As investors anticipate a positive start to December in European markets, the spotlight turns to Fed Chair Jerome Powell, whose upcoming remarks could overshadow optimism about potential rate cuts. Despite a robust November, concerns loom as central banks’ resistance to rate cuts contrasts with market expectations fueled by easing inflation.
A series of manufacturing PMIs across Europe will offer insights into the region’s economic health, contributing to a higher opening for European bourses as indicated by futures. However, Powell’s “fireside chat” later in the day holds the potential to influence market sentiment.
Recent data from the euro zone and the U.S., revealing a decline in inflation, has heightened expectations of rate cuts by central banks. Money markets reflect a more than 100 basis points pricing in rate cuts from both the Fed and the ECB in the coming year. The divergence between financial markets and central banks’ cautious stance on rate cuts has intensified.
In a notable shift, hawkish Fed policymaker Christopher Waller expressed growing confidence in inflation returning to the 2% target. This unexpected stance emboldened markets, leading to increased rate-cut bets. The CME FedWatch tool indicates a 46% probability of a central bank rate cut in March, up from 27% a week earlier.
Powell’s appearance becomes pivotal as investors await clues on the central bank’s stance. Whether Powell addresses policy comments or rate-related topics remains uncertain, but his words, or silence, will sway the markets.
In Asia, the year’s final month commenced cautiously, with lower shares, a defensive dollar, and declining oil prices. Tesla’s long-awaited Cybertruck launch made headlines, revealing a price higher than CEO Elon Musk’s 2019 estimate.
Key Developments on Friday:
- Economic events: UK nationwide house prices for November, Manufacturing PMI data from France, UK, Germany, and the euro zone.
- Speakers: Bank of England MPC member Megan Greene, ECB President Christine Lagarde, Fed Chair Jerome Powell.
