Despite a tentative pushback from central banks against perceived excessive interest rate cut expectations for the upcoming year, global markets remain influenced by credit easing sentiments. The Bank of Japan (BOJ) is the final G4 central bank scheduled to announce its policy decision, with a possibility of tightening monetary policy. The U.S. markets, sustaining a warm holiday glow, are attentively monitoring the BOJ’s move.
While the Federal Reserve and other central banks hinted at potential rate cuts, the BOJ’s unique position may lead to a different outcome. The possibility of delayed exit from negative interest rates and adjustments to yield curve caps are among the key considerations. Japanese stocks experienced a cautious tone, and Asian bourses saw a broader decline. Wall Street stock futures, however, continued their positive momentum.
Amidst Fed officials’ efforts to temper easing expectations, futures markets are still pricing in substantial rate cuts for 2024. Despite contrasting statements from Fed officials, market optimism prevails. The week ahead holds significance for U.S. housing data, including the NAHB U.S. homebuilder December survey, PCE inflation updates, and a 20-year Treasury bond auction.
The European markets mirror the trend, anticipating 150bps of European Central Bank easing in 2024. ECB officials are aligning with their Fed counterparts, guiding markets away from expecting rate cuts before midyear. Despite mixed economic indicators, optimism persists, with the euro gaining ground. The dollar’s position remains mixed, with crude oil prices facing downward pressure amid global demand concerns.
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