- The Fed cuts interest rates by 25 basis points to 4.5% as expected, but at the same time sharply revises its macroeconomic forecasts and indicates a more cautious approach to its next actions
- The Fed expects higher inflation next year, at 2.5%, for both the regular and core PCE index. Greater uncertainty about inflation and the descent towards the target (achievement of the target has been pushed back to 2027) leads to a higher valuation of interest rates in the future. The Fed plans two rate cuts next year, around 4%, and two more in 2026.
- The Fed slightly raised its forecast for US GDP to 2.1% from 2% in September, and estimates the unemployment rate to be lower at 4.3% from 4.4% previously – both revisions have a distinctly hawkish tone.
- Powell was very optimistic during the conference and indicated the need for a cautious approach to rates, given the risk of a rebound in inflation. He said it may take more than a year or two to reach the inflation target.
- In response, we are seeing a clear strengthening of the dollar. The EURUSD pair falls more than 1% and is trading below 1.0400 levels. The pair could close today at its lowest level since 2022.
- Yields on 10-year bonds reached 4.5% in the United States. The 10-year and 2-year yields rose 10 basis points today.
- The market now expects fewer than two interest rate cuts in 2025.
- Strong declines are also observed on the US500 index. The US500 index lost more than 0.8% and tested the 5970 point zone, erasing all December’s gains. The US100 and US2000 lost more than 1%.
- Among Wall Street companies, the best performing sectors today are semiconductors (Nvidia) and health care (United Health Group); Shares of Heico, a maker of aerospace and defense parts and systems, are down nearly 10%.
- General Mills’ stock price also performed poorly; the company, despite a better-than-expected report, lowered its sales forecast and expects product margins to decline due to high-profile promotional activities.
- Gold reversed its earlier gains and traded down more than 1.6% and tested around $2,600 an ounce.
- In response to the rising US dollar, we also see bitcoin pull back, losing 3.0% and falling to around 103,000. Microstrategy shares are losing less than 2%, however.
- Crude oil inventories fell by less than 1 million barrels today, less than expected. At the same time, gasoline inventories increase by 2.3 million barrels (above forecast), but distillate inventories decrease by 3.2 million barrels. However, crude oil capped earlier gains today and WTI crude is retreating below US70 per barrel.
- UK CPI inflation came in as expected at 2.6% year-on-year, rebounding by 2.3% year-on-year. Core inflation rose a little more slowly to 3.5% y/y from 3.3% y/y. The GBPUSD pair rose in the morning, but after the Fed’s decision, we are seeing a massive pullback in the pair which reached its lowest level since November 27.
- The final Eurozone inflation rate for November was 2.2% compared to 2.3% in the previous reading; the core CPI was in line with the previous publication (2.7% y/y).
- Volatility in agricultural commodity markets is limited today, with the exception of coffee and cocoa; soybean futures lost nearly 2%. Cocoa rose almost 6% today to new all-time highs, supported by state authorities’ weak and lower-than-October projections for Ivory Coast’s harvest season (⅓ of world production). Markets expect the country to produce 1.9 million tonnes of cocoa for the current 2024-25 season; This is almost 10% lower than the government’s initial projections of around 2.1-2.2 million tonnes in October.
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