US Equity Benchmarks Fall
US equity benchmarks fell on Wednesday, led by declines in tech, industrials, and consumer discretionary. The Nasdaq 100 shed nearly 500 points, down 1.9% to 24,647, while the S&P 500 dropped 78 points (1.2%) to 6,721, and the Dow Jones Industrial Average was down 228 points (0.5%) to 47,885.
Currency and Commodities Market
In the FX space, the USD Index caught a bid yesterday, though the move was capped by daily resistance around 98.58. Longer-dated US yields increased moderately, while shorter-dated maturities were largely unchanged. Meanwhile, in the commodities complex, it was another positive day for Gold and Silver. The former is now on the doorstep of record highs at US$4,381, while the latter refreshed all-time pinnacles at US$66.89, up a whopping 130% YTD.
Upcoming Events
As European cash markets prepare to open, traders are looking to a packed docket today, dominated by the November US CPI data and updates from the BoE and the ECB.
US CPI Data
Today’s November US CPI inflation report will make the airwaves at 1:30 pm GMT, though this could prove to be a messy print. The US government shutdown prevented data collection in October, so today’s report will reflect a blend of October and November figures. Despite price pressures remaining north of the Fed’s 2.0% inflation target, the central bank is clearly concerned about the labour market. Investors have assigned about a 25% chance that the Fed will cut rates in January next year, with about a 50/50 chance at the March meeting.
Impact on the Market
If inflation eases or we see an in-line print, this could boost expectations for Fed rate cuts and weigh on US yields and the USD. A higher-than-expected number (>3.2%) would, of course, have the opposite effect, albeit a USD bid will likely be short-lived. The forecast distribution for the YY headline figure shows that only 2% of polled economists call for 2.8%, so a 2.8% or lower reading today would likely be USD negative.
BoE Rate Announcement
This afternoon also welcomes an announcement from the BoE at midday GMT. Money markets have fully priced in a 25-bp rate cut, lowering the bank rate to 3.75% from 4.00%. The key focus at today’s meeting will be the MPC vote split. Like the markets, I do believe that this week’s inflation data will be enough to nudge BoE Governor Andrew Bailey to side with the doves.
Market Expectations
However, given that markets now fully expect a rate cut, I think it will come down to the central bank’s forward guidance and whether more MPC members shift dovish. A further dovish shift in the MPC vote, for example, a 6-3 in favour of a cut, will weigh considerably on GILT yields and the GBP. Similarly, if the BoE’s language becomes more dovish, it could also have a marked impact across UK markets.
ECB Decision
In terms of the ECB, markets are fully pricing in a no-change decision, leaving the deposit rate at 2.00% and the main refinancing rate at 2.15%. With eurozone GDP growth recently revised higher, unemployment at historic lows, and headline inflation hovering around 2.0%, the central bank does not need to cut rates. In fact, rate cuts have all been priced out, with a small chance of a hike implied in the latter part of 2026.
ECB Outlook
My base case is that the ECB keeps rates where they are next year, but if markets lean more heavily in favour of hikes, this would, of course, benefit the EUR. As I noted in previous posts, for today’s meeting, I expect ECB President Christine Lagarde to reiterate her usual ‘policy is in a good place’ and that the central bank is not ‘pre-committing to a particular rate path’.
Conclusion
In conclusion, today’s events, including the US CPI data and the BoE and ECB announcements, are expected to have a significant impact on the market. The US CPI data may lead to a boost in expectations for Fed rate cuts, while the BoE’s rate cut and forward guidance will be closely watched. The ECB’s decision to keep rates unchanged is expected, but any hints of future hikes could benefit the EUR. Overall, it is shaping up to be an interesting day for traders and investors, with many potential market-moving events on the horizon.
