Global stocks rose on Tuesday, while commodities such as oil and gold edged up on the back of a weaker dollar ahead of U.S. inflation figures that could set the tone for trading in a week filled with central bank meetings.
The U.S. Federal Reserve is widely expected to hold rates on Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his news conference, as well as the central bank's economic projections.
Before that, the U.S. Labor Department's Consumer Price Index (CPI) report on Tuesday is expected to show inflation still cooling, but staying well above the Fed's 2% annual target, with core CPI expected to come in at 4%.
Equities have rattled higher, while bond yields have fallen in recent weeks on the back of growing investor conviction that interest rates are about to fall quite swiftly, as the U.S. economy in particular coasts towards a soft landing.
"The market, in my view, now wants to enjoy a bit of a rally on the back of increasing Fed rate-cut expectations. The problem I have now is I think we've basically reached the limit of how much the Fed can cut, i.e., what's priced into the curve without introducing a significant recession risk," said Kallum Pickering, senior economist at Berenberg.
Caution among investors has tempered volatility. Headline inflation has cooled more quickly than many expected, including consumers, who, a year ago predicted price pressures would be running at a rate of 4.2% at this point, versus 3.2% right now, based on the University of Michigan's monthly one-year inflation expectations index.
But other components of the CPI report have proven far stickier. One such gauge, the owners' equivalent rent - which measures the change in the cost of shelter for homeowners - is at 6.8%, having peaked only in April this year at 8.2%, compared with the peak in the headline at 9.1% back in April 2022. Wage growth has slowed, but is still at 4%.
The MSCI All-World index (.MIWD00000PUS), which is trading around four-month highs, was 0.2%. In Europe, the STOXX 600 <.STOXX > held in positive territory, while U.S. index futures , rose 0.1-0.2%.
Markets are now pricing in a 48% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Futures show traders expect at least four quarter-point cuts next year.
