Markets Await Fed Insights, RBA Raises Rates, and Tesla's EV Ambitions | Daily Market Analysis


Key events:

  • Australia- RBA Interest Rate Decision (Nov)
  • Eurozone - ECB's De Guindos Speaks
  • Eurozone - ECB McCaul Speaks
  • USA - FOMC Member Kashkari Speaks
  • USA - Fed Waller Speaks
  • Canada - BoC Deputy Gov Kozicki Speaks
  • USA - FOMC Member Williams Speaks

On Monday, Wall Street's primary indices made modest gains as investors prepared for insights from various policymakers later in the week, shedding light on the Federal Reserve's potential rate cuts in the coming year.

The Dow Jones Industrial Average rose by 52.99 points, equivalent to a 0.16% increase, reaching 34,114.31. Simultaneously, the S&P 500 edged up by 6.72 points, marking a 0.15% gain, bringing it to 4,365.06. The Nasdaq Composite also saw a boost, gaining 39.45 points, which accounted for a 0.29% increase, closing at 13,517.73.

NASDAQ, SPX, and DJI indices daily chart

Traders have placed considerable confidence in the notion that the Federal Reserve will maintain interest rates at their current levels in December, with odds standing at 90%. However, there is approximately an 80% likelihood that the first policy adjustment could occur as early as June, as indicated by the CME Group's FedWatch tool.

CME, FedWatch Tool

This week, market sentiment will be tested as numerous Fed policymakers, including Chair Jerome Powell, are scheduled to deliver their insights on the matter. The list of speakers also includes voting members such as John Williams, Chief of the New York Fed, and Lorie Logan, President of the Dallas Fed.

While this week is relatively light on market-moving data, there is a substantial lineup of Fed speakers sharing their views on economic matters, with Chair Jerome Powell making two appearances. The second appearance on Thursday will even feature a Q&A session.

Investors are growing increasingly confident that inflation will continue to decelerate, particularly following Friday's jobs report. This is prompting expectations that the Federal Reserve may ease its policies next year, aiming to prevent policy from becoming more restrictive in real terms.

Although the earnings season is winding down, with around 80% of S&P 500 companies having already disclosed their quarterly financial results, there are still several notable firms scheduled to provide updates this week. One of them is Walt Disney (NYSE: DIS).

Furthermore, Tesla (NASDAQ: TSLA) will be under the spotlight following reports from Reuters, indicating that the electric vehicle manufacturer is preparing to produce a new EV model at its Berlin facility, targeting a price of €25,000, which is significantly more affordable than the existing options in Germany. Tesla shares experienced a minor 0.1% decline.

Tesla stock daily chart

Following the substantial gains from the previous week, European markets appeared to take a breather today. The FTSE 100 inched higher, but DAX and CAC 40 encountered some challenges.

DAX, FTSE 100, and CAC 40 dailly chart

Meanwhile, gold prices maintained their position just above the $1,980 level. Investors are keeping a close watch on various Federal Reserve speakers scheduled for later this week, hoping to gain insights into the level of consensus reached during last week's decision to hold interest rates.

XAU/USD daily chart

As widely anticipated, the Reserve Bank of Australia (RBA) raised interest rates today, citing a slower-than-expected decline in inflation. Additionally, the RBA revised its consumer inflation outlook for the next two years upward.

The RBA increased its official cash target rate from 4.10% to 4.35%, marking the first policy change under the leadership of new governor Michele Bullock. The move had been somewhat hinted at by Bullock back in October.

This decision followed stronger-than-expected growth in the Australian Consumer Price Index (CPI) during the third quarter, driven by higher fuel prices and unexpectedly resilient retail spending. Retail sales also outperformed expectations for the quarter, providing further support for inflation as consumer spending remained robust.

AUD/USD daily chart

The RBA had maintained interest rates at 4.10% since May 2023, having previously raised them by a total of 400 basis points since early 2022. This pause was primarily to assess the effects of higher rates on the Australian economy, especially as inflation began to subside from its annual peaks.

However, with inflation picking up once again in the past quarter, the central bank might be compelled to continue raising rates to temper rising prices.

In response to the RBA's decision, the Australian dollar declined by 0.4%, and the ASX 200 index fell by 0.2%.