The market was dominated by Trump's trades and the situation in the Middle East this week, while the Fed's December rate cut expectations were unclear. Trump's statement last week that the BRICS countries must commit to using the US dollar or face a 100% tariff caused a setback in gold prices. The market expects the Trump administration to implement a strong dollar policy, and is worried that high tariffs will hit the economies and trade of the BRICS countries, triggering panic in non-US currencies, pushing up the US dollar and suppressing gold prices. It is necessary to pay close attention to the direction of Trump's trades in the future, and to gain insight into the sentiment of funds that hit non-US and support the US dollar from the latest speeches of his team.

U.S. stocks closed mixed last Friday. Market sentiment was driven by the November employment report, while traders increased their bets on the Fed to cut interest rates at this month's meeting. The S&P 500 rose slightly by 0.24% to close at 6,090.27 points, setting a record high; the Nasdaq Composite Index rose 0.81% to close at 19,859.77 points, also setting a record. The Dow Jones Industrial Average fell 0.28% to 44,642.52 points.

Spot gold closed at around $2,632/ounce last week, down about 0.65%. The recent US non-farm payrolls report has sparked heated discussions in the market, which not only has a direct impact on the trend of gold prices, but also provides important clues for the future policy direction of the Federal Reserve. At the same time, the decline in global gold demand and the trend of ETF fund outflows have added more uncertainty to the market.

Last week, silver prices rebounded to a high of $31,500 after hitting a low of $30.600 last week. It fluctuated narrowly in the range of 30.600-31.500 throughout the week. The Fed's cautious stance on cutting interest rates put pressure on the white metal.

The US dollar index closed at 105.98 last week. The US dollar closed at 149.96 against the Japanese yen; the euro closed at 1.0564 against the US dollar; and the British pound closed at 1.2740 against the US dollar. The short-term trend of the US dollar is affected by multiple factors, including oil price fluctuations, Fed policy expectations and external political turmoil. Although the US dollar index has remained strong recently, if the non-agricultural data is lower than expected or oil prices continue to be weak, the US dollar may be under pressure to pull back.

In Japan, as the market's expectations for the Bank of Japan to raise interest rates this month have slightly increased, the market suggests that the probability of a rate hike on December 19 is 41.3%. If the policy remains unchanged, the yen may face further depreciation pressure.

In the euro, political uncertainty in France has dragged down market confidence. Although the spread between French and German government bonds has fallen to a two-week low, the euro is under downward pressure due to the budget deadlock and the fall of the government. In the coming weeks, the ECB's policy adjustments may become an important variable affecting the euro's trend.

The crude oil market performance rebounded last week, with Brent crude oil continuous contracts closing at $72.14 per barrel, down 1.79 this week, and WTI crude oil spot closing at $67.02 per barrel, down 2.14% this week. Although the market was still suppressed by multiple negative factors last week, the rebound at the beginning of the week may suggest that the market is cautiously optimistic about future changes in supply and demand.

Bitcoin hit a record high of $104,036 last week, breaking through the $100,000 threshold and opening a new chapter. US President-elect Trump appointed David Sachs, an investor and billionaire Musk's close friend, as the artificial intelligence (AI) and cryptocurrency czar, responsible for developing a comprehensive regulatory framework for Bitcoin, and nominated Paul Atkins as chairman of the US Securities and Exchange Commission. Russian President Putin made a rare statement that no one can ban Bitcoin.

The 10-year U.S. Treasury yield fell to 4.16% from 4.18% on Thursday, showing that investors are increasingly worried about the economic slowdown. The two-year Treasury yield is very sensitive to changes in central bank policies. After data showed that job growth and unemployment both rose last month, the yield fell 7 basis points to around 4.08%.

