Marketmind: Markets wary Powell may undermine rate-cut bets

Marketmind: Markets wary Powell may undermine rate-cut bets

A look at the day ahead in European and global markets from Ankur Banerjee

With a blockbuster November in the rear view mirror, investors are gearing up for a bright start to December in Europe, full of expectations that central banks will soon start cutting rates, although a “fireside chat” with Fed Chair Jerome Powell later in the day could spoil the party.

A calendar full of manufacturing PMIs from countries across Europe will provide a clearer picture of the region’s economy, but in the meantime futures indicate a higher open for European bourses.

Data on Thursday from both the euro zone and the U.S. showed inflation was easing, spurring expectations of rate cuts by central banks, with money markets pricing in more than 100 basis points in rate cuts next year from both the Fed and the ECB.

The disconnect between financial markets and central banks has only deepened as central banks push back against talk of rate cuts while markets take in the relatively more benign inflation data of recent weeks.

Fed policymaker Christopher Waller, an influential and hawkish Fed voice, shook things up a bit this week, however, saying he was increasingly confident inflation would return to its 2% target. That helped to embolden markets to take on rate-cut bets.

Markets are now pricing in a 46% chance of the central bank cutting rates in March, the CME FedWatch tool showed. A week earlier it was priced at 27%.

With that backdrop, the spotlight will shine brightly on Powell when he takes the stage later on Friday. Whether Powell chooses to stay away from policy comments or talk about rates remains to be seen. Whatever he says, or not, will sway the markets.

Over in Asia, the last month of the year got off to a tentative start, with shares lower, the dollar on the defensive and oil prices extending their recent decline.

In company-related news, Tesla’s long-delayed Cybertruck is here. The vehicle, made of shiny stainless steel and shaped into flat planes, will be priced from $60,990, more than 50% above what CEO Elon Musk had touted in 2019.

Key developments that could influence markets on Friday:

Economic events: UK nationwide house prices for November, Manufacturing PMI data from France, UK, Germany and euro zone.

Speakers: Bank of England MPC member Megan Greene, ECB President Christine Lagarde, Fed Chair Jerome Powell.

(Reporting by Ankur Banerjee in Singapore; Editing by Edmund Klamann)