The Trump trade rolls on
This week, all eyes were on the continuation of the Trump trade. Even with the release of consumer price index (CPI) data hinting at the possibility of a December rate cut, the U.S. dollar index continued its upward trajectory, marking its seventh consecutive weekly gain (the strongest since April 2022). Bitcoin maintained its upward momentum, trading at around US$91,000 and hovering near its recent peak. Commodities took a hit across the board, although West Texas Intermediate oil remained steady. An International Energy Agency (IEA) report projected a potential oversupply of over one million barrels in 2025, attributed to weakening Chinese demand.
Investors are cautiously balancing signs of easing inflation and possible rate cuts with concerns that incoming policy shifts under President-elect Trump could re-stoke inflationary pressures in the coming year. A full Republican victory in the elections has granted Trump broader policy latitude, reducing any significant political checks on his planned economic measures. This could make it challenging for the U.S. Federal Reserve (the Fed) to justify future rate cuts. Money markets are currently pricing in approximately 19 basis points (0.19 percentage points) of rate cuts for December. Fed Governor Adriana Kugler indicated a prudent stance, advising that any further rate cuts would be contingent on steady inflation progress.
In Asia, equity markets struggled, marking a series of multiple consecutive sessions of declines. This downward trend was largely driven by selling pressure on Chinese tech stocks and concerns over sector growth. A Hong Kong-based gauge of Chinese technology companies fell over 20% from its recent high, while chip manufacturers, particularly SK Hynix, saw a notable decline. Mainland China’s markets faced pressure, with investors eyeing Beijing's next steps for economic stimulus. Beijing moved to cut taxes for homebuyers and developers; as was predicted by many who doubted China’s bounce, Beijing appears more concerned with real estate and real estate investors than the stock market.
The U.S. dollar continued its rally, gaining nearly 3% this month, propelled by expectations of "America-first" policies. This ascent pressured various assets, pushing gold to almost two-month lows and sending the yen to levels last seen in July (close to recent intervention points). The euro and emerging market currencies likewise saw declines, with the euro touching its lowest point in more than a year.
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