Notes/observations - Risk appetite was on following the great monetary pivot, further dovish international central bank commentary in session. - EU and US bond yields collapse after Fed decision. Multiple global indices at or approaching all-time highs with Dow Jones Industrial Average closing at record level yesterday. - ECB and BOE rate decisions in focus, with market pricing for 2024 rate cuts increasing after Fed commentary and dot plot projections. Analysts watching for ECB and BoE members pushing back against expectations. Both are expected to leave policy unchanged. - Earlier, NOK (krone) currency stronger after Norges Bank surprised with 25bps hike (consensus was unchanged). Swiss National Bank left policy unchanged and affirmed ready to be active in FX markets as necessary. - Asia closed mixed with ASX200 out-performing at +1.7%. EU indices are +0.3-1.9%. US futures are +0.2-0.3%. Gold +0.3%, DXY -0.3%; Commodity: Brent +1.9%, WTI +1.8%, TTF -2.0%; Crypto: BTC +4.1%, ETH +5.0%. Asia - Australia Nov Employment Change: +61.5K v +11.5Ke; Unemployment Rate: 3.9% v 3.8%e. - Australia Dec Consumer Inflation Expectations: 4.5% v 4.9% prior. - New Zealand Q3 GDP Q/Q: -0.3% v +0.2%e; Y/Y: -0.6% v 0.5%e. - Japan Oct Core Machine Orders M/M: +0.7% v -0.4%e; Y/Y: -2.2% v -5.6%e. Global conflict/tensions - Israel PM Netanyahu stressed that it would continue its war on Hamas even if it lost international support. Europe - Nov RICS House Price Balance: -43% v -57%e v -63% prior (Most optimistic survey since January 2022). Americas - FOMC policy statement noted that it assessed the extent of "any" additional firming needed. Inflation has eased over the last year but remained elevated. Economic growth had slowed from its strong pace in Q3. Fed Chair Powell post rate decision press conference noted that was thinking and talking about when it will be appropriate to cut rates. was a general expectation on the FOMC that rate cuts will be a topic of conversations going forward. - Fed Dot Plots cuts Median forecast for end-2024 rate 4.625% (prior 5.125%) and cut Median forecast for end-2025 rate 3.625% (prior 3.875%). Cut the midpoint 2024 GDP 1.2-1.7% (prior 1.2-1.8%). - Brazil Central Bank (BCB) cut Selic Target Rate by 50bps to 11.75% (as expected). Decision to cut by 50bps was unanimous and provided forward guidance that the next rate cut seen being the same size (50bps). - House of Representatives voted to formally authorize impeachment inquiry into Pres Biden (as expected) with the vote being 221-212 along party lines. Speakers/fixed income/FX/commodities/erratum Equities Indices [Stoxx600 +1.33% at 478.76, FTSE +2.00% at 7,700.10, DAX +0.65% at 16,874.25, CAC-40 +0.94% at 7,602.12, IBEX-35 +0.66% at 10,162.95, FTSE MIB +0.34% at 30,398.00, SMI +0.79% at 11,277.50, S&P 500 Futures +0.20%]. Market focal points/key themes: European indices open higher across the board and advanced through early trading; the upbeat tone in markets follows Fed rate decision yesterday; among sectors leading the way higher are real estate and consumer discretionary; laging sectors include financials and communication services; travel & leisure subsector supported after Air France-KLM outlook; Vivendi proposes break-up plan; OnePoint raises stake in Atos; focus on upcoming rate decisions from the BOE and ECB; earnings expected in the upcoming US session include Costco. Jabil and Lennar. Equities - Consumer discretionary: Curry's [CURY.UK] +10.5% (H1 results), Metro AG [B4B.DE] +4.5% (earnings), Air France-KLM [AF.FR] +7.5% (raised medium-term guidance - investor day). - Financials: Serco [SRP.UK] +5.5% (trading update - affirms/raised guidance). - Healthcare: Morphosys [MOR.DE] -6.5% (placement). - Real Estate: Vonovia [VNA.DE] +7.5% (analyst action). - Technology: Atos [ATO.FR] +4.5% (stake), Ams-Osram [AMS.CH] +9.0% (analyst upgrade). - Telecom: Vivendi [VIV.FR] +7.5% (considering splitting up into multiple entities). Speakers - Swiss National Bank (SNB) Policy Statement reiterated stance to remain active in foreign exchange markets. To continue to monitor the development of inflation closely and adjust its monetary policy if necessary to ensure inflation remained within the range consistent with price stability over the medium term. (**Note: removed language on possible more rate hikes). - SNB President Jordan post rate decision press conference