Global Markets Waver Amid Geopolitical Tensions and Central Bank Speculations | Daily Market Analysis

Key events:

• Eurozone - CPI (YoY) (Nov)
• UK - BoE Gov Bailey Speaks
• Eurozone - ECB's De Guindos Speaks
• Canada - GDP (YoY) (Q3)

Asian markets saw a broad decline on Friday as geopolitical tensions from the Russia-Ukraine war escalated, weighing heavily on risk sentiment. Japan's Nikkei was particularly affected, dropping sharply as the yen surged on stronger-than-expected inflation data, further challenging the market outlook.

Geopolitical tensions remain at the forefront of investor concerns. Russia launched another major attack on Ukraine’s energy infrastructure on Thursday, ramping up its offensive as Kyiv continued utilizing Western-provided weaponry. In a statement, President Putin issued new threats to target decision-making centers in Ukraine, which further deepened market caution. These developments also provided a boost to safe-haven assets, with gold prices climbing to a four-day high around the $2,662 level during Asian trading hours.

In currency markets, the NZD/USD pair remained subdued near 0.5890 amid ongoing strength in the US dollar. Investors are cautious as they await the Federal Reserve's decision in December, especially after mixed economic data from the US highlighted a resilient economy but softening inflationary pressures.

Additionally, US measures set to be unveiled next week aim to restrict China’s advancements in artificial intelligence, raising concerns for the New Zealand dollar due to New Zealand’s strong trade relationship with China.

The Japanese yen was another standout in the session, strengthening significantly on the back of inflation data from Tokyo. October's inflation showed acceleration for the first time in three months, increasing speculation that the Bank of Japan (BoJ) may tighten monetary policy further at its December meeting. The USD/JPY pair remained close to the key psychological level of 150.00. Additional data showed Japan's unemployment rate ticked higher to 2.5%, while retail sales grew 1.6% year-over-year in October, outpacing September’s 0.5% growth. Industrial production also expanded by 3% but missed market forecasts of 3.9%.

In Europe, the EUR/USD pair regained positive traction after a minor pullback, moving closer to its weekly high. The euro's strength was underpinned by hawkish comments from European Central Bank officials earlier in the week, which tempered expectations of aggressive monetary easing in December. However, mixed German inflation data released on Thursday kept investor optimism in check, as flash estimates came in softer than anticipated.

The Australian dollar continued its rally, marking a third straight session of gains. AUD/USD found support from Reserve Bank of Australia (RBA) Governor Michele Bullock’s recent hawkish remarks, where she emphasized that inflation remains too high for immediate rate cuts. However, the pair could face headwinds with the US planning new restrictions on China's technology sector, which could have ripple effects on Australia’s economy, heavily tied to Chinese demand. Adding to the mix, ANZ economists revised their forecast for the RBA's rate cuts, pushing them back to May 2025 amid persistent inflation concerns.

Looking at broader safe-haven dynamics, gold prices continued to benefit from heightened geopolitical risks, with XAU/USD touching multi-day highs. The ongoing war in Ukraine and the looming trade war fears between the US and China are driving demand for the precious metal.

In Switzerland, focus shifted to the release of third-quarter GDP data. The Swiss franc traded weaker as the USD/CHF pair slipped to around 0.8815. Analysts anticipate Q3 GDP to show a 0.4% quarterly growth, down from 0.7% in Q2. A weaker-than-expected figure could provide further pressure on the franc and support for the US dollar.

As the session progressed, attention remained on the upcoming US economic data, with markets looking for further clarity on the Federal Reserve’s stance. Minutes from the latest Federal Open Market Committee (FOMC) meeting indicated caution among policymakers, with futures markets pricing in a 66.5% probability of a 25-basis-point rate cut in December, up from 55.9% a week earlier. However, expectations for rate changes in early 2025 remain muted, reflecting lingering uncertainties in global growth and inflation trajectories.

Overall, markets remain skittish, navigating a mix of geopolitical concerns, central bank policy speculation, and economic data releases. Friday's muted trading volumes, partly due to the US. Thanksgiving holiday, highlighted the cautious sentiment, with investors closely monitoring developments for cues on future market direction.