US inflation data will shape expectations for the path of Fed interest rates and test the record stock market rally, as the European Central Bank meets.
US Consumer Price Index
The US is scheduled to release November data on consumer price inflation on Wednesday which will give Federal Reserve officials a final look at price pressures before their final policy meeting of the year the following week.
The Fed has cut interest rates by 75 basis points since September and markets are currently anticipating another 25 basis point cut at the December 17-18 meeting.
Bets that the Fed will cut rates again were boosted by a stronger-than-expected jobs report on Friday, but any sign that progress in bringing inflation back to the Fed’s 2% target has stalled is likely to see markets revise expectations.
Concerns about a potential rebound in inflation have also returned to the forefront due to President-elect Donald Trump’s plans to raise tariffs on imports. Tariffs are expected to be inflationary.
Stock market test
The S&P 500 and Nasdaq Composite rose to record closing levels on Friday as expectations of interest rate cuts by the Federal Reserve during a period of strong economic growth continued to support investor sentiment.
This scenario has historically produced strong gains in stocks, and was supported by Friday’s jobs data.
Wednesday’s inflation report will test the strength of US stocks’ rally through the end of the year. If the data comes in hotter than expected, the Fed may temper expectations about the future path of interest rate cuts.
Analysts are already anticipating a more gradual pace of interest rate cuts next year as policymakers evaluate Trump’s fiscal policies after he takes office on January 20.
Interest rate cuts by the European Central Bank
The European Central Bank holds its final policy meeting of the year on Thursday with economists overwhelmingly anticipating a further 25 basis point cut in interest rates – which would be the fourth such cut this year.
Eurozone inflation rose in November, but still appears to be heading towards the European Central Bank’s 2% target.
The European Central Bank is also set to publish updated forecasts for growth and inflation, which will likely be revised lower for next year.
Since the last meeting of the European Central Bank in October, the risks of tariffs for Europe have risen following Trump’s election victory; France and Germany are struggling with political unrest; Business activity slowed sharply, and the euro weakened.
European Central Bank President Christine Lagarde said the trade war would be a “net negative for everyone,” not just the countries targeted by US tariffs.
Bitcoin history
Bitcoin, the world’s largest digital currency, rose above $100,000 for the first time on Thursday after Trump announced his selection of cryptocurrency veteran Paul Atkins to head the Securities and Exchange Commission.
Trump also announced that he plans to appoint David Sachs, a former PayPal executive and cryptocurrency evangelist, as his “AI and cryptocurrency czar in the White House,” raising doubts about who exactly will lead policy.
While both have urged regulators to adopt a more lenient approach, neither appears to have taken a position on whether cryptocurrency tokens should be considered securities, commodities or utilities – a key issue that will shape the industry’s regulatory framework.
While numbers like $200,000 for 2025 are already being mentioned, Bitcoin’s history is full of record highs and equally stunning reversals.
Oil prices
Oil prices fell more than 1% on Friday, consolidating weekly losses amid expectations of an oversupply next year on the back of weak demand despite OPEC+’s decision to postpone production increases and extend production cuts until the end of 2026.
Brent crude oil lost more than 2.5% on the week, while West Texas Intermediate crude oil futures fell 1.2%.
OPEC+ agreed on Thursday to postpone the start of planned production increases by three months until April 2024 and extended existing production cuts until the end of 2026. But energy traders said the move failed to offset concerns about weak demand, especially in China, the second-largest oil consumer. In the world.
Oil prices have been limited in recent weeks, as geopolitical tensions in the Middle East partly offset concerns about global economic growth and China’s slow recovery.