noted that was not discussing rate cuts now; Policy stance was appropriate at this time. Stressed that SNB was no longer focusing on FX sales. Would adjust policy if needed for price stability. - Norway Central Bank (Norges) Policy Statement noted that raising rates at this time reduced risk of inflation remaining high for the long-term. Reiterates view that likely needed to maintain tight stance for some time ahead. Policy rate might be lowered earlier than currently seen (**Note: Removed forward guidance of raising rates). But saw policy rate remaining steady around 4.5% until autumn 2024. - Russia Pres Putin annual press conference noted that his main aim for next election campaign was to strengthen Russia's sovereignty. Saw 2023 GDP growth at 3.5% with inflation at 7.5-8.0% - Hungary PM...

GBP/USD went into a consolidation phase above 1.2600 early Thursday. Fed Chairman Powell's dovish remarks triggered a USD selloff late Wednesday. BoE policy statement and vote split on rate decision could drive Pound Sterling's valuation. GBP/USD gathered bullish momentum and advanced to a 10-day-high above 1.2600 on Thursday. The pair's near-term technical outlook points to a bullish tilt but the Bank of England's policy announcements could drive the action later in the day. The Federal Reserve (Fed) left the interest rate unchanged at 5.25%-5.5% following the December policy meeting as anticipated. The revised dot plot, formally knows as the Summary of Economic Projections, pointed to a total of 75 basis points rate reduction in 2024. In the post-meeting press conference, Fed Chairman Jerome Powell said that they don't want to make the mistake of keeping rates too high for too long. Powell also noted that there was a general expectation among policymakers that rate cuts will be a topic of conversation moving forward. Powell's dovish tone triggered a rally in Wall Street's main indexes, causing the US Dollar (USD) Index and US Treasury bond yields to decline sharply.

Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that. Expect policymakers to reiterate that rates need to stay restrictive for some time. But with services inflation coming down and wage growth set to follow suit, we think investors are right to be thinking about a summer rate cut. We expect 100bp of cuts next year. Markets are ramping up rate cut bets, and Governor Bailey isn't happy about it Financial markets are rapidly throwing in the towel on the "higher for longer" narrative that central banks have been pushing hard upon for months. Even more remarkably, a small but growing number of policymakers from the Federal Reserve to the European Central Bank seem to be getting second thoughts too. So far, that market repricing has been less aggressive for the Bank of England. Investors are expecting three rate cuts next year compared to more than five over at the ECB. The first move is seen in June, as opposed to March over in Frankfurt. Despite that more modest adjustment, the Bank of England is starting to sound the alarm. Governor Andrew Bailey said in recent days that he is pushing back "against assumptions that we're talking about cutting interest rates". Those comments followed a firming up of the Bank's forward guidance back in early November, where it said it expected rates to stay restrictive for "an extended period". Its November forecasts, premised on rate cut expectations at the time, indicated that inflation may still be a touch above 2% in two years' time. That was a hint, if only a mild one, that markets were prematurely pricing easing - and rate cut bets have only been ramped up since. Rate cut expectations are building, though less rapidly than in the US/Eurozone Source: Macrobond, ING calculations Expect rate cut pushback on Thursday, but investors are right to be thinking about easing That gives us a flavour of what we should expect next week. While the chances of a surprise rate hike have long since faded away, there's a good chance that the three hawks on the committee once again vote for another 25bp rate increase, leaving us with a repeat 6-3 vote in favour of no change. We only get a statement and minutes on Thursday, and no press conference or forecasts, so the opportunity to shift the messaging is fairly limited. But we expect the same hawkish forward guidance as last time, including the line on keeping rates restrictive for a prolonged