- The Fed cuts interest rates as expected by 25 basis points to 4.5%, but at the same time heavily revises its macroeconomic forecasts and indicates a more cautious approach to its next moves
- The Fed sees higher inflation next year, at 2.5%, for both regular PCE and core PCE. Greater uncertainty about inflation and the descent to the target (target achievement has moved to 2027) leads to a higher assessment of interest rates going forward. The Fed sees two rate cuts next year to the vicinity of 4% and another two in 2026.
- The Fed slightly raised its forecast for U.S. GDP to 2.1% from 2% in September, and estimates a lower unemployment rate, at 4.3% vs. 4.4% previously - both revisions have a distinctly hawkish tone
- Powell was very hawkish during the conference and indicated the need for a cautious approach to rates, given the risk of a rebound in inflation. In his view, it may take more than 1-2 years from now to reach the inflation target
- In response, we are seeing a marked strengthening of the dollar. EURUSD falls more than 1% and trades below 1.0400 levels. Potentially, the pair could close today at its lowest since 2022
- Yields on 10-year bonds rose to 4.5% in the US. 10-year and 2-year yields rose 10 basis points today
- The market is now pricing in less than two interest rate cuts in 2025
- Strong declines are also seen on the US500. The US500 loses more than 0.8% and is testing the area around 5970 points, erasing any gains from December. US100 and US2000 lose more than 1%
- Among Wall Street companies, the best-performing sectors today were semiconductors (Nvidia) and health care (United Health Group); shares of Heico, a manufacturer of aerospace and defense parts and systems, are down nearly 10%.
- General Mills' stock price also fared poorly; the company, despite a better-than-forecast report, lowered sales expectations and expects product margins to fall due to extensive promotional activities
- Gold reversed earlier gains and traded down more than 1.6% and tested the vicinity of $2,600 per ounce
- In response to the stronger U.S. dollar, we also see Bitcoin retreating, losing 3.0% and falling in the vicinity of 103,000. Microstrategy shares, however, lose less than 2%
- Crude oil inventories fall by less than 1 million brk today, less than expected. At the same time, gasoline stocks rise by 2.3 million brk (above forecasts), but distillate stocks fall by 3.2 million brk. However, crude oil capped earlier gains today and WTI crude retreats below 70 US per barrel
- CPI inflation from the UK came in as expected at 2.6% y/y, rebounding from 2.3% y/y. Core inflation rose slightly more slowly to 3.5% y/y from 3.3% y/y. GBPUSD gained in the morning, but after the Fed decision we see a massive pullback on the pair to the lowest level since November 27
- Eurozone final inflation rate for November was 2.2% vs. 2.3% in the previous reading; core CPI was in line with the previous publication (2.7% y/y)
- Volatility in agricultural commodity markets is limited today except for coffee and cocoa; soybean futures lost nearly 2%. Cocoa rose nearly 6% today to new historic highs, buoyed by the expected weak and lower-than-October projections of state authorities for the Ivory Coast harvest season (⅓ of global production). Markets expect the country to produce 1.9 million tons of cocoa in the current 2024-25 season; this is nearly 10% lower than the government's initial projections of around 2.1-2.2 million tons in October.
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