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by Reuters – As 2023 draws to a close, the financial markets are abuzz following Jerome Powell, Federal Reserve Chair, announcing the probable end of significant monetary policy tightening. The focus now shifts to potential discussions of rate reductions. This week is pivotal for investors, with the final U.S. inflation report of the year and the Bank of Japan possibly moving towards a significant policy change. Here are the critical insights for the upcoming week.
Latest U.S. Economic Insights
This week, investors will receive the year’s final update on inflation with the release of the personal consumption expenditures report, a crucial metric for the Fed. Economists anticipate the PCE price index to stabilize, mirroring last month’s figures, while the core index, excluding fluctuating food and energy prices, is expected to increase. Additional economic indicators include consumer confidence, jobless claims, durable goods orders, and housing market data, with new and existing home sales reports. Atlanta Fed President Raphael Bostic is scheduled to address these topics on Tuesday.
Anticipation of a Santa Claus Rally
The Dow Jones industrial average recently hit a new peak, while the S&P 500’s growth remained steady, marking its longest streak of weekly gains since 2017. However, investor optimism was tempered by comments from John Williams, President of the Federal Reserve Bank of New York, suggesting it’s premature to discuss rate cuts. Market experts, including Kim Forrest from Bokeh Capital Partners, speculate on the likelihood of a year-end market rally.
Bank of Japan’s Potential Shift
The Bank of Japan is possibly preparing to move away from negative interest rates shortly, diverging from the trend of other major central banks, including the Federal Reserve. While a change isn’t expected at the BOJ’s next meeting, investors keenly await hints of a policy shift in January. The yen’s recent strengthening against the dollar and BOJ Governor Kazuo Ueda’s comments indicate a potential imminent policy change.
Gold’s Upward Trajectory
Gold is on course for its first annual gain since 2020, driven by a declining dollar and the anticipation of rate cuts in 2024. Despite rising real U.S. 10-year yields, gold has surpassed $2,000 an ounce, approaching its all-time high after adjusting for inflation.
Focus on U.K. Economy
The U.K. faces inflation rates significantly higher than the Bank of England’s target, with the upcoming data likely to underscore continued economic pressure. The pound’s recent strength against the euro and speculation over the Bank of England’s rate cut timeline compared to the European Central Bank are critical factors in the economic outlook. The future of the pound hinges on the Bank’s response to ongoing inflation trends and potential economic downturns.
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