All eyes on Fed

The US rate decision

The US rate decision is due on Wednesday evening. There is a tough balancing act to be made in the face of intense pressure to reveal when and by how much it intends to cut interest rates next year. While the labour market is resilient and consumer spending is solid, there are signs of slower growth and, in turn, lower inflation.

The US consumer price index

On Tuesday, the US consumer price index (CPI), a closely watched inflation gauge, increased 0.1% in November and was up 3.1% from a year ago. Excluding volatile food and energy prices, the core CPI increased 0.3% on the month and 4% from a year ago, in line with the consensus. A 2.3% decrease in energy prices helped keep inflation in check, as gasoline fell 6% and fuel oil was off 2.7%. Food prices increased by 0.2%. The Federal Reserve is set to hold interest rates for their third policy meeting and keep the federal funds rate at a 22-year high of 5.25–5.5 per cent.

The Bank of Japan

In Japan, the Bank of Japan (BOJ)'s Tankan large manufacturers index climbed to 12 in Q4 from 9 in the previous quarter, pointing to the highest print since Q1 of 2022 and exceeding the market consensus of 10.

The UK economy

The UK economy shrank in October. Gross domestic product unexpectedly fell 0.3% in the October month-over-month (MoM). This could strengthen the case for the Bank of England to signal at its meeting tomorrow that it may cut interest rates sooner than many currently believe.

Oil

Oil prices fell more than 3% on Tuesday, taking WTI and Brent to six-month lows on oversupply and demand worries. Last week, crude oil inventories fell by 2.35 million barrels, according to the API. Gasoline and distillate stockpiles rose, respectively, by 5.8 million and 300,000.