US
It is the last week before the holiday season after the Fed sent its Christmas gift by pushing stock markets to an all-time high. Some economic data will still be worth watching while cheering for a more promising Christmas rally ahead. These include CB consumer sentiment for December, the final third-quarter GDP, and the PCE data. The combination of the data may again point to a “soft landing.” The US GDP will likely remain at 5.2% at an annualized pace, and the PCE, which is seen as the Fed’s favourite indicator, is expected to cool further, reinforcing the Fed’s rate cuts expectations next year.
Japan
Following a bunch of major central banks’ decisions to hold interest rates, the Bank of Japan’s policy stance will be the most influential event for the financial market this week. There were growing bets for the BOJ to terminate its negative interest rates in December. Governor Ueda signalled to shift the BOJ’s policy recently, which caused the Japanese Yen to soar. However, it seems unlikely for the bank to put a full stop to a nearly 8-year-long negative deposit rate after it indicated it was too soon to do so. Though the bank has signalled to tighten its monetary policy for the last few months, it faces challenges of not destabilise the bond yields, causing a severe market reaction.
In addition, Japan’s national CPI for November will also be focused on providing clues on how urgently the BOJ needs to start increasing its interest rate.
China
China will decide on the 1-year and 5-year loan prime rates this week, which is seen as a key action for whether the country will further stimulate its economy. Expectations are “no change” this time as the Chinese government seems to be trying to avoid overly loosening its policy. The recent data painted a mixed picture of the economic trajectory. Whilst its exports and industrial outputs accelerated, sluggish domestic demand remained a major issue for the country. Nonetheless, the Chinese stock markets stabilised, and the Chinese Yuan is on a rebounding trend, suggesting risk sentiment may be recovering.
Australia
There will be no major economic data from Australia except for the RBA’s December meeting minutes. The bank halted its rate hikes and leaned towards dovish at its meeting this month due to economic concerns. This helped lift the Australian equity markets in December. The Fed pivot offered a further boost to local markets, with the ASX 200 jumping 3.6%. The weakened US dollar also lifted the Australian dollar, with AUD/USD topping the 0.67 threshold.
Canada
Canada will report its CPI for November and the GDP for October. While the country’s inflation is on a declining trajectory, its economic growth stalled. Consensus calls for inflation to be at 2.8% year on year in November from 3.0% in October. The GDP is expected to grow 0.1% monthly in October.
What are we watching?
Dow hits an all-time high: Amid the Fed’s pivot on rate hikes, the index outperformed the other two major averages, topping 37,000 for the first time in record. Industrial stocks, such as Caterpillar, 3M, and Boeing, are among the top performers. Apple also hit a new high following the Fed’s decision and consolidated a US$3 trillion market cap.
Small-cap stocks outperform: Notably, the small-cap index, Russel 2000, jumped following the Fed’s pivot shift. This is due to the risker assets benefiting from expectations of improving liquidity conditions the most.
US government bond yields decline sharply: The US Treasury yields fell sharply following the Fed meeting as the bank indicated three-quarter cuts in 2024. This typically pressured the USD, with the dollar index declining to below 102 last Thursday, the lowest since August.
Gold comes back: Gold is one of the biggest beneficiaries of the Fed’s dovish rhetoric. Gold may take further macro tailwind to re-test its all-time high of above 2,100.
Oil rebounds: Crude oil also rebounded due to a weakened USD and larger-than-expected US inventory data.