1) US Core CPI Rises 0.3% for Fourth Straight Month, Meeting Expectations
The slowdown in US inflation appears to have stalled, but traders raised the probability of a Fed rate cut next week to about 92%, in line with market expectations. Core CPI, excluding food and energy, rose 0.3% for the fourth consecutive month. Headline indicators rose 0.3% month-on-month and 2.7% year-on-year. Housing costs accounted for nearly 40% of the overall CPI increase, but rose only 0.3% month-on-month, slowing from October. Citigroup said that the slowdown in housing cost increases would make the Fed "very comfortable" about further rate cuts. While price pressures peaked during the pandemic recovery, they have recently flattened again. This supports the arguments of several Fed officials for a gradual rate cut, along with reduced concerns about the labor market.
2) Bank of Canada Cuts Rates Again by 50 Basis Points
The Bank of Canada (BOC) cut rates by 50 basis points for the second consecutive time, as expected by the market. The BOC lowered its benchmark interest rate to 3.25%, bringing it down to the upper end of the estimated neutral rate range of 2.25% to 3.25%. However, the statement omitted language suggesting further rate cuts if projections materialize, implying a shift towards speed control starting next year. BOC Governor Tiff Macklem said: "Since monetary policy is now significantly lower, we expect a more gradual approach to monetary policy if the economy evolves broadly as expected." He added that "we will continue to assess the need for additional rate cuts at each meeting." Macklem also called Trump's threat to impose a 25% tariff on Canadian goods a "new major uncertainty," noting that it is already affecting indicators and business sentiment.
3) BOJ Open to Rate Hike Next Week, But Sees No Rush
Bank of Japan (BOJ) officials are open to the possibility of a rate hike depending on economic data and market conditions, but they also believe that waiting a little longer would incur minimal cost. Sources say that even if the BOJ postpones the timing of the hike to January or later, there is little risk of inflation overshooting, so the cost would be small. Some officials have indicated that they would not oppose a rate hike proposal at next week's meeting, according to these sources. Following the news, the dollar-yen exchange rate fluctuated sharply, falling 0.6% initially before rising 0.6% to 152.79.
4) China May Allow Yuan to Weaken to 7.5 Next Year
Reuters reports that Chinese leaders and policymakers are considering allowing the yuan exchange rate to weaken to 7.5 next year as a response to the trade war. The dollar-offshore yuan exchange rate rose sharply by 0.5% to 7.2921. Trump's tariff threats are putting pressure on the yuan. Some investors speculate that China may abandon its current policy of stabilizing the exchange rate to mitigate economic damage, leading to increased market attention on the People's Bank of China's daily reference rate. Meanwhile, the Financial Times, a publication under the People's Bank of China (PBOC), warned that while the yuan has a "solid foundation" for basic stability, it could face greater volatility in both directions.
5) Yellen Says Russia Sanctions Could Be Strengthened
As the United States continues to try to weaken Russia's ability to wage war in Ukraine, Treasury Secretary Janet Yellen said that the stability of the global oil market could create opportunities for additional measures against Russia's energy sector. The Biden administration has been limiting Russia's energy sales revenue through sanctions while managing oil supplies to prevent a sharp price spike during high inflation. Sources say that Biden is considering stronger and new sanctions on Russian oil transactions. While avoiding specifics, Yellen explained that the US has focused on energy sales, which account for a significant portion of the Russian government's revenue from the outset, and "is looking for creative solutions."
(Source: Bloomberg News)
