European stocks are on the rising early trade today, coming ahead of a day that will likely be dominated by US inflation data which many believe should seal the deal on a December rate cut for the Fed. On the data of front, we have seen better than expected German factory orders, which rose 1.5% for the month of October (above the 0.5% expected). Particular strength has been seen in domestic demand for military and defence equipment, with the 9.9% surge in German orders offset by a 4% drop in foreign demand. Coming in a week that has also seen the auto makers take a leg higher on the prospect of lower emission standards in the US, the DAX has pushed up into a three-week high despite sharp losses on Monday.
Today sees the belated US core PCE inflation gauge released for September, representing the final hurdle before next week’s interest rate decision from the Fed. With FOMC members in their pre-meeting blackout period, we are unlikely to see any additional data or commentary that might shift expectations beyond today. Wednesday’s ADP payrolls figure saw the biggest monthly decline in private job creation since March 2023, and thus a decline in today’s core PCE inflation metric would undoubtedly tilt the dynamic further in favour of a cut. In any case, the most likely source of dollar downside should come with repricing around the terminal rate, currently standing around 2.75-3%. With Wednesdays FOMC announcement coming alongside fresh economic forecasts, a weak inflation reading today could help drive down expectations of price pressures for the year ahead.
Precious metals are turning higher as we close out a somewhat choppy week, with the end of the federal reserve quantitative tightening program lifting expectations of increased liquidity in the year ahead. The Fed’s recent move to inject $13.5 billion into the market as an overnight repo operation highlights the liquidity stress being addressed by the bank, and many hope that this will provide a precursor to a more expansive period for the bank. Notably, with Trump electing a new Fed Chair next year, the expectations of a pro-growth stance could come in the form of lower rates or higher liquidity. Either way, it provides a constructive environment for gold and silver, as traders weigh up the best way to get on top of a period with both expansive policy and market risks.