China could devalue yuan due to tariff woes; Oil and gold up
Inflation in the U.S. 2.7%; Fed set for rate cuts. Global stocks rise; crude up 1.2%, gold 0.4%. China eyes yuan devaluation on tariff fears.
United States Inflation
The U.S. dollar’s dominance remains a key economic story in 2024, bolstered by the incoming Trump administration’s proposed trade tariffs. Anticipation of a 10% universal import tariff and a 60% duty on Chinese goods raises concerns about global trade dynamics. The Federal Reserve is expected to cut interest rates by 0.25% next week, with November’s Consumer Price Index (CPI) report showing a 0.3% monthly increase for both headline and core inflation, consistent with expectations. Annual inflation rates stand at 2.7% for headline and 3.3% for core measures.
Service-sector inflation remains elevated, with wages increasing at 4%, while rent inflation is projected to persist above pre-pandemic levels until 2026. Real wage growth is limited at 1.4%, lagging behind the 2.1% rise in food and beverage prices. Consumer inflation expectations remain stable at 2.6% for the next year and 3.2% over five years.
Wall Street responded positively to inflation data, with the S&P 500 rising 0.7%, Nasdaq climbing 1%, and Dow Jones Industrial Average marginally down by 0.1%. Treasury yields eased, with the 10-year yield falling to 4.21%. Traders now assign a 96% probability of a December rate cut, with further reductions anticipated in 2024.
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Canada
The Bank of Canada (BoC) cut its interest rate by 0.5%, marking its second consecutive outsized reduction. This decision follows a rise in unemployment in November, signaling potential economic fragility. However, some analysts warn of excessive easing given a resilient broader economy. The Canadian dollar strengthened 0.3% to 1.4132 after the rate cut.
Europe
The European Central Bank (ECB) and Swiss National Bank are expected to cut rates this week, aiming to address subdued economic growth. The Stoxx Europe 600 rose 0.3%, supported by optimism around monetary easing. Germany’s 10-year bond yield fell two basis points to 2.11%, while the euro weakened by 0.2% to $1.0501.
Asia
China is contemplating a yuan devaluation to counter the potential economic fallout from Trump’s proposed tariffs. This move, aimed at cushioning export impacts, risks triggering a broader currency war. Hong Kong’s Hang Seng index declined 0.8% as policymakers convened to set economic strategies for 2025. South Korea’s Kospi rose 1%, continuing its recovery from recent political instability.
Global Stock Inflation
Global equity markets largely advanced, with the MSCI World Index up 0.5%. Gains were driven by inflation reports signaling easing monetary policies. Bitcoin rose 2.4% to $99,244.86, while Ether gained 3.4% to $3,764.89.
Commodities, Upcoming Releases and Inflation
Crude oil prices increased, with West Texas Intermediate rising 1.2% to $69.39 per barrel. Reports suggest potential new U.S. sanctions on Russia’s oil trade, adding to supply concerns. Gold prices rose 0.4%, reaching $2,705.33 per ounce.
U.S. Initial Jobless Claims and Producer Price Index (PPI) on Thursday.
Eurozone industrial production figures on Friday.
European and Swiss rate decisions on Thursday.
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