. FOMC's Caution vs. Eurozone Positivity: Market Analysis Article

FOMC’s Caution vs. Eurozone Positivity: Market Analysis Article

FOMC’s Caution vs. Eurozone Positivity: Market Analysis Article

04 Jan 2024

FOMC Minutes with a mixed tone fail to deter a dovish rate outlook.

  • European markets show early gains in trading.
  • Despite the mixed FOMC minutes, the dovish outlook on interest rates remains unchanged.
  • Focus on energy markets as WTI reaches a one-week high.

European markets have started the session positively, seemingly unaffected by yesterday’s mixed Fed minutes. Despite concerns in the tech sector, notably led by Apple, causing a sharp decline for the Nasdaq, a series of positive data points from the eurozone, including a lower-than-expected French CPI figure (0.1%), and upward revisions to the eurozone services PMI reading, have bolstered sentiment.

The FOMC minutes from yesterday catered to various perspectives, expressing caution in addressing inflation concerns while highlighting the potential risk of stalling current disinflation if they pivot too swiftly. The crucial focus remains on the six-month metric for the core PCE, which has dipped below 2%. This dovish sentiment prevails in the markets, anticipating a substantial six rate cuts from the Fed in the coming year. Attention now shifts to US employment data, with today’s ADP payrolls leading into tomorrow’s jobs report. Speculation by Fed member Barkin about a soft landing increases the likelihood of rate cuts in March if there’s a gradual deterioration in payrolls and the unemployment rate.

Energy prices have experienced an increase this week, fuelled by concerns over the Israeli attack on the Hamas leadership in Lebanon, which has raised fears of a potential escalation in the conflict. The US-led coalition’s struggles to control Red Sea attacks have prompted worries about potential disruptions in the flow of goods for an extended period. Comments during today’s Next earnings report underscored the possible impact of this trade breakdown, with the retail giant anticipating supply issues in early 2024 if the current problems persist. Although the disruption in the Red Sea has affected containers more than oil tankers, WTI has responded to recent developments in the region, reaching a fresh one-week high this morning.