Navigating the Fed's cautious stance and global economic events

The US Federal Reserve's minutes from its October 31-November 1 meeting indicate a continuation of its restrictive monetary policy, with no signs of reducing interest rates soon. 

FOMC minutes show participants noted that further tightening of monetary policy ‘would be appropriate’ if incoming information indicated that progress toward the Committee's inflation objective was insufficient.

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This cautious stance caused gold prices to ease below 2,000 USD an ounce on Wednesday, 22 November. Despite this, gold has gained about 3% in over a week, driven by growing expectations that US interest rates might start falling next year after a series of softer-than-expected economic data.

The Fed, which has paused rate hikes since July 2023, is largely expected to maintain rates through much of the first half of next year.

Impact on global currencies: Australian dollar and Japanese yen

• The Australian dollar fell against the US dollar to around 0.655 USD, reacting to the Fed's stance and domestic economic data. The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points to 4.35% in November, addressing persistent inflation. Interestingly, the RBA has changed its tone, now indicating future rate hikes will depend on upcoming data.

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• The Japanese yen depreciated past 148 per dollar, influenced by the Fed's restrictive outlook. Japan is focusing on upcoming manufacturing and services Purchasing Managers’ Index (PMI) figures and inflation data for economic guidance. Recent data revealed Japan’s economy contracted faster than expected in Q3 due to slowing global demand and rising domestic inflation. The Bank of Japan remains committed to accommodative policies, with minor adjustments to its yield curve controls.

Investment trends: Hedge funds and tech stocks

A Goldman Sachs report highlights that hedge fund crowding reached record highs, largely due to increased bets on the "Magnificent 7" tech stocks. Analysis of 735 hedge funds with 2.4 trillion USD in gross equity positions shows an average allocation of 70% of their long portfolio to their top 10 holdings.

Stock market movers

​​Nvidia, the most valuable chipmaker globally, announced an expected revenue of about 20 billion USD for the current period in its Tuesday 21 November statement. This figure exceeded the average Wall Street forecast of 17.9 billion USD. However, the company acknowledged an anticipated adverse effect in Q4 due to US export restrictions impacting sales to China. As a result, the company's shares dipped by 1.7% in extended trading.

Upcoming global economic events

• UK’s fiscal outlook: The UK Autumn Statement on Wednesday, 22 November, is expected to shed light on the country’s fiscal strategies during turbulent economic times.
  
• Japan’s inflation data: Japan’s upcoming Consumer Price Index (CPI) data release on Thursday, 23 November, is critical for its monetary policies and currency valuations. 

What this means for you

The Fed's cautious approach to rate hikes is likely to support economic growth in the near term, but high inflation remains a concern. The contrasting strategies of the RBA and the Fed in tackling inflation reflect different global economic responses. 

A shortened trading week in the US, with markets closed on Thursday, 23 November, for a holiday, provides a timely opportunity for investors to pause and reassess their strategies and portfolios. 

We’ll keep you informed as key economic events and market developments shape dynamics in financial markets in the coming months.