Stocks and gold lose some shine after US inflation data

Global stocks and gold lost some of their shine on Tuesday after data showed US inflation cooled as expected in November, but not by enough to add to the belief among investors that rates will fall any faster next year.

US consumer prices rose 3.1 per cent in the 12 months to November, compared with a rise of 3.2 per cent in October, in line with forecasts.

The dollar cut some of the day’s losses against a basket of currencies , while gold pared gains and US Treasury yields held steady after the data.

With inflation figures out of the way, investors are now awaiting the outcome of Wednesday’s Federal Reserve meeting. The central bank is widely expected to keep rates on hold, with the spotlight squarely on comments from Chair Jerome Powell during his news conference and the central bank’s economic projections.

Equities have rattled higher, while bond yields have fallen in recent weeks on the back of growing investor conviction that interest rates are about to fall quite swiftly, as the US economy in particular coasts towards a soft landing.

The MSCI All-World index (.MIWD00000PUS), which is trading around four-month highs, was up 0.2 per cent. In Europe, the STOXX 600 <.STOXX > edged down after the data, but was still close to 22-month highs, while US index futures , rose 0.1-0.2 per cent.

“Inflation is coasting towards the Fed’s target, but not fast enough for the Fed to talk about rate cuts. Powell will probably say that the job isn’t done yet, but we’re at least closer to the end than we are to the beginning,” Brian Jacobsen, Annex Wealth Management chief economist, said.

Markets are now pricing in a 46 per cent chance of a rate cut in March compared with 57 per cent a week ago, according to the CME FedWatch tool. Futures show traders expect at least four quarter-point cuts next year.

FAST AND LOOSE

Financial conditions have loosened since the Fed met in November and that will most likely influence the central bank’s thinking, analysts said.

“The Fed will feel that it cannot afford to have financial conditions ease further, as that could potentially re-accelerate labour demand and put renewed upward pressure on the rate of consumer inflation,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management. “Whether the market takes the hint remains to be seen and will likely be driven by the unfolding macro data more than Fed jawboning.”

In a busy week for central banks, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet on Thursday.

The 10-year Treasury note gave up some price gains after the data to yield 4.218 per cent, down 1 basis point on the day, and above an earlier session low of 4.153 per cent.

In currency markets, the yen recovered some of the previous day’s losses, which were triggered by a Bloomberg report that cited sources as saying Bank of Japan (BOJ) officials saw little need to exit their negative-rates policy straight away. The yen surged last week against the dollar, driven by brief optimism that a shift could come as soon as this month.

The yen strengthened 0.5 per cent to 145.50 per dollar, recouping most of Monday’s 0.8 per cent decline. The BOJ meets next week.

The dollar index, which measures the US currency against six others, fell 0.2 per cent to 103.87, a touch firmer than where it was before the inflation report at 103.64.

Gold was up 0.1 per cent at $1,984 an ounce, compared with around $1,991 before the inflation report, while Brent crude futures fell 1 per cent to $75.28 a barrel.