Monday Morning Update

Gold prices have rallied to all-time highs as markets react to dovish comments from the Fed. The start of this morning’s session saw prices briefly spike above $2130 USD/t.oz, as prices now trade more than 4% up on the month and 16.5% on the year. This comes as markets are pricing in around a 60% chance of a rate cut as early as March 2024, as well as fully pricing in a cut by May. Such expectations have been aided by inflation coming in softer-than-expected earlier in the month. For example, US annualised CPI eased to 3.2%, against expectations of 3.3%, falling 50bps from September’s print and marking the lowest headline inflation since July. On a monthly basis, us consumer price index eased to 0% over October, having fallen 40bps from last month’s print and missing expectations of 0.1%.

Data from the Swiss Federal Statistical Office this morning indicated that headline inflation eased to 1.4% over the course of November. This came in 20bps softer-than-expected and marked the lowest point since October 2021. The primary drivers behind the fall in inflation came from easing cost pressures in recreation, food and drink and eating out.  An uptick in inflation was seen however in both housing and energy, which continue to be salient issues for the Swiss electorate. On 21st September, the Swiss National Bank voted to keep their benchmark policy rate unchanged at 1.75%, missing market expectations of a 25bps increase. The SNB’s decision marked the central bank’s first hold since policy makers started their recent monetary tightening cycle in June 2022. This tightening cycle has seen rates increase 250bps from June 2022’s rate of -0.75% (a rate which had been held since 2015).

Uncertainty over whether the EU will be able to pass an aid package of €50bn to Ukraine is continuing to gather headlines this morning. The importance of this package is hard to understate, for example, as the FT writes, “the €50bn proposed by the EU is designed to keep Kyiv solvent to 2027”. The proposed package is made up of €33bn in loans and €17bn in grants (with just under €20bn of this being earmarked to pay off interest payments to the EU).

The EU’s support for Ukraine relies on a fund managed by the Brussels and relies on unanimous support from EU member states to increase it. In February, the EU increased support to this fund, however Hungary have since vetoed further top-ups and the new Slovakian Prime Minister, Robert Fico looks set to do the same. Victor Orbán and Robert Fico are continuing to cause headaches for Brussels with both expressing their opposition to supporting the Ukrainian war effort and lack of support for increasing sanctions on Russia.

The division is in the run-up to the EU’s budget meeting later this month and comes as Biden struggles to get his $60bn package through Congress. Hence, with Zelenskyy renewing calls for further financial assistance, all eyes are on whether the EU will be able to pass this package through a divided bloc.

Following the release of Swiss inflation this morning, 10:30 will see the release of the Sentix Investor Confidence index for the Eurozone ahead of Christine Lagarde speaking. At 23:30, the latest release of Tokyo’s CPI index will be released, where the general market consensus is forecasting a 2.4% print (a slight decrease form last month’s 2.7%).