period of time. Could the Bank be tempted to go further still and formally say that markets have got it wrong? The BoE has shown itself less willing than some other central banks to either comment directly on market pricing in its post-meeting statements, or make predictions about how it'll vote at future meetings. The last time it did this was in November 2022, where disfunction in UK markets meant rate hike pricing had reached an extreme level. We doubt they'll do something similar this month. Policymakers may be uneasy about the recent repricing of UK rate expectations, but central banks globally have learned the hard way over the last couple of years that trying to predict and commit to future policy, with relative certainty, is a fool's game. The Bank will also be gratified that the data is at least starting to go in the right direction. Services inflation came in below the Bank's most recent forecast, and while one month doesn't make a trend, we think there are good reasons to expect further declines over 2024. Admittedly, we think services CPI will stay sticky in the 6% area through the early stages of next year, but by the summer, we expect to have slipped to 4% or below. Likewise, the jobs market is clearly cooling and that suggests the days of private-sector wage growth at 8% are behind us. We expect this to get back to the 4-4.5% area by next summer too. Markets may be right to assume that the BoE will be a little later to fire the starting gun on rate cuts than its European neighbours. But when the rate cuts start, we think the BoE's easing cycle will ultimately prove more aggressive. We expect 100bp of rate cuts from August next year, and another 100bp in 2025. Sterling benefits from the BoE position Sterling has enjoyed November. The Bank of England's trade-weighted exchange rate is about 2% higher. The rally probably has less to do with the UK government's stimulus and more to do with the fact that investors have been falling over themselves to price lower interest both in the US and particularly in the eurozone. In terms of the risk to sterling market interest rates and the currency from the December...

A series of macro statistics continue to be published to help build a picture of the economy ahead of the Bank of England's final decision on Thursday. The economy is reported to have lost 0.3% for October, pulling back in volume to July levels. This is a wake-up call from industrial production and construction, which are considered leading indicators of the business cycle. The index of industrial production fell immediately by 0.8% in October (-0.1% was expected), and the nominal index rolled back close to plateau levels from the final quarter of last year. Industrial production is only 0.6% above post-pandemic lows. If we exclude the lockdown period, UK industrial production last saw such a low back in 2017. High interest rates are putting pressure on the industry. The strengthening of the pound against the euro by 4% and the dollar by 12% over the year is also not helping the economy. The combination of deteriorating global demand and the appreciating pound is suppressing exports, which were 24% lower in October than a year earlier. Imports are also falling in the wake of commodity and energy prices and are now 18% below their peak in August last year, but the year-on-year fall is a modest 6%. The UK economy needs stimulus in the form of a weaker GBP exchange rate, which would support the country's global competitiveness and lower interest rates to boost production and domestic consumption. On the other hand, UK prices and wages are rising at the fastest rate among major economies, which prevents the Bank of England from its easing policy. This combination of factors leaves the Bank of England no choice but to declare the end of the rate hike cycle and dutifully wait for the shrinking economy to bring inflation down to acceptable levels to start the easing policy. The British pound has a long-standing downward trend against the dollar, dating back to the times of the global financial crisis. In July and recent weeks, GBPUSD has made its way to resistance. Technically, we can see both a breakdown of this multi-year trend and a reversal to growth, as well as the formation of a powerful downward impulse. The latest macroeconomic data package gives more chances for the second – a pessimistic – scenario.

