Last week review:

SANTA CLAUS IS COMING TO TOWN! If the previous week was the week of the US, England, and Eurozone central bank decisions; then the last week before the Christmas holiday is filled with central bank decisions of a number of Asian countries, such as: Japan, China, and Indonesia; in which all three central banks decided not to change their respective benchmark interest rates. Amid expectations that the Federal Reserve will start cutting interest rates as soon as March next year, last week the stock market continued to rally on the back of such positive sentiments. All three major US stock indices stabilized on their upward path on a monthly, quarterly and yearly basis. Last week’s rally marked the eighth consecutive weekly gain, the longest streak of weekly gains in recent years. At first glance, the market has priced in a 72.7% probability of a 25bps rate cut as soon as March, according to CME’s FedWatch survey. However, there are still a handful of statements from Federal Reserve officials that emphasize that the next step of the US central bank is not when the rate cut will be implemented but whether the current monetary policy is tight enough to bring Inflation to the 2% Target. Thus, the Federal Reserve will still pay attention to economic data as a guide to the policy. Starting from the Existing Home Sales (Nov) data which is slightly picking up (although not offset by sluggish New Home Sales), the Conference Board Consumer Confidence also further increased to 110.7 this month, above economists’ expectation of 104.0. The US revised its final third quarter economic growth or Gross Domestic Product (GDP) down to 4.9% from the previous estimate of 5.2%; the labor market is still quite tight but manufacturing activity in the Philadelphia region in particular is still rather slow. The Fed’s favorite index in determining Inflation trend, Personal Consumption Expenditure (PCE) price index showed a weakening trend in the release at 3.2% yoy (Nov), a success lower than forecast & previous month.

EUROPEAN MARKETS: Eurozone reported CPI (Nov.) that successfully slid to 2.4% yoy, lower than 2.9% in the previous month. As for UK Inflation, it is also equally under control by showing a downward trend, for November UK Inflation was at 3.9%, successfully cooling down from 4.6% in Oct. On the one hand, the UK has to pay with sluggish Q3 economic growth at 0.3% yoy, failing to meet expectations of 0.6%.

COMMODITIES: Crude Oil is on an upward trend as attacks on shipping vessels in the Red Sea route by Houthi militants (Iran-Yemen), amid hopes that interest rate cuts next year will also further stimulate the global economy and eventual Oil demand. There is quite a lot of turmoil in the organization of major oil producing countries in the world or OPEC+, one of which Angola decided to leave the organization, Russia plans to cut crude oil exports by 50,000 barrels more per day (if not more) plus recent weather disturbances have hampered the delivery of about 2/3 of Russia’s Urals Oil exports. The US Navy has announced plans to deploy troops to protect shipping in the important Red Sea trade route; similar moves are likely to be followed by the UK, France, Italy, Norway & Spain. Notably, around 12% of global shipping traffic crosses the Suez Canal, en route from the Mediterranean region to key Asian markets. The attack has led a number of companies to announce over the weekend that they will be avoiding the Red Sea route, with oil giant BP stating that it will be delaying a number of shipments through the Red Sea route given the precarious security situation in the region.

This week’s outlook:

There is only a few important economic data left in the last week of 2023 as most of the world’s major exchanges are still in the Christmas holiday period. Some data on Thursday & Friday that could still be of interest to market participants are US Initial Jobless Claims, Pending Home Sales (Nov), and US Crude Oil Inventories. From Asia, South Korea will report CPI (Dec) on Friday, the last trading day of 2023.

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