Macro Briefing: 12 December 2024

US consumer inflation edged higher to a 2.7% year-over-year pace in November, marking a second straight month of slightly higher increases. Core CPI, which strips out volatile food and energy prices, held steady at a 3.3% rate. “In-line core inflation clears the way for a rate cut at next week’s [Federal Open Market Committee] meeting,” says Whitney Watson, global co-head and co-CIO for fixed income at Goldman Sachs Asset Management. “Following today’s data the Fed will depart for the holiday break still confident in the disinflation process and we think it remains on course for further gradual easing in the new year.”

China rolls out several retaliatory measures against the US that suggest how Beijing could react to a new trade war. The Wall Street Journal reports: “In recent days, Beijing has launched a regulatory probe into U.S. semiconductor champion Nvidia, threatened to blacklist a prominent American apparel maker, blocked the export of critical minerals to the US and squeezed the supply chain for drones, offering clues into how non-tariff measures are likely to dominate China’s tool kit.” Meanwhile, President Biden doubled tariffs on Chinese solar-panel components.

Mortgage refinancing surged following another drop in mortgage rates last week. The average rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell to 6.67% from 6.69%. Applications to refinance a home loan increased 27% in the latest weekly change and are up 42% vs. the year-ago week.

A leading Wall Street bull expects the US stock market will continue to rally in early 2025, but start to cool in the second half of the year. “It makes sense to think of this as two halves of a year,” says Fundstrat head of research Tom Lee. “Because whenever you’ve booked 20% back-to-back gains, markets tend to do better in the first half of that third year, not in the second half.”

European Central Bank is expected cut interest rates again today. A half-point cut “would be a security move to preempt any potential risks for the eurozone economy coming from the next U.S. administration’s potential economic policy choices and political woes in France and Germany,” says Carsten Brzeski, chief eurozone economist at ING bank.

The rise in the US dollar recently, along with a “confluence of bad news”, have led to the biggest sell-off in emerging market currencies since the Federal Reserve started raising interest rates two years ago. Financial Times reports: “A JPMorgan index of EM currencies has fallen more than 5 per cent over the past two-and-a-half months, putting it on course for its biggest quarterly decline since September 2022.” Meanwhile, the US Dollar Index continues to trade near a two-year high.