Stocks Rise on Inflation Data:
U.S. equity markets closed higher Wednesday as the Consumer Price Index (CPI) inflation data aligned with expectations. Growth-oriented sectors led the gains, with technology, consumer discretionary, and communication services all rising more than 1.5%. Most other sectors were flat to slightly lower. Overseas, European markets ended higher, while Asian markets showed mixed performance overnight. Bond yields edged up, with the 10-year Treasury yield finishing at 4.27% and the 2-year yield at 4.16%. Commodities also saw movement: oil prices rose over 2%, and gold gained more than 1%.
November Inflation Overview:
Inflation data was a key focus today as the November CPI report showed:
- Headline CPI rose 0.3% month-over-month, slightly above expectations, and 2.7% year-over-year, matching forecasts.
- Core CPI (excluding food and energy) increased by 0.3% for the month and 3.3% annually, both in line with expectations.
Notably, November marked the fourth consecutive month with a 0.3% rise in core CPI, pushing the three-month annualized rate to 3.7%—the highest since April. Encouragingly, the shelter index showed signs of moderation, rising 0.3% in November compared to October’s 0.4%. The annual shelter index increase of 4.7% was its lowest since early 2022.
The data reinforces expectations for the Federal Reserve to deliver a 0.25% interest rate cut at next week’s meeting. However, with disinflation slowing and the U.S. economy maintaining strong momentum, the Fed may adopt a measured pace for future rate cuts in 2025.
Global Monetary Policy Updates:
Global central banks are in focus this week, with notable decisions shaping markets:
- The Bank of Canada (BoC) reduced its policy rate by 0.5% today, lowering the target rate to 3.25%. This marks the fifth rate cut of 2024 and the second consecutive 0.5% cut, reflecting Canada’s relatively weak economic growth.
- The European Central Bank (ECB) is expected to announce a 0.25% rate cut tomorrow, potentially bringing the refinancing rate to 3.15%. If confirmed, this would amount to a total reduction of 1.35% for 2024.
Economic challenges in Canada and the eurozone have prompted these central banks to take a more aggressive stance on easing compared to the U.S., where economic conditions remain robust. The Federal Reserve meets next week (December 18) and is widely expected to deliver a 0.25% rate cut.
Stay tuned for more updates as we approach the Fed’s final decision of the year.
