European Markets Alert: Powell’s Remarks Impact Rate-Cut Expectations

Ankur Banerjee provides an update on the European and global markets for the day ahead.

With a bumper November in the rearview mirror, investors are bracing for a bright start to December in Europe, full of expectations that central banks will soon begin cutting rates, albeit a “fireside chat” with Fed Chairman Jerome Powell later today could spoil the party.

A calendar full of manufacturing PMIs from European countries will provide a clearer picture of the region’s economy, but in the meantime, futures indicate a higher opening for European stock markets.

Eurozone and U.S. data on Thursday showed inflation falling, boosting expectations of rate cuts by central banks, with money markets pricing in more than 100 basis points in cuts. rates next year from the Fed and the ECB.

The disconnect between financial markets and central banks has only become more pronounced, with the latter opposing any idea of reducing interest rates, while the markets take into account the relatively more favorable data from the latter weeks in terms of inflation.

Christopher Waller, one of the Fed’s most influential and optimistic policymakers, changed things somewhat this week, however, when he said he was increasingly convinced that inflation would return to its target of 2 %. This helped encourage markets to bet on lower interest rates.

According to the CME’s FedWatch tool, markets are now pricing in a 46% chance that the central bank will cut rates in March. A week earlier, that figure was 27%.

Against this backdrop, the spotlight will be on Mr. Powell when he speaks later on Friday. It remains to be seen whether he will choose to avoid comments on monetary policy or talk about rates. What he says, or not says, will influence the markets.

In Asia, the last month of the year started slowly, with stocks falling, a dollar on the defensive and oil prices extending their recent decline.

On the business side, Tesla’s long-awaited Cybertruck is here. The vehicle, made of shiny stainless steel and shaped into flat planes, will start at $60,990, more than 50% more than CEO Elon Musk announced in 2019.

Main developments likely to influence the markets on Friday:

Economic Events: UK house prices for November, manufacturing PMI data for France, UK, Germany and Eurozone.

Speakers: Megan Greene, member of the Monetary Policy Committee of the Bank of England, Christine Lagarde, President of the ECB, Jerome Powell, President of the Fed.

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Beth Malcolm

Beth Malcolm is Scottish based Journalist at Heriot-Watt University studying French and British Sign Language. She is originally from the north west of England but is living in Edinburgh to complete her studies.