Risk was ON like Donkey Kong yesterday, thanks to the latest U.S. inflation data all but greenlighting a potential Fed rate cut next week.

“Risk” assets flew higher than Elphaba on a broomstick while Defying Gravity!

Here are the headlines that moved the markets in the last trading sessions:

Headlines:

• Japan BSI manufacturing PMI rose from 4.5 to 6.3 (1.8 expected) in Q3 2024
• Japan producer price increases accelerated from 3.6% y/y to 3.7% y/y (3.4% expected) in November
• RBA Deputy Gov. Hauser said they don’t “prejudge” Trump’s tariff policies but stand “ready to respond appropriately” as they emerge
• Reuters reports Chinese policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher U.S. trade tariffs
• U.S. CPI for November: 0.3% m/m (0.3% expected, 0.2% previous); Core CPI remained at 0.3% as expected; Annual CPI edged higher from 2.6% to 2.7%
• BOC cut its overnight rates by 50bps as expected is shifting to a “more gradual” approach to easing
• EIA Crude Oil Inventory Report for the week ending December 6, 2024: -1.4M barrels vs. 1M barrels forecast
• Federal budget deficit ballooned from $257.5B to $366.8B in November
• RICS: 25% of U.K. respondents reported higher house prices in November, up from 16% in October
• The European Union agreed to an additional round of sanctions threatening Russian oil flows over war with Ukraine

Broad Market Price Action:

Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView

All the major assets rallied yesterday, driven by U.S. inflation data stoking hopes for a December Fed rate cut—and maybe fewer cuts in 2025.

European and U.S. equities got a boost, with the Nasdaq breaking above 20,000 for the first time ever. The risk-on mood lifted bitcoin too, with BTC/USD peaking near $102K before settling around $101K.

Gold caught a bid, thanks to rate cut calls, but it probably also got a lift from ongoing Israeli strikes in Gaza and expectations of stronger demand from China. WTI crude surged as well, climbing from $68.50 to around $70.50, after lower-than-expected EIA inventories and new EU sanctions raised concerns about Russian supply.

On the flip side, U.S. 10-year Treasury yields kept climbing, hitting 4.28%. The sticky-high annual U.S. CPI (hey, it rhymes!) seemed to cool some of the talk about Fed rate cuts in 2025.

FX Market Behavior: U.S. Dollar vs. Majors:

Overlay of USD vs. Major Currencies Chart by TradingView

The U.S. dollar had quite the rollercoaster ride yesterday. It kicked off the European session strong, bolstered by reports that China might weaken its currency—potentially pushing USD/CNY higher—if a trade war with the U.S. heats up.

But the Greenback lost steam just before the U.S. session opened and took another hit after the CPI data all but locked in a December Fed rate cut. USD/CAD was the standout mover, dropping 60 pips to 1.4120 after the Bank of Canada (BOC) surprised markets with a more hawkish tone on forward guidance, even as it slashed rates by 50bps.

By the end of the day, talks of fewer Fed rate cuts in 2025 triggered some profit-taking, helping the dollar finish broadly higher—except against the Loonie, which kept its edge.

Upcoming Potential Catalysts on the Economic Calendar:

• SNB policy decision at 8:30 am GMT
• SNB press conference at 9:00 am GMT
• Italy quarterly unemployment rate at 9:00 am GMT
• U.K. NIESR GDP estimate (tentative)
• ECB policy statement at 1:15 pm GMT
• Canada building permits at 1:30 pm GMT
• U.S. PPI reports at 1:30 pm GMT
• U.S. initial jobless claims at 1:30 pm GMT
• ECB press conference at 1:45 pm GMT
• U.K. CB leading index at 2:30 pm GMT
• BusinessNZ manufacturing index at 9:30 pm GMT
• Japan Tankan indices at 11:50 pm GMT

Central bank decisions take center stage today with the SNB and ECB policy announcements, where markets will scrutinize both central banks’ stances on inflation and interest rates.

In the U.S. session, PPI data and jobless claims will be crucial in shaping next week’s Fed expectations, with producer prices potentially offering early signals about inflation trends. The ECB’s press conference at 1:45 pm GMT stands out as the day’s main event, where President Lagarde’s comments could trigger significant moves in European markets and the euro.

Make sure you’re glued to the tube in case we see increased volatility during their events, and don’t forget to check out our Currency Correlation tool when taking any trades!