Markets
Stocks rallied on Wednesday, recovering from Tuesday’s slide that had snapped a post-election winning streak. The trigger? Inflation data that fell right on target was a breath of fresh air for traders navigating the recent chaos of unpredictable economic indicators. The news brought a wave of optimism, especially as it raised the odds of a December rate cut to 80%, solidifying hopes for what some stock traders are calling “the best Christmas present.”
With 34 days to go, futures traders are now assigning an 82% probability of a rate cut in December, according to the Fed Watch tool — a scenario that beats getting the dreaded lump of coal without a rate cut in your Christmas stocking. The consumer price index met expectations, easing fears of a surprise spike that could have derailed the Fed’s easing plans. Even Fed hawks have gotten in on the act, with Minneapolis Fed President Neel Kashkari expressing confidence on TV that inflation is “heading in the right direction.”
As we head into the holiday season, markets are interpreting this inflation news as a strong signal that things will be okay, expecting December to bring more ups than downs.
For those who have been through a Trump trading rodeo before, we know all too well that there is plenty of potential for things to go wrong between now and the holidays. Markets may be riding high on optimism, but seasoned traders remember the shock that can come with political surprises, unexpected tweets, and geopolitical curveballs. There’s a chance this rally could end in tears, with a Grinch-like turnaround for the holiday season, especially if 10-year UST yields hit 4.60%+ quickly. So while the playbook may seem set, brace yourself for volatility — this year’s Christmas present could still be a lump of coal as traders keep a close eye on equity risk premia (ERPs) that look set to flip on their heads.
Forex Markets
Meanwhile, the U.S. dollar is defying its usual weakening trend as Fed cut odds increase. Instead, every dip in the dollar is seen as a buying opportunity. Why? Much of the dollar’s trading has shifted from pure economic indicators to the newly heated geopolitical arena. With a Republican-controlled Congress now in place, Trump has a smooth path to aggressive policy without much resistance. His cabinet lineup—including the potential appointment of China hawks like Marco Rubio as secretary of state—suggests an aggressive stance, likely kicking off his trade agenda with tariffs that could hit China, Mexico and Europe.
The sequence here is critical. Dollar bulls are fixated on what could be a meticulously planned playbook: first, aggressive trade barriers and tariffs aimed at reducing U.S. trade deficits with heavyweights like China and Europe; then rolling into a second act packed with pro-growth initiatives — think deregulation and corporate tax cuts. If traders read the higher 10-year UST yield and the Fed’s more hawkish tea leaves for 2025 correctly, they could start booking “Parity Party tickets to Europe” as early as Q1 2025.
With each twist and turn in this unfolding saga, markets are poised for a dollar rally — and Bitcoin is also in the mix, riding the speculative wave. This layered approach to Trump’s economic strategy could set the stage for an electrifying phase in global finance, bringing a potent mix of policy-driven growth and heightened volatility across assets. Investors, meanwhile, are bracing for what could be a blockbuster period of dollar and Bitcoin gains.
Oil markets
Oil traders are on edge as the International Energy Agency (IEA) prepares to release its latest monthly oil market report, anticipating a bearish outlook. This comes amid Iran’s recent diplomatic overtures to President-elect Donald Trump, opting not to retaliate against Israel — a prudent move given the incoming administration’s assertive “take no geopolitical prisoners” stance. At the same time, concerns persist over China’s oil demand, with its economy facing challenges and the rapid adoption of electric vehicles (EVs) set to disrupt the oil industry, just as Edison’s light bulb went out in the candle factory.
Gold markets
Gold is stuck in a falling knife syndrome, with the rising strength of the US dollar and higher yields cooling the metal’s recent rally. Traditionally the best “fear trade,” gold’s allure is waning as Trump suggests brokering peace in the Middle East and Eastern Europe, addressing the geopolitical fires fueling gold’s rise.
In Asia, where gold buying thrives in local currencies like the Thai baht and Malaysian ringgit (the true trade war hedge), for many here, buying gold in local currency is a smart hedge, avoiding dollar volatility while protecting investments.
Gold may be falling against the US dollar, but strategic moves in local markets are keeping it out of the game.