Asian stock markets faced a drop on Monday, led by South Korea, as investors waited for important meetings from central banks this week. These meetings may lower interest rates, which can help our economy. Meanwhile, U.S. inflation data this week is seen as the last obstacle before policy changes can happen.
Political issues in France and South Korea, along with changes in Syria, add to concerns in the Middle East. Despite these worries, reports from the U.S. showing job growth provided a sense of hope, as they indicate the economy is recovering but still might allow the Federal Reserve, the U.S. central bank, to lower rates soon.
Bruce Kasman, an economist at JPMorgan, noted that they expect a boost in global economic growth towards the end of the year. They forecast that interest rates in Canada, Europe, and Sweden could fall to 2% or lower, while the U.S. and UK rates settle around 4%.
Futures trading suggests there’s an 85% chance the Federal Reserve will lower rates at their meeting on December 17-18, up from 68% before the jobs report came out. Additionally, there are expectations for three more rate cuts next year.
This hopeful outlook, combined with a strong performance of technology stocks, resulted in the Nasdaq market gaining over $1 trillion in value just last week! On Monday, stocks like the S&P 500 and Nasdaq didn’t move much. The MSCI index for Asia-Pacific, excluding Japan, dropped by 0.2%.
In South Korea, stocks fell by 1.7% despite authorities promising to stabilize financial markets amidst uncertain political situations. Japan’s market, however, rose by 0.4% due to an increase in economic growth estimates.
Traders are also watching for inflation data from China later today, with expectations for a 0.4% decrease in prices for November. The annual inflation rate in China is predicted to increase slightly to 0.5%. A significant meeting in China this week could bring news on new policies, but markets are unsure if there will be any announcements.
The U.S. consumer price index report is coming out on Wednesday, with expectations that core inflation will stay at 3.3% for November, which should not stop the Federal Reserve from easing rates.
All Eyes on Central Banks This Week
This week is packed with central bank meetings. Analysts expect the European Central Bank to reduce rates by 25 basis points on Thursday, with a one-in-five chance of a 50 basis point cut. Given current uncertainty and mixed economic signals, central banks are seen as key players in boosting economic activity as strong political leadership is lacking in important cities like Paris and Berlin.
Barclays economist Christian Keller predicts continued rate cuts in Europe until June next year, with additional cuts in September and December leading to a final rate of 1.5%. In Switzerland, there are expectations for a half-point rate cut this Thursday as inflation slows and to prevent the Swiss franc from becoming too strong compared to the euro. Canada’s central bank is also expected to cut rates by half a point on Wednesday after a surprising rise in unemployment.
The Reserve Bank of Australia will hold its meeting on Tuesday and is likely to keep rates the same, while Brazil is expected to raise its rates to tackle inflation.
In currency markets, the U.S. dollar index was steady, while the euro traded around $1.0557 after climbing earlier in the week. Investors are waiting for news on whether the Bank of Japan will increase rates soon.
Gold prices increased by 0.4% to $2,643 an ounce due to geopolitical concerns but face resistance around $2,666. Oil prices also saw some support from Middle Eastern events but are affected by fears about weak demand, especially from China. Brent crude rose by 9 cents to $71.21 a barrel, while U.S. crude gained 12 cents to $67.32 per barrel.
