Market recap: Week of 11–15 Dec 2023

UK elections

BBC News and Metro: Robert Jenrick resigns as immigration minister. Jenrick and Suella Braverman, backers of Mr Sunak's leadership, step down amid party setbacks. 

With a disappointing conference and by-election defeats, patience wears thin among MPs. Some Tories fear continued losses to Keir Starmer's Labour unless Sunak considers stepping down.

Meanwhile, economists predict the Bank of England will maintain a 15-year high borrowing cost on Dec. 14, as UK markets lean towards a June 2024 rate cut. 

Fed rate hikes

Forbes: Investors opt The Federal Open Market Committee (FOMC) will likely keep the rate unchanged in the upcoming December 12-13 meeting. 

Questions arise about when the Fed might consider rate cuts and to what extent. 

CME Group reports a 97.7% chance of the Fed maintaining the current Fed funds rate target range (5.25% to 5.5%).

Additionally, there's a 52.7% chance the FOMC will cut rates by at least 25 bps by March 2024. 

UK economic forecast

The Guardian & Reuters: Latest polls suggest the Bank of England is set to maintain the Bank Rate at 5.25% on Dec 14 and throughout Q2 2024. The Resolution Foundation notes concerns over high pay awards may ease, with wage settlements responding to a decline in annual inflation. 

Reuters polls predict the 15-year high interest rate to persist until Q3 2024, reaching 4.50% by year-end. 

US economic outlook

Wall Street Journal & Federal Reserve Bank of New York: In November, the US added 199,000 jobs, a bit slower than earlier in the year but consistent with pre-pandemic gains. Excluding auto-worker strikes, the job gain was around 169,000, showing a slight dip from October's 180,000. Noteworthy growth in healthcare and government sectors, while overall employment pace slowed. 

According to NY Fed's survey, median inflation expectations slightly declined to 3.4% at the one-year horizon. 

The Fed is anticipated to keep rates steady this Thursday, with market expectations for rate cuts starting in May. 

Gold market recap

Kitco News: Joseph Cavatoni, WGC North American markets strategist, notes gold's dependence on the Federal Reserve. In the first scenario, a soft U.S. landing aligns with the current consensus, supporting gold's trend. The second, a hard landing with recession, could drive bullish gold trends via aggressive rate cuts. The third, a no-landing scenario, is deemed unlikely, with only a 10% chance of sustained above-trend U.S. growth. 

Inflation data

Wall Street Journal & FX Street: US Dollar holds steady as latest inflation data fails to cause significant movement. The consumer-price index rose 3.1% in November, a slight slowdown from October but above June's 3%.

Treasury Secretary Janet Yellen notes that inflation is 'meaningfully coming down' and expects it to align with the Fed's mandate. 

The Fed is likely to maintain rates at its meeting despite the reading being slightly firmer than desired for a quick return to the 2% inflation goal. 

Fed rate cuts

Wall Street Journal & The Guardian: The Fed maintains benchmark rates after the recent July increase, emphasizing caution to avoid economic harm amidst falling inflation. Powell highlights the shift in projections, with officials anticipating three rate cuts next year, diverging from prior expectations of one hike and two cuts. Markets respond positively, with all major indexes climbing, Dow industrials reaching a record close. 10-year Treasury note yields decline to 4.032%. Meanwhile, the House voted Wednesday to authorize the impeachment inquiry into Joe Biden formally.

UK GDP

Reuters & Ons.gov: October 2023 sees a 0.3% dip in UK Monthly GDP, contrasting September's 0.2% growth. Services output, down 0.2%, primarily drives the monthly contraction. 

The Bank of England is poised to maintain rates today, with market sentiments leaning towards increased bets on cuts in 2024. 

UK monetary policy

The Guardian: Bank of England asserts a need for prolonged restrictive monetary policy, countering money market expectations of five rate cuts in 2024. Despite maintaining current interest rates, three policymakers voted for a potential increase.

Andrew Bailey emphasizes it's premature to consider UK rate cuts, yet money markets project at least four in 2024, anticipating a drop to 4.1% from the current 5.25%.  Earlier City forecasts indicated five quarter-point cuts before the BoE's noon announcement. 

European monetary policy

Reuters: European Central Bank keeps rates unchanged and resists expectations for immediate interest rate cuts, with President Christine Lagarde emphasizing an anticipated rebound in inflation and robust price pressures. 

Lagarde's stance contrasts sharply with the more dovish tone from U.S. Federal Reserve's Jerome Powell, hinting at a potential rate cut not likely before June or July.