Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Hawkish Fed Steals the Show, but Supply Issues Persist Behind the Scenes

The more hawkish tone coming out of the Fed's latest policy meeting was the main event grasping markets' attention this week. But in other news, retail sales data disappointed as higher prices factor into spending and industrial activity continued to recover but remains beset by supply issues. Continued supply side challenges also extended to the housing sector, where the number of homes under construction reached its highest level since 2007.
Next week: Existing Home Sales (Wed), Personal Income (Thurs), Durable Goods (Thurs)

International: Europe's Central Banks in Focus

It was a busy week for central banks across Europe. The Bank of England surprised market participants with a 15-bp policy rate hike to 0.25%, whereas the 25-bp policy rate hike to 0.50% from Norway's central bank was widely expected. The European Central Bank confirmed it would end its emergency bond purchase program in March, but also signaled plans to continue with its regular asset purchase program for at least several months thereafter.
Next week: Japan CPI (Thurs), Canada GDP (Thurs)

Interest Rate Watch: An Inflation Inflection

The FOMC doubled the pace of asset purchasing tapering at Wednesday's policy meeting and indicated an earlier liftoff to rate hikes than previously expected. The Fed's latest Summary of Economic Projections indicate the committee expects inflation to run above target and the labor market to make steady progress toward full employment over the next year.

Credit Market Insights: Municipalities Seek Savings Before the New Year