Geopolitics cannot be ignored

In terms of geopolitics, the Ukrainian-Russian crisis has the potential to trigger nuclear concerns, the civil unrest in Syria in the Middle East has escalated, and Israel has not stopped its attacks on Lebanon after reaching a ceasefire agreement. Although the market has slightly supported gold and oil prices due to risk aversion, the strength is obviously insufficient. The current market is skeptical about Trump's commitment to de-escalate the situation after taking office. If there is no major escalation, the current situation will provide very limited support to the market. The situation in Syria is crucial. Many of the above-ground oil pipelines from the Middle East to Europe pass through this place, and the United States, Russia, and Iran all have the intention to send troops. If tensions in the region ferment, once supply is affected or a direct military conflict between the United States, Russia, and Iran is triggered, the market conditions in the financial market may change explosively.

Outlook for this week:

This week, focus on geopolitics and the gap between the policies of the U.S. and European central banks. There are signs of deterioration in the geopolitics of the Middle East and Ukraine and Russia, which may have a greater impact on risk aversion. At the same time, the expected rebound in U.S. inflation data may further widen the policy gap between the U.S. and European central banks, push the U.S. dollar to strengthen, non-U.S. currencies to weaken, and drag down gold prices. The interest rate meetings of the European, Canadian and Australian central banks have become the focus of the market. If the expectation of interest rate cuts by non-US central banks increases, the weakness of non-US currencies will continue; at the same time, it is necessary to pay attention to whether Trump's policies will further impact non-US currencies. The euro is facing multiple pressures. Geopolitics may trigger energy and food crises, the ECB's policies may be soft, the French government is facing political chaos, and Trump may also impose tariff pressure on Europe. These factors may hit the euro.

The last central bank policy decision in 2024 will affect market sentiment. The Reserve Bank of Australia, the Bank of Canada, the Swiss National Bank and the European Central Bank are all on the meeting agenda. Since the Federal Reserve has not yet made a decision, the US CPI report will also be crucial.

The Reserve Bank of Australia will keep interest rates unchanged, but will it become less hawkish?

The Reserve Bank of Australia will announce its interest rate decision on Tuesday. Unlike other major central banks, the Reserve Bank of Australia has not yet started a rate cut cycle. Although inflation has fallen recently, policymakers remain vigilant about inflation. In a recent speech, Reserve Bank of Australia Governor Bullock said that potential inflation is still "too high" and inflation is not expected to return to a sustainable target level before 2026. Unless that outlook changes, the RBA won’t abandon its “higher rates for longer” stance anytime soon, with investors not expecting a rate cut until April 2025.

That could push Bullock and other board members to be optimistic about inflation as they keep rates at 4.35%. A dovish tilt could push the AUD below the four-month low hit by the GDP data. AUD traders will also be keeping a close eye on the November jobs report, due on Thursday, as well as China’s CPI and PPI data on Monday and November trade data on Tuesday.

Will the Bank of Canada cut rates by another 50 basis points?

In stark contrast to the RBA, the Bank of Canada has been leading the global race to cut rates. The Bank of Canada has cut rates four times this year, most recently by a big 50 basis point cut. But investors are divided over whether another rate cut is likely in December.

Another consideration for the Bank of Canada is the widening rate differential with the U.S., as the Fed has not been as aggressive and may even pause soon. With the Canadian dollar already down more than 6% this year, policymakers may not want to risk cutting rates too far below the U.S. dollar. As a result, Wednesday's decision on whether to cut rates by 25 basis points or 50 basis points could be very close, with the risks to the Canadian dollar symmetrical.

Fed meeting looms, dollar awaits CPI data

The December policy decision also puts the Fed in a dilemma. Judging from the latest comments, most Fed officials appear to favor a 25 basis point rate cut at the December 17-18 meeting, but are not ready to commit.

The November CPI report, which will be released on Wednesday, will be the last piece of the puzzle for policymakers before the meeting, so the market will almost certainly react strongly. Barring an unexpected surprise, the Fed may lean toward a rate cut and keep the January meeting as an option for a pause in rate hikes.