Gold price is sitting at the highest level in six days near $2,030 early Thursday. Fed affirms dovish policy pivot, smashes US Dollar alongside the US Treasury bond yields.   Gold price outlook appears constructive, as the 1D technical setup flips bullish. The final BoE and ECB policy announcements of 2023 could lift Gold price further. Gold price is consolidating its latest uptick to a six-day high near $1,940, as investors reassess the bets of the US Federal Reserve (Fed) interest rate cuts next year. Gold buyers also take a breather ahead of another round of central banks' events, with the Bank of England (BoE) and the European Central Bank (ECB) set to announce their final policy decision of 2023.   Gold price cheers dovish Federal Reserve pivot Having treaded water in the first half of the day near three-week lows of $1,973 on Wednesday, Gold price witnessed a massive $50 turnaround in American trading. Gold price snapped its corrective mode from all-time highs of $2,144, breaking through several powerful barriers to challenge the $2,025 level. The upsurge in Gold price was primarily driven by a dovish shift in the Federal Reserve's monetary policy outlook for 2024. The Fed held policy rates steady between the 5.25%-5.50% target range, although its Statement of Economic Projections, the so-called Dot Plot chart, forecasted 75 basis points (bps) rate cuts next year, validating the market's pricing of policy pivot. Fed Chair Jerome Powell added to the dovish outlook, as he convinced markets that a rate cut will be the next policy move by the Fed, as worries over the economic outlook resurface. Powell clearly said during his post-meeting press conference that "it's not likely we will hike further. Policymakers are thinking, talking about when it will be appropriate to cut rates." "We are very focused on not making the mistake of keeping rates too high too long," he added. Powell's words were enough to ramp up expectations of over 100 bps of rate cuts coming through next year, with odds of a reduction in March and May standing at 87% and 100% respectively. Against this backdrop, the benchmark 10-year US Treasury bond yields tumbled to a four-month low of 3.971% while the US Dollar Index touched the lowest level since August at 102.56. The Fed verdict squashed expectations of the 'Fed's longer rates for higher' narrative, which re-emerged following the release of the US Consumer Price Index (CPI) data on Tuesday.   The CPI edged up 0.1% last month after being unchanged in October, the Labor Department's Bureau of Labor Statistics (BLS) showed on Tuesday. Annually, the CPI increased 3.1% in November after rising 3.2% in October. With the key event risks from the United States (US) now out of the way, attention turns toward the policy decisions from the BoE and the ECB. Markets are widely expecting policy pivots from both these central banks, as well, which could provide legs to the Gold price recovery. However, the BoE is mostly likely to push back against the rate cut expectations, which widen the policy divergence between the Fed and BoE, exacerbating the pain in the US Dollar. In any case, Gold price remains in a win-win situation, as major global central banks return to policy normalization, as inflation concerns ease. Gold price technical analysis: Daily chart As predicted, Gold price tested the 50-day Simple Moving Average (SMA, then at $1,971 before buyers returned with a bang and took the rates back above the critical 21-day SMA aligned at $2,006 on Wednesday. Gold price managed to settle the day above the 21-day SMA barrier, reopening the upside toward the $2,100 psychological level. However, Gold buyers will need to find a strong foothold above the $2,040-$2,050 supply zone, at first. The 14-day Relative Strength Index (RSI) indicator is holding steady, having recaptured the 50 level. The indicator suggests that more gains remain in the offing.   Should Gold price face rejection once again near the $2050 region, a renewed selling wave could set in, with the 50-day SMA support now at $2,012 back in sight. The next relevant cushion is seen at the flattish 200-day SMA at $1,954, below which a test of the 100-day SMA at $1,941 cannot be ruled out.

Markets The Federal Reserve, as anticipated, maintained its current interest rates but indicated a dovish turning point that hints its subsequent action could involve a series of rate cuts in 2024. In the " dove feast" column, the dot plot, reflecting policymakers' projections, suggested 75 basis points in cuts throughout 2024, catching the markets completely flatfooted where most had interpolated 50 basis of cuts ( at most) and a hawkish pushback on easing financial conditions.  Federal Reserve policymakers opted to maintain their target rate range, a move widely anticipated. The surprising elements of the Federal Reserve's recent actions were twofold. Firstly, they explicitly acknowledged the substantial decline in inflation in their official statement. Secondly, their updated projections indicated an expectation to implement a significant 0.75 percentage point rate cut in the upcoming year. This unexpected shift resonated harmoniously with investors as the "rallying cry " was heard from every corner of Global Financial Markets. The Santa rally shifted into high gear in off-to-the-races fashion as Treasury yields bound towards 4 %, and equities surged as the S&P 500 and Nasdaq saw a robust 1.4% rally. Anticipations before the meeting leaned toward a more cautious approach by the Fed. However, recent economic indicators, particularly Tuesday's inflation report from the Labor Department and a subsequent report on wholesale prices on Wednesday, likely influenced the central bank's decision-making. These reports suggest that the Commerce Department's preferred inflation measure, PCE inflation, is poised to reveal a notably subdued inflation scenario for November.  One could argue that the recent softer data and consistent downtrend in inflation support the case that we have transitioned into a new macro regime, and the Fed is willing to comply. Governor Chris Waller's perspective on inflation may be more widely endorsed than some economists perceived by the board. He highlighted the possibility of initiating a reduction in the policy rate if inflation continues to subside over several months. Waller suggested that waiting for a recession is not a prerequisite for cutting interest rates; instead, a proactive response to lower inflation could be warranted. This viewpoint implies a willingness to act preemptively to address economic conditions, even before the onset of a recession.  Compelling arguments suggest that high interest rates may now be counterproductive. Elevated mortgage rates, for instance, contribute to new records for home prices by artificially limiting resale supply. Additionally, money market funds generate over $20 billion monthly in income, essentially providing free money. It's plausible that this extra interest income contributes more to incremental spending than any stock market rally. While there is no certainty that the positive developments in inflation will persist, the likelihood of the Federal Reserve successfully orchestrating a soft landing for the economy appears to be on a favourable glide path.  I find it reasonable to suggest that core price growth may return to near-target levels within the next two years. The fundamental uncertainty lies in whether it will remain at that level. There's a broader question about whether we've entered an era of heightened macro volatility that challenges the already questionable notion that economic outcomes can be meticulously managed around a target level by a panel of Federal Reserve Economists. Oil markets Oil staged a recovery rally during the New York afternoon session, propelled by a swift decline of the U.S. dollar. This shift occurred following the Federal Open Market Committee's final policy meeting in 2023, which provided a clear signal toward easing monetary policy in the upcoming year. This development significantly reduced the likelihood of an economic slowdown in 2024 that could adversely impact demand. Prices received an early session bid from the weekly inventory report released by the Energy Information Administration. The report disclosed a more substantial-than-anticipated reduction in U.S. commercial crude oil inventories. But providing a less bullish inference, a minor increase in gasoline supplies was attributed to an unexpected reduction in run rates by refiners. Forex markets In the foreign exchange realm, the primary market debate revolved around whether the Federal Open Market Committee (FOMC) would enact a policy adjustment if economic growth slows to a trend-like pace and inflation inches closer to the target over a sustained period. The Fed seems to have responded to this debate by projecting 75 basis points of "insurance cuts" for the upcoming year. This forcast is anticipated to hurt the Dollar over the short term, offering relief to more rates-sensitive G10 currencies and providing an additional boost for emerging market (EM) carry, In light of additional evidence indicating a cooling of inflation, it is noteworthy that Fed officials are actively engaging in this discussion, further underscoring the topic's significance in the current economic landscape. However, the apparent Fed pivot will also open the door to rate cuts across G10 and make it less likely the BoJ needs to pivot anytime soon. So,...