Financial Markets Brace for FOMC Minutes Amid Fed's Inflation Warnings

This week in financial markets is abuzz with anticipation for several key events, starting off tranquil with no significant market drivers today. The spotlight will intensify on Tuesday with the release of the Federal Open Market Committee (FOMC) minutes, the Riksbank's interest rate decision and Eurozone Purchasing Managers' Index (PMI) data surfacing on Thursday, followed by a flurry of activities on Friday including U.S. PMIs, German business climate index from ifo, and Japan's Consumer Price Index (CPI).

Fed Speakers Raise Inflation Concerns

Amidst a relatively quiet start to the week, the financial community is reflecting on last Friday's remarks from several Federal Reserve speakers who struck a cautious note on inflation. Notably, FOMC members conveyed apprehension towards prematurely declaring inflation under control. For instance, non-voting member Collins highlighted the less than satisfactory progress on non-shelter services inflation, hinting that further rate hikes are still a possibility. Goolsbee, who does have a vote, accentuated the priority of inflation control over other considerations like growth or employment. Furthermore, non-voter Daly called for patience, refreshing concerns that the path to the Fed's 2% inflation target presents ambiguity. Investors are now gearing up for the FOMC minutes, which might shed more light on the Fed's stance, although the easing of financial conditions post-meeting could mean some of the impending insights are potentially outdated.

Economic Indicators and Global Markets

On the economic front, the upcoming Flash PMIs for November will be scrutinized for signs of diminishing economic activity, particularly in the services sector as winter approaches. Meanwhile, China has maintained its Loan Prime Rates steady, focusing on quantitative credit measures rather than rate cuts, possibly to shield bank margins and avoid deepening rate disparities with the U.S. The political landscape in Argentina witnessed a shift toward the right, with Javier Milei's election victory signalling change and a commitment to tackle the country's soaring inflation, which is nearing 150%.

Global equities witnessed marginal gains last Friday, culminating in a robust week overall. Investors showed a renewed preference for small caps and the energy sector benefitted from a 4% surge in oil prices. The VIX index, a measure of market volatility, also dropped significantly, reflecting reduced inflation and central bank concerns. The bond market displayed relative stability with sideways movements on Friday, despite an initial drop in yields. Currency markets saw EUR/USD ascending above the 1.09 level, influenced by falling U.S. yields. As traders and investors look ahead, all eyes remain on the Riksbank's forthcoming rate decision.

Credit markets continued their positive stride, backed by the prevailing soft-landing narrative within risk assets. The close of Friday saw credit indices Itrax Main and Itrax Xover tighten, suggesting improving investor confidence. Although primary markets were less active on Friday, they managed to conduct some transactions announced earlier in the week.

inflation, Fed, markets