As of Tuesday’s close, the Dow Jones Index (US30) was down -0.61%, extending its losing streak to nine sessions. The S&P500 index (US500) was down -0.39%. The Nasdaq Technology Index (US100) lost -0.43%. The US stocks declined on Tuesday as markets refrained from opening risky positions ahead of tomorrow’s Federal Reserve decision. After Wednesday’s meeting, the FOMC is expected to cut the target range for the federal funds rate by -25 bps. Markets will also be looking to Fed Chair Powell’s comments after Wednesday’s meeting for clues on the future direction of Fed policy. Jerome Powell’s recent comments noted reduced risks in the labor market, but persistent inflation has led to speculation of a rate cut, with a hawkish stance for the next meeting in 2025. If this scenario were to occur, it would boost the dollar index, which would negatively impact risk assets (euro, British pound, Mexican peso) and pressure precious metals (gold and silver).

The US retail sales report for November published on Tuesday came in stronger than expected, showing a resilient economy with strong consumer spending. However, it could prompt the Federal Reserve to cut interest rates next year when it updates its quarterly dot-com forecasts on Wednesday. The US retail sales for November rose by +0.7% m/m, stronger than expectations of +0.6% m/m. Retail sales excluding motor vehicles for November rose by +0.2% m/m, weaker than expectations of +0.4% m/m. US manufacturing production for November added +0.2% m/m, weaker than expectations of +0.5% m/m.

On Tuesday, shares of healthcare companies that own pharmacy benefit management units declined after Pfizer’s CEO said President-elect Trump is “very committed” to reforming pharmacy benefit management (PBM). As a result, Humana (HUM) closed down more than -10%, topping the list of S&P 500 losers. Meanwhile, Pfizer (PFE) stock price gained more than +4% and topped the list of top gainers in the S&P 500 after reaffirming its 2024 outlook and 2025 adjusted EPS guidance of $2.80-$3.00, above the average consensus estimate of $2.89.

Canada’s annual inflation rate for November 2024 was 1.9%, down from 2% in the previous month and short of market expectations of 2%. The result was in line with the Bank of Canada’s baseline scenario, which sees CPI inflation remaining near the 2% threshold for the foreseeable future. However, the average prime rate remained unchanged at 2.7% instead of expectations of a cut to 2.5%, limiting the extent of rate cuts that can be undertaken by the monetary authorities to promote economic growth.

Equity markets in Europe were mostly down on Tuesday. Germany’s DAX (DE40) fell by -0.33%, France’s CAC 40 (FR 40) closed up +0.12%, Spain’s IBEX 35 (ES35) lost -1.62%, and the UK’s FTSE 100 (UK100) closed down -0.81% yesterday. European equities continued to decline amid new pessimistic economic signals ahead of monetary policy decisions by major central banks this week. In terms of data, the Ifo business climate index for Germany fell more than expected, while the ZEW economic sentiment index unexpectedly rose. Swaps put the odds of a -25bp ECB rate cut at the January 30 meeting at 100% and the odds of a 50bp rate cut at the same meeting at 10%.

WTI crude oil held above $69 a barrel on Wednesday. API data showed that US crude inventories fell by 4.7 million barrels last week, beating forecasts for a 1.9 million barrel decline, which would mark the fourth consecutive decline if confirmed by official data later on Wednesday. Oil prices remain under pressure due to renewed concerns over Chinese demand, driven by unexpectedly weak Chinese consumer spending data. These concerns are compounded by forecasts of a significant rise in non-OPEC+ production next year.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) fell by -0.24%, China’s FTSE China A50 (CHA50) added +0.67%, Hong Kong’s Hang Seng (HK50) lost -0.48%, and Australia’s ASX 200 (AU200) was positive +0.78% yesterday.

The Westpac-Melbourne Institute of Australia’s leading economic index for November 2024 rose by +0.1% month-on-month after rising +0.2% in the previous month. This was the index’s first positive reading in 2.5 years amid optimism that economic growth will pick up slowly over the next few quarters. Australia’s GDP is forecast to grow from 0.8% y/y currently to 2.2% by the end of 2025.