FX.co ★ Futures Regain Ground Following Inflation Data But Remain Negative

The major U.S. stock index futures suggest a softer opening on Friday, as equities appear poised for a downturn following Thursday's relatively flat close. Persistent concerns about the trajectory of interest rates continue to exert pressure on Wall Street, particularly in the aftermath of Wednesday’s market sell-off.

On Wednesday, the Federal Reserve indicated a less aggressive stance on cutting rates next year, reflecting slowed progress in reducing inflation. However, futures have rebounded from their lowest points following a U.S. Commerce Department report that revealed consumer prices rose slightly less than anticipated in November. Specifically, the personal consumption expenditures (PCE) price index inched up by 0.1% after a 0.2% rise in October, contrary to economists' projections of another 0.2% increase. The annual growth rate of the PCE price index accelerated to 2.4% from October's 2.3%, slightly behind the 2.5% rise expected by economists.

Excluding food and energy, the core PCE price index saw a modest 0.1% increase in November following a 0.3% rise in October, where economists had predicted a 0.2% gain. The annual growth rate for the core PCE price index remained steady at 2.8%, while expectations had pegged it at 2.9%. The Federal Reserve particularly values these inflation metrics, which are part of a report on personal income and spending.

Thursday’s session saw stocks bounce back in early trading after Wednesday's decline, though this momentum tapered off, resulting in a near-flat close. Notably, the Dow managed to break its ten-day losing streak, edging up a mere 15.37 points to 42,342.24. Conversely, the Nasdaq retreated by 19.92 points to 19,372.77, and the S&P 500 decreased by 5.08 points, landing at 5,867.08.

The initial upward movement was largely driven by traders looking for buying opportunities after Wednesday's steep declines, which left the Dow at its lowest closing level in over a month. Wednesday’s market downturn followed the Federal Reserve’s decision to cut interest rates by a quarter point but also reveal a reduced number of expected rate cuts next year.

Investor hesitance persists, underscored by positive economic data that reinforces the Federal Reserve’s cautious path regarding rate reductions. The Commerce Department reported a notable upward revision in third-quarter U.S. economic growth, with GDP surging by 3.1%, exceeding the previously reported 2.8% and defying economist expectations of no change. A separate Labor Department report showed a sharper than expected decline in initial jobless claims, which fell to 220,000, down 22,000 from the prior week's unrevised 242,000, surpassing expectations of a decrease to 230,000.

Interest-rate-sensitive housing stocks continued their decline from Wednesday, as the Philadelphia Housing Sector Index plummeted 2.6% to a five-month closing low despite the National Association of Realtors reporting that existing home sales reached an eight-month high in November. A similar trend was observed in commercial real estate stocks, with the Dow Jones U.S. Real Estate Index dropping 1.6%.

Semiconductor stocks faced another significant downturn, dragging the Philadelphia Semiconductor Index down by 1.6%, led by a 16.2% plunge in Micron (MU) despite better-than-expected fiscal first-quarter earnings, due to lackluster second-quarter guidance. Additional weakness was seen in the computer hardware, oil producer, and steel sectors, whereas airline stocks rallied.

**Commodity and Currency Markets:**

In the commodities sphere, crude oil futures have decreased by $0.25, settling at $69.13 a barrel after dropping $0.64 to $69.38 per barrel on Thursday. Concurrently, gold futures have gained $12.50, reaching $2,620.60 an ounce, following a sharp $45.20 decline to $2,608.10 per ounce in the previous session.**Currency Update**

As of this report, the U.S. dollar stands at 156.46 yen, compared to 157.44 yen at Thursday's New York market close. Versus the euro, the dollar is trading at $1.0411, a slight increase from the previous day's $1.0363.

**Asian Markets**

Asian equity markets exhibited a mixed performance on Friday amid persisting concerns regarding the Federal Reserve's interest rate path and the looming U.S. government shutdown, following President-elect Donald Trump's unexpected dismissal of a bipartisan plan. The dollar maintained its near two-year high, negatively impacting commodity demand, including oil. Gold prices inched upward in Asian trading but head towards a weekly downturn after the Federal Reserve hinted at a deceleration in rate cuts.

The U.S. Personal Consumption Expenditure index, a vital inflation gauge for the Fed, awaited later today, could significantly influence the central bank's rate strategy under the nascent Trump administration.