The U.S. dollar is consolidating after hitting a two-year high in November last year. Any unwelcome month-on-month rate increase could inject momentum into bulls and push the U.S. dollar index to new highs.

SNB to cut rates for first time under dovish new president

The Swiss National Bank has cut rates three times since March, becoming the first major central bank to ease monetary policy. Markets widely expect another rate cut in December, which would be the first decision by new president Martin Schlegel since he succeeded Thomas Jordan in October last year.

Schlegel's dovish comments further increased the likelihood of further rate cuts, after he repeatedly floated the idea of ​​reintroducing negative rates if necessary. The Swiss franc could fall again against the dollar if the SNB decides to cut rates by 50 basis points on Thursday. However, if policymakers stick with 25 basis points, the Swiss franc could extend its recent recovery.

ECB unlikely to cut rates by 50 basis points in December

The ECB's rate decision is expected to dominate the headlines shortly after the SNB announces its policy settings. A rate cut is almost a foregone conclusion, with economists expecting a 25 basis point cut. This helped the euro stabilize slightly against the dollar as ECB policymakers, including President Lagarde, have been careful not to pre-commit to a specific rate path amid rising inflation in the eurozone.

If the ECB cuts rates by 25 basis points as expected on Thursday, the euro may not move much, unless Lagarde makes some unexpectedly dovish comments at Thursday's post-meeting press conference, triggering a new round of selling.

Pound rebounds ahead of UK data

Across the English Channel, uncertainty over the UK economic outlook has also risen, mainly due to the Labour government's budget. The consensus is that the tax and spending budget will push up inflation, limiting the room for the Bank of England to cut interest rates.

Therefore, October GDP data released on Friday will be closely watched for signs that economic growth is coming out of the doldrums. Although GBP/USD has recovered a considerable part of its recent losses, stronger-than-expected economic growth data may help the pound extend its gains.

Elsewhere, the yen may be sensitive to any revisions to Japan's third-quarter GDP data on Monday and any surprises in Friday's Tankan quarterly business survey, as markets continue to speculate whether the Bank of Japan will raise interest rates at its December meeting.

Important events and economic data overview this week: (Beijing time)

Important events:

Tuesday (December 10): Reserve Bank of Australia announces interest rate decision; Reserve Bank of Australia Chairman Bullock holds a monetary policy press conference

Wednesday (December 11): Bank of Canada announces interest rate decision; EIA releases monthly short-term energy outlook report; OPEC releases monthly crude oil market report

Thursday (December 12: Swiss National Bank announces interest rate decision; European Central Bank announces interest rate decision; European Central Bank President Lagarde holds a monetary policy press conference

Friday (December 13: Federal Reserve announces account fund flows in the third quarter of 2024

Economic data overview:

Monday (December 09): Japan's third quarter seasonally adjusted real GDP quarterly rate revised value (%); Australia's October investment housing loan value monthly rate (%); Eurozone December Sentix Investor Confidence Index; US October wholesale inventory monthly rate final value (%)

Tuesday (December 10 =Sunday): Australia's ANZ Consumer Confidence Index for the week ending December 8; Germany's November CPI annual rate final value (%)

Wednesday (December 11): US November CPI annual rate unadjusted (%); US December IPSOS Main Consumer Sentiment Index PCSI; US EIA crude oil inventory change for the week ending December 6 (10,000 barrels)

Thursday (December 12): Australia's November seasonally adjusted unemployment rate (%); Australia's November employment population change (10,000 people); UK October GDP monthly rate (%); US November PPI annual rate (%); US initial jobless claims for the week ending December 7 (10,000)

Friday (December 13): UK December Gfk Consumer Confidence Index; UK October Industrial Output Month/Year Rate (%); US November Import Price Index Month/Year Rate (%); US November Unemployment Rate (%); US November Chicago PMI ; Preliminary value of the University of Michigan Consumer Confidence Index in December.



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