·On Monday, the US stock market unexpectedly fell
·Weak risk aversion sentiment, but the US dollar did not make a profit
·Pay close attention to Wednesday's US CPI report
·The Reserve Bank of Australia softened its stance and the Australian dollar fell
Risk appetite sentiment came under pressure yesterday, with losses in the US stock index and cryptocurrency market. The S&P 500 index fell about 40%, led by the Nasdaq 100 index. Due to the significant increase in most stock indices in November, especially after Trump's re-election, a similar downturn as yesterday is helping to suppress expectations of sustained gains.
However, despite negative news, domestic political maneuvering, and the possibility of Trump imposing tariffs on Eurozone products, both the German and French stock markets were among the best performing in December. Apart from the expected interest rate cut by the European Central Bank on Thursday, there may still be valuation factors favorable to European stock markets compared to the US stock market.
Yesterday, the trends of gold and Bitcoin reversed, and gold ultimately took advantage of the changing geopolitical landscape to test the recent upward trend in the range of $2600- $2670. On the other hand, the king of encryption Bitcoin has once again failed to maintain its level of $100000, confirming the importance of this level. Although the overall trend remains bullish, profit taking may continue to form strong resistance.
On Monday, low volatility dominated the foreign exchange market, with the US dollar fluctuating. Today, the US dollar rose slightly against the Japanese yen, but there is clearly a lack of more aggressive trading willingness. Following last week's US labor market data and the Federal Reserve's "quiet period", the market is currently closely monitoring a series of upcoming US data releases.
Tomorrow's November inflation report is the most critical data in the Federal Reserve's decision-making process, and the market seems more confident in a 25 basis point rate cut. This means that once it is confirmed that the current overall inflation and core inflation indicators are expected to be 2.7% and 3.3%, respectively, it will consolidate next week's interest rate trend, which may lead to a flat market reaction. However, if there is an unexpected increase in data, especially in core inflation, tomorrow, the situation will not be the same.
This week's first central bank meeting has caused some headline news. Although the Reserve Bank of Australia has kept interest rates unchanged at 4.35% as expected, the prevailing hawkish rhetoric has noticeably eased. The Reserve Bank of Australia stated in a statement that inflation is still too high, but the board's confidence in the decreasing inflationary pressure has increased, which is exactly in line with the expectations for November. At the same time, the Reserve Bank of Australia acknowledges that key data recently released, including wage pressures, have weakened.
The Australian dollar is on the defensive today, but the market is not surprised by this shift in rhetoric. In addition to strong expectations for the Reserve Bank of Australia to change its stance, there is also disagreement on the possibility of a 25 basis point interest rate cut in February, with a current probability of only 56%. Looking ahead, the official inauguration of President Trump's second term on January 20th and the Australian quarterly Consumer Price Index (CPI) at the end of January 2025 are likely to affect the February interest rate decision.
Finally, the Chinese government has continued to release positive comments, despite creating an optimistic outlook for the market, which also played a role in the poor performance of the Australian dollar today. However, at this critical moment, actions speak louder than words, and market satisfaction may gradually decline.