China's Shanghai Composite Index oscillated before closing slightly lower at 3,368.07, as the People's Bank of China opted to keep its benchmark lending rates steady, contradicting market expectations for a reduction. The one-year loan prime rate remained at 3.10 percent, with the five-year rate steady at 3.60 percent. Hong Kong's Hang Seng Index concluded 0.2 percent down at 19,720.70 after a volatile session.

Japanese markets seesawed between gains and losses, closing modestly down, prompted by data showing that Japan's annual inflation rate climbed to 2.9 percent in November 2024, up from 2.3 percent the previous month, marking the highest level since October 2023. The Nikkei 225 Index slipped 0.3 percent to 38,701.90, while the broader Topix Index fell 0.4 percent to 2,701.99. The yen failed to maintain a temporary intraday gain following increased cautionary statements from authorities against excessive currency speculation. Bank of Japan Governor Kazuo Ueda announced on Thursday that the central bank needs to evaluate additional wage and other data before considering another rate increase.

In South Korea, the Kospi dropped 1.3 percent to 2,404.15, affected by a stronger dollar and domestic political unrest. Australian markets sharply fell, with financial and consumer sectors leading the losses. The S&P/ASX 200 Index declined by 1.2 percent to 8,067, while the All Ordinaries Index slipped 1.2 percent to 8,316.70. Wesfarmers shares fell 5 percent following the announcement of the Coregas sale to Nippon Sanso for A$770 million. New Zealand's S&P/NZX-50 Index surged 1.2 percent to 12,904.11 amid index adjustments and heavy late trading.

**European Markets**

European stocks edged lower on Friday as the U.S. faced a government shutdown, and President-elect Donald Trump threatened tariffs on the European Union unless it reduces its growing trade deficit with the U.S. by increasing oil and gas transactions.

In economic developments, German producer prices showed a surprising reversal in November, with a 0.1 percent year-on-year increase, ending a previous 1.1 percent decline, as reported by Destatis. In the U.K., November's retail sales saw a weaker-than-expected rise of 0.2 percent, as consumer spending slowed toward year-end.

Germany's DAX Index dipped by 1.3 percent, France's CAC 40 Index decreased by 1.1 percent, and London's FTSE 100 Index fell by 1.0 percent. Credit Agricole shares moved lower following the announcement of its acquisition of Santander's 30.5 percent share in CACEIS, its asset servicing wing. Delivery Hero SE experienced a downturn after naming Marie-Anne Popp as its Chief Financial Officer starting January 2025. GSK's shares slightly fell despite announcing positive results from the FIRST-ENGOT-OV44 phase III trial involving Zejula and Jemperli as frontline treatments for advanced ovarian cancer. Synairgen's shares plummeted following their plan to raise £25 million to fund phase 2 trials of its antiviral treatment. Idorsia's shares also declined after announcing delays concerning a rights agreement for its hypertension drug Tryvio. Conversely, ITM Power shares surged upon securing a contract for a green hydrogen project within the EU.

**U.S. Economic Update**

In the U.S., consumer prices inched up slightly in November, according to a report from the Commerce Department released on Friday. The Personal Consumption Expenditure (PCE) price index rose by 0.1 percent in November, following a 0.2 percent increase in October, falling below economists' expectations for a continued 0.2 percent rise.In November, the Personal Consumption Expenditures (PCE) price index saw an annual growth rate increase to 2.4 percent, up from 2.3 percent in October. This was slightly below the 2.5 percent growth anticipated by economists. Adjusting for food and energy, the core PCE price index experienced a modest rise of 0.1 percent in November, following a 0.3 percent increase in October, while economists had predicted a 0.2 percent climb.

The annual growth of the core PCE price index maintained a steady rate of 2.8 percent in November, consistent with October's figures, although expectations were for a rise to 2.9 percent. These inflation metrics, which are closely monitored by the Federal Reserve, were revealed in a report detailing personal income and expenditure figures.

According to the report, personal income grew by 0.3 percent in November, following a revised upward increase of 0.7 percent in October. This was slightly below the economists' forecast of a 0.4 percent rise, in contrast to the originally reported 0.6 percent from the prior month.

Concurrently, personal spending saw a 0.4 percent increase in November, up from a revised 0.3 percent in October. This is compared to economists' predictions of a 0.5 percent rise, against the initially reported 0.4 percent increase from the preceding month.

Additionally, the University of Michigan is expected to issue its final assessment of consumer sentiment for December at 10 a.m. ET. It is anticipated that the consumer sentiment index will remain stable at 74.0, a rise from November's 71.8.