Global shares were mixed on Monday as gold prices soared above $2,100 per ounce, reaching new all-time highs. This comes at the beginning of a busy week for economic data that will test market expectations for rate cuts from major central banks in the coming year.
MSCI’s broadest index of world shares rose 0.1 percent, hitting a four-month high during earlier trading. However, Europe’s STOXX 600 benchmark fell 0.1 percent. European retailers experienced an early boost in what analysts dubbed a Santa Rally, with the top retailer shares index trading up 1.1 percent to its highest level since March 2022. However, losses in the basic resources index, driven by lower copper prices, offset the positive performance.
Investor concerns about a potential escalation in the Israel-Hamas conflict, following attacks on commercial vessels in the Red Sea, raised worries of market instability. However, the focus for analysts and traders this week is the U.S. November payrolls report, due on Friday. The report needs to show solid job growth to support the scenario of a soft landing for the economy, while also not being too strong as to jeopardize the chances of future rate cuts. Median forecasts predict a rise of 180,000 jobs, keeping the unemployment rate steady at 3.9 percent.
Analysts are closely monitoring wage growth, which still exceeds the Federal Reserve’s target. If upcoming data aligns with expectations, it could signal an end to rate hikes this year, paving the way for possible cuts in 2024. The current futures market suggests a 60 percent probability of a rate cut as early as March, a substantial increase from 21 percent a week ago. Traders are now pricing in approximately 135 basis points of cuts for the entirety of 2024.
The recent extraordinary performance of U.S. Treasuries has prompted a decline in yields, with two-year yields falling 41 basis points in just one week, the best performance since the mini-crisis in the U.S. banking sector in March. Experts predict that this trend will continue, with forecasts for the year-end 2024 U.S. rate sitting at 4.00 percent for two-year Treasuries, bringing an end to the inverted yield curve. These projections are expected to have positive implications for emerging markets, as historical data shows high returns in the 12 months following the last Federal Reserve rate hike.
Central bank meetings in Canada and Australia this week are expected to result in unchanged interest rates. As Treasury yields drop, the U.S. dollar weakens across several currencies, particularly against the yen, where it fell by 1.8 percent last week. The yen is benefitting from speculation about the eventual unwinding of the Bank of Japan’s super-loose policies. The euro slightly declined against the dollar, while the dollar itself rose 0.2 percent against a basket of currencies. U.S. stock futures indicated a decrease of over 0.3 percent.
The Bundesbank President, Joachim Nagel, expressed a more hawkish stance in an interview over the weekend. However, decreasing inflation rates could force the European Central Bank to ease monetary policy to prevent real interest rates from rising. ECB President Christine Lagarde is scheduled to deliver a speech and participate in a Q&A session later on Monday.
The drop in yields and the weakening of the dollar have spurred a surge in gold prices, which reached a record-breaking $2,111.39 per ounce before modestly retracing to $2,071.50 by 0945 GMT. Meanwhile, oil prices declined due to doubts about OPEC+’s ability to maintain planned output cuts. U.S. oil production remains at record levels, surpassing 13 million barrels per day, and the number of drilling rigs continues to rise. Brent crude fell 60 cents to $78.28 per barrel, while U.S. crude dropped 57 cents to $73.52 at 0954 GMT.
As the week progresses, market participants will closely monitor economic data, central bank meetings, and geopolitical developments that could impact market sentiment and the trajectory of various asset classes.
In conclusion, global shares experienced a mixed trading session, while gold prices reached new record highs above $2,100 per ounce. Economic data releases and central bank meetings are expected to shape market expectations for potential rate cuts. Investors are closely watching the U.S. payrolls report and analyzing its implications for future monetary policy decisions. The performance of Treasuries and the strength of the dollar are also key factors influencing market sentiment. Additionally, geopolitical developments, particularly in the Red Sea, could introduce further uncertainty to the markets.
