards: The Thomson Reuters Trust Principles.

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