Weekly Recap: FOMC Minutes, Eurozone Inflation Weighed on Market Action

Gold prices edged up on Friday, lifted by a weakening dollar and ongoing geopolitical tensions. However, the gains were not enough to offset a sharp decline earlier in the week, leaving gold on track for its worst monthly performance since September 2023. The price increase came despite a broader rise in the dollar for the month of November. This rise was attributed to expectations of increased fiscal spending, higher tariffs, and tighter border controls under the newly elected leadership. The expectation of these policies has led to concerns about inflation, which could prompt the Federal Reserve to take a more cautious approach to future interest rate cuts.

Despite the current pressure, gold still holds some potential for future gains. The uncertainty surrounding the implementation of the promised tariffs, and the possibility of a slowdown in economic growth they could cause, could actually benefit the gold market. This is because gold is traditionally seen as a safe haven investment during times of economic and geopolitical uncertainty, and tends to perform well in environments with lower interest rates.

Geopolitical tensions around the world continue to support the demand for gold as a safe haven asset. Recent events include a reported ceasefire breach by Hezbollah in Lebanon and a major attack on Ukraine’s energy infrastructure by Russia. These events, along with others, contribute to the persistent global uncertainties that drive investors towards gold.

On Tuesday, November 26th, US markets ended higher, with tech stocks rebounding as investors weighed Fed minutes signaling policy uncertainty and Trump’s new tariff threats. Automakers Ford and GM saw declines due to fears of rising supply chain costs and trade tensions.

On the economic data front, the S&P Case-Shiller index rose 4.6% year over year in September, down from 5.2% in August. Meanwhile, new single-family home sales in the US dropped 17.3% in October to an annualized rate of 610,000.

The majority of S&P 500 sectors rose, led by utilities, communication services, and consumer discretionary, while energy and materials fell.

The Dow Jones Industrial Average was up 0.28% and closed at 44,860.31, the S&P 500 gained 0.57% to 6,021.60, and the Nasdaq Composite rose 0.63% to finish at 19,174.30.

Asia Markets

On Wednesday, Japan’s Nikkei 225 declined 0.78% and ended the session at 38,111.50, led by losses in the Shipbuilding, Paper & Pulp, and Chemical, Petroleum & Plastic sectors.

Australia’s S&P/ASX 200 gained 0.57% and ended the day at 8,406.70, led by gains in the Gold, Consumer Discretionary, and Telecoms Services sectors.

India’s Nifty 50 rose 0.35% to 24,278.20, and Nifty 500 gained 0.59%, closing at 22,696.15, led by gains in the Power, Capital Goods, and Public Sector Undertakings sectors.

China’s Shanghai Composite gained 1.53% to close at 3,309.78, and the Shenzhen CSI 300 rose 1.74%, finishing the day at 3,907.04. Hong Kong’s Hang Seng was up 2.32% and closed the session at 19,603.13.

Eurozone

The European STOXX 50 index was down 0.85%. Germany’s DAX fell 0.52%. France’s CAC declined 1.23%. FTSE 100 traded higher by 0.12%. Eurozone inflation rose to 2.3 per cent in November, exceeding the European Central Bank’s target for the first time in three months.

Friday’s rise in consumer prices was in line with economists’ expectations and surpassed October’s figure of 2 per cent, which matched the ECB’s official medium-term target.

Economists said the increase was not principally caused by underlying price pressures and is unlikely to dissuade the ECB from cutting rates again in December.

Instead, the rise to 2.3 per cent was largely because of so-called base effects, since energy prices fell a year ago, the point of comparison when calculating annual inflation.

Investors expect the ECB will lower borrowing costs by a quarter-point to 3 per cent at its next policy meeting on December 12, according to data from interest rate swaps markets.

Commodities

Crude Oil WTI was trading higher by 0.29% at $68.96/bbl, and Brent was up 0.25% at $72.50/bbl. Oil prices steadied as markets assessed an Israel-Hezbollah ceasefire and anticipated OPEC+ delaying output hikes. Natural Gas slid 4.27% to $3.319.

Gold was trading higher by 1.05% at $2,673.40, Silver was up 0.33% to $30.935, and Copper rose 0.98% to $4.1578. Dow futures declined 0.08%, S&P 500 futures were down 0.17% and Nasdaq 100 futures slid 0.33%.

Forex

The US Dollar Index fell 0.53% to 106.45, USD/JPY was down 1.12% at 151.37 and USD/AUD slid 0.14% to 1.5425. The US dollar dropped to a one-week low as markets digested Trump’s tariff pledges and prepared for month-end rebalancing, while the yen strengthened on expectations of rate hikes.

The Week Ahead

The first full week of December is set to be a pivotal moment for global markets, with a slew of US economic indicators taking center stage. These data points will provide crucial insights into the health of the world’s largest economy and could significantly influence the Federal Reserve’s monetary policy decisions.

Inflation and Growth

The US economy continues to navigate a complex landscape, grappling with persistent inflationary pressures while maintaining a delicate balance between growth and stability. While inflation has moderated from its peak, it remains above the Fed’s 2% target. The recent release of PCE data, the Fed’s preferred inflation gauge, highlighted a stubbornness in core inflation, particularly in the services sector.

The Labour Market: A Key Indicator

The upcoming US jobs report will be closely scrutinized by market participants. Economists anticipate a moderate increase in non-farm payrolls, with the unemployment rate potentially ticking higher. However, any significant deviation from these expectations could trigger market volatility.

If the labour market remains robust, with strong job growth and declining unemployment, it could reinforce concerns about persistent inflationary pressures. This scenario might lead the Fed to adopt a more hawkish stance, potentially dampening market sentiment.

Conversely, a weaker-than-expected jobs report could signal a cooling economy and alleviate inflationary concerns. This could prompt the Fed to adopt a more dovish approach, potentially leading to a rate cut or a pause in the tightening cycle.

The Dollar’s Outlook

The US dollar has experienced a period of consolidation after a recent rally. The currency’s future trajectory will be influenced by the Fed’s monetary policy decisions and the overall health of the US economy.

A more hawkish Fed stance could strengthen the dollar, while a dovish pivot could weaken it. Additionally, geopolitical factors and global economic trends will play a role in shaping the dollar’s direction. The upcoming week’s economic data releases will be crucial for investors and policymakers alike. The US jobs report, in particular, will provide valuable insights into the labour market and its implications for inflation and economic growth. As the Fed navigates a complex economic environment, the market’s attention will be focused on its next policy move.