The Federal Reserve's hawkish stance has triggered market volatility, and future policy paths depend on economic data.
The Federal Reserve's hawkish stance aligns with market expectations. Morgan Stanley believes that Trump's trade and immigration policies could keep inflation firm, thus delaying further rate cuts by the Federal Reserve. Although the Federal Reserve currently adopts a hawkish attitude, it may shift to a dovish stance later, similar to the situation in 2018. Goldman Sachs believes the long-term impact of Trump's policies may outweigh the short-term shocks of inflation, prompting the Federal Reserve to cut rates to support the labor market. In the recent FOMC meeting, the Federal Reserve cut rates by 25 basis points but is expected to only cut rates twice by 2025, reflecting concerns about inflation.
Over the weekend, San Francisco Fed President Daly emphasized that the Federal Reserve has entered a 'slower decision-making period', relying on data to determine the number of rate cuts and suggesting that policies in 2025 may be constrained, not ruling out the possibility of rate hikes. The November PCE inflation data came in below expectations, but Daly believes this is just a small source of information for decision-making.
The Federal Reserve's hawkish stance is consistent with market expectations, but future policy paths remain uncertain and may change based on the impact of Trump's policies and economic data. Remarks from Federal Reserve officials suggest that policy decisions will rely more on data, and the possibility of rate hikes cannot be ruled out.
The current hawkish stance of the Federal Reserve may support the US dollar and US Treasury yields in the short term, creating pressure on risk assets. In the medium to long term, attention should be paid to inflation and labor market data, and investment strategies should be adjusted promptly. Considering the lagging impact of Trump's policies and the flexibility of Federal Reserve policies, maintaining a diversified asset allocation and dynamic risk management will be the best response.
Significant geopolitical events
On December 21, Ukraine launched a drone attack on Kazan, the capital of Russia's Tatarstan Republic, targeting a high-rise residential building. The Russian Ministry of Defense confirmed the attack, and Putin stated firmly in a meeting the following day that any attempts to undermine Russia would be met with multiple retaliations. Furthermore, Putin emphasized in an interview that despite the increasing risks, Russia would respond to all challenges and expressed willingness to seek compromise with Western countries, provided that Russia's interests are not compromised.
This event further escalated the geopolitical risks of the Russia-Ukraine conflict, and global market risk aversion may rise accordingly. Safe-haven assets such as gold and the US dollar are expected to benefit, attracting more capital inflow. Additionally, the instability in Tatarstan, a key energy region for Russia, could raise concerns about the security of Russian energy supplies, driving up oil and gas prices, especially as Europe still relies on Russian energy, making energy price fluctuations potentially more intense.
Additionally, the escalating geopolitical conflicts and pressure from sanctions are creating greater uncertainty for the Russian economy, with risks of further depreciation of the ruble and increased outflow of foreign capital. This trend could trigger a chain reaction affecting capital flows to emerging markets and intensify financial pressure on regions related to Russia. In this context, the latest developments in the Russia-Ukraine situation and diplomatic dynamics among countries will be focal points for the market and will continue to influence energy markets and safe-haven asset trends.
The views of the Federal Reserve spokesperson Nick
NICK's recent tweets mainly revolve around the Federal Reserve's policy direction and market interpretation. He pointed out that Steve Miran, nominated by Trump, will serve as CEA chairman, indicating that the new administration may criticize Yellen's debt management policy and Powell's monetary policy, suggesting future adjustments to fiscal and monetary policy with a greater emphasis on fiscal discipline and inflation control. At the same time, he interpreted the latest PCE data, noting that while the overall and core PCE data showed moderate performance (with core PCE month-on-month growth of only 0.11%), the 12-month core inflation rate remains at 2.8%, indicating that inflationary pressures have not fully alleviated. Cleveland Fed President Hammack's dissenting vote also highlighted that some Federal Reserve officials believe monetary policy is nearing a neutral stance and should not be further loosened.
NICK further pointed out that the Federal Reserve has fully anticipated inflation data in the FOMC meeting, and the latest PCE data does not constitute an 'unexpected' factor for its policy path. Through this information, he implies that the market should be wary of potential policy adjustments, including the possibility that future rate cuts may be cautious, or even a reassessment of inflation target paths. This view may increase market uncertainty, particularly putting pressure on asset prices sensitive to interest rates. Overall, NICK's remarks further emphasize that future monetary policy may lean towards being more cautious and conservative, significantly impacting the market.
News related to cryptocurrencies
According to the Washington Post, since October, the conservative think tank National Center for Public Policy Research (NCPPR) has submitted shareholder proposals urging Microsoft and Amazon to consider investing in Bitcoin, believing it would shield these companies and their investors from inflation.
The organization stated that more Bitcoin$BTC proposals are in the works, and they believe that promoting Bitcoin adoption aligns with their 'support for freedom' agenda, as cryptocurrencies are largely free from government control. Microsoft shareholders have voted to reject the Bitcoin investment proposal, and it remains uncertain whether Amazon will adopt this strategy.
Major event outlook and risk warning
Key economic data or events to focus on today:
15:00, Final value of UK Q3 GDP and Q3 current account
21:30, Canada's October GDP
23:00, US December Conference Board Consumer Confidence Index
Gold:
$
Pivot point: 2600.00
Market outlook: If the price remains below 2600.00, the next targets are 2555.00 and 2530.00.
Alternative scenario: If the price breaks above 2600.00, the next targets are 2660.00 and 2700.00.
Support and resistance levels:
• Resistance levels: 2600.00, 2660.00, 2700.00
• Support levels: 2570.00, 2555.00, 2530.00
EUR/USD:
Pivot point: 1.0333
Market outlook: If the price closes below 1.0333, the next targets are 1.0275 and 1.0250.
Alternative scenario: If the price breaks above 1.0333, the next targets are 1.0420 and 1.0475.
Support and resistance levels:
• Resistance levels: 1.0420, 1.0475
• Support levels: 1.0333, 1.0275, 1.0250
USD/JPY:
Pivot point: 156.74
Market outlook: If the price remains above 156.74, the next targets are 158.00 and 159.00.
Alternative scenario: If the price falls below 156.74, the next targets are 156.40 and 155.00.
Support and resistance levels:
• Resistance levels: 158.00, 159.00
• Support levels: 156.74, 156.40, 155.00
Crude Oil:
Pivot point: 68.65
Market outlook: If the price remains below 68.65, the next targets are 67.60 and 67.00.
Alternative scenario: If the price breaks above 70.58, the next targets are 71.00 and 72.00.
Support and resistance levels:
• Resistance levels: 70.58, 71.00, 72.00
• Support levels: 68.65, 67.60, 67.00
Bitcoin (c-191):
Pivot point: 95195.00
Market outlook: If the price remains below 95195.00, the next targets are 90750.00 and 87055.00.
Alternative scenario: If the price breaks above 95195.00, the next targets are 99200.00 and 100800.00.
Support and resistance levels:
• Resistance levels: 99200.00, 100800.00
• Support levels: 90750.00, 87055.00
Conclusion
Global monetary policy is entering a stage of divergence, with the Federal Reserve's hawkish stance and Trump's new policies likely to increase uncertainty. Safe-haven assets (such as gold and the US dollar) and energy markets may benefit from geopolitical risks, but US stocks and emerging markets face greater pressure. Investors need to closely monitor inflation and labor data, as well as the policy guidance from major central banks, to adjust asset allocations flexibly.