The Market Is Confident About an Upcoming Rate Cut
Antonio Ferlito | Nov 20, 2023 03:12AM ET
Last week, U.S. inflation data were better than expected, showing a deceleration.
This reaffirmed investors' confidence and their bets on an end to the monetary tightening cycle and a possible initial rate cut by the first quarter of 2024 in the United States.
As a result, financial markets posted significant gains, with the Nasdaq100 approaching its all-time high of two years ago.
Oil prices continue to fall for the fourth consecutive week, causing the oil market to fluctuate rapidly.
Traders expect the market to be less tight than expected, and those fears have already been confirmed with last week's increase in weekly inventories of 3.6 million barrels in the United States (against a forecast of 2.5 million).
However, this drop in prices could push OPEC, particularly Saudi Arabia, to further reduce production to support crude prices.
Riyadh is expected to extend its production quotas by about 1 million barrels per day next year and will meet in Vienna on Nov. 26 along with the other members of the oil organization.
Although oil prices remain below expectations, industrial metals are generally holding steady in London, with the exception of nickel, which continues to fall to $16,900.
Copper, on the other hand, is on the rise, reaching $8,165, while zinc ($2,570) and lead ($2,270) continue to hold at current levels. Recent Chinese statistics have contributed to the strength of prices: in fact, industrial production increased 4.6 percent year-on-year in October, slightly exceeding forecasts of 4.5 percent.
Gold is also performing well as bond yields fall, pleasing investors: once again the precious metal is approaching the $2,000 an ounce mark.
When will interest rates be cut?
This question now has a clearer answer after the latest Consumer Price Index report.
With inflation holding steady, it seems increasingly likely that the economy is going through a slowdown.
The U.S. core CPI came in at +4.0 percent year-on-year, slightly lower than the initial forecast of +4.1 percent.
As a result, the 2-year bond yield fell 18 basis points.
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Many analysts believe inflation will decline rapidly and return below the Fed's targets by the first half of 2024, accompanied by solid corporate earnings.
Despite inflation, producer prices and industrial production in the United States came in below expectations in October, affecting the market's mood on upcoming rate decisions.
However, strength in retail sales and the Empire State index contributed to the rebound.
In China, data are mixed with a small recovery in consumption but a lingering crisis in the real estate sector.
This week will be important for financial markets, with several economic and corporate events attracting investors' attention.
On Tuesday, the Fed will release the minutes of its latest meeting, while on Wednesday it will focus on October durable goods orders.
On the corporate front, investors will be looking forward to Nvidia (NASDAQ:NVDA)'s company results that will be released Tuesday night and could influence the Nasdaq to reach new annual highs.
Since Friday, I have been steadily buying crude oil as part of my investment portfolio.
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