10 January 2024
Author: Griffin Tory
As in recent months, monetary policy expectations were central to broader market moves in December. Sentiment was bolstered early in the month as the US Consumer Price Index showed inflation pressures continuing to ease. Shortly after, at the December Federal Open Market Committee (FOMC) meeting, officials revised their end-2024 interest rate projections significantly lower, implying a median of 75bps in interest rate cuts over the year. At the FOMC press conference, Chair Powell added to the dovish tone by expressing confidence that inflation would continue to fall, helped by recent supply-side gains in the economy. This served to validate market hopes of a so-called ‘soft landing’ scenario of falling inflation alongside no recession. Officials at the European Central Bank and Bank of England pushed back against the idea of imminent interest rate cuts, although markets remained confident that both central banks would ease policy materially in 2024. On the economic activity side, US growth remained robust, hovering close to trend at around 2%, whilst Europe continued to show signs of stagnation.
Elsewhere in Asia, the Bank of Japan maintained its ultra-loose policy stance, citing doubt as to whether inflation was “sustainably and stably” at the 2% target. Meanwhile, the Chinese policymakers stepped up efforts to support the economy, with the central bank providing significant liquidity and municipal governments easing home-purchase restrictions.
Against this backdrop, global equities and bonds rose in tandem, gaining +4.8%1 and +4.2%2 respectively, whilst the US dollar declined -2.4%3. Global commodities fell -2.7%4, but this conceals large disparities among sub-components, with energy falling -6%5 amid concerns about weak oil demand and oversupply, whilst industrial metals were up 4%6 as market sentiment improved.
Source: Bloomberg
