Markets price in more Fed rate cuts after US PPI data

Stock markets are ending the week on a high, buoyed by weaker PPI readings from the US that suggest inflation will keep falling in the coming months.

The PPI data has repaired the damage done by yesterday's CPI data which came in a little higher than expected. But it's clear from today's readings that disinflationary pressures remain in the pipeline which should give the Fed confidence over the coming months that inflation is heading back to target.

Whether we'll see it in the PCE figures - the Fed's preferred measure - in time for the new forecasts in March is the key question now. Those will determine whether policymakers feel comfortable cutting rates at that meeting or hold off until the second quarter, as the December dot plot indicated.

Not only are markets now almost fully pricing 150 basis points of cuts this year, but they're pricing in a greater than 50% chance of 175, with the first heavily backed to come in March. And to think, many people thought markets ended last year too bullish on rate cuts.

Sterling steady as the UK economy performs better than expected in November

The UK could be in recession, although GDP figures for November may enable the economy to just avoid it. The economy grew 0.3% bouncing back from the -0.3% recorded in October so it all now hangs on whether the festive season delivered or not. Either way, it doesn't really change much as the economy is basically flatlining. Two-quarters of marginal contraction - while falling under the definition of a technical recession - doesn't change that. The pound wasn't particularly moved by the data.

Brent jumps above $80 after UK and US strikes

Oil prices are trading more than 2% higher at the end of the week with Brent breaching $80 earlier in the session. It was up more than 4% at one stage but has gradually given some of those gains back throughout the day.

The price jump came as the US and UK launched strikes against Houthi targets in Yemen, raising the risk of broadening the conflict in the region and disrupting oil supplies. Despite today's moves, there's clearly still a view that the risk of a significant disruption is small or prices would be much higher. Still. they will remain sensitive to further developments.

Gold rallies as US yields tumble

Gold is trading more than 1% higher, boosted by the PPI data and the US 10-year yields tumbling well below 4%, while the 2-year hit an 8-month low. The yellow metal has been struggling over the last couple of weeks and the jobs report and CPI data did little to revitalize it. The PPI appears to have done just that though, although it still has some way to go to reach the new highs reached in early December.