Preview of the Day in European and Global Markets by Kevin Buckland
On Wednesday, the diverse market bets tied to incoming U.S. President Donald Trump’s anticipated policies—known as “Trump trades,” involving significant fiscal spending, tax cuts, and higher tariffs—paused, with traders refocusing on economic indicators.
Since last week’s election, the dollar has surged, and Treasury yields have soared, while the probability of a rate cut at the Federal Reserve’s December meeting has dropped to 62% from 77% last week and 84% a month ago, according to CME Group.
Key U.S. Consumer Price Index (CPI) data expected on Wednesday could either reinforce or reverse the current trend in rate cut expectations, leading into a busy few days of U.S. producer inflation figures and a speech by Fed Chair Jay Powell on Thursday, followed by retail sales data on Friday.
Last week, Powell committed to a cautious, patient approach to monetary easing, emphasizing that the Fed would avoid speculating on Trump’s policies or their economic impacts.
Trump’s legislative agenda should advance smoothly through Congress, with Republicans likely securing a majority in the U.S. House, enabling unified government control.
This week has highlighted the inherent contradictions among various Trump trades, which can sometimes counterbalance each other.
Gold prices, which have set record highs this year on expectations of higher inflation and government borrowing under Trump, have stalled due to the dollar’s strength.
The U.S. dollar remains near a one-year high against the euro and a multi-month peak against the yen, driven primarily by rising U.S. yields. However, higher borrowing costs tend to unsettle equity investors, especially in high-growth tech and other growth stocks.
As Kyle Rodda, a market analyst at Capital.com, noted, “higher risk-free rates eventually put a squeeze on valuations.”
Major Asian equity indices, including Japan’s Nikkei, South Korea’s Kospi, and Australia’s share index, are down close to or over 1%, while Hong Kong’s Hang Seng Index is off 0.6%, though it was down more earlier in the session.
Wall Street futures indicate further weakness after Tuesday’s dip, while pan-European STOXX 50 futures also reflect a downturn.
The European calendar is relatively light, with ABN Amro and Allianz reporting earnings. Meanwhile, the Bank of England’s Catherine Mann speaks on a panel today and may draw attention after Tuesday’s sharp decline in sterling.
The Fed will dominate central bank commentary again, with regional leaders Alberto Musalem, Lorie Logan, and Jeffrey Schmid scheduled to speak at separate events throughout the day.
