Tame US Inflation Provides Temporary Relief for Investors

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Global stocks and non-dollar currencies gained some relief from inflation concerns, driven by a strong earnings season and a softer-than-expected U.S. core inflation report, which sparked renewed hopes for potential Fed rate cuts this year.

However, this relief rally could be short-lived, as U.S. inflation remains relatively high, potentially increasing if the incoming Trump administration implements aggressive tariffs and tax policies.

Richemont's sales report, due Thursday, will be closely watched in Europe, offering the first glimpse of the health of luxury demand, particularly in the U.S., while challenges persist in China.

Investors are also monitoring the situation in the Middle East, with Israel escalating strikes on Gaza despite a ceasefire deal intended to end the 15-month conflict.

While the soft U.S. core inflation data lifted sentiment, analysts cautioned that the 3.2% annual rate is still concerning, meaning the Fed may hold rates steady for a while longer.

Strong earnings from major U.S. banks like Goldman Sachs, JPMorgan Chase, Wells Fargo, and Citigroup also helped lift market sentiment. Bank of America and Morgan Stanley will report results on Thursday.

European chipmakers may react to earnings from Taiwan Semiconductor Manufacturing Co (TSMC), which met profit estimates. TSMC’s performance is closely watched for insights into AI-related chip demand.

In currency markets, the yen saw the biggest movement, reaching a one-month high after comments from Bank of Japan Governor Kazuo Ueda fueled market expectations for a rate hike next week.

Most economists expect the BOJ to raise rates in one of the two meetings this quarter, with many predicting a move in January. A rate hike would depend on market stability when Donald Trump returns to the White House next week, with his inaugural speech being scrutinized for clues about his policy direction.

Trump’s actions are expected to boost growth but add inflationary pressures, keeping the dollar strong. The dollar index has gained 5% in the past two months, fueled by expectations of higher Fed rates for an extended period.

Scott Bessent, Trump's nominee for Treasury Secretary, pledged to maintain the dollar as the world’s reserve currency, outlining his vision for a "new economic golden age" in testimony before the U.S. Senate Finance Committee.

Meanwhile, South Korea’s central bank kept its policy interest rate unchanged, citing the need for domestic political stability before considering further rate cuts.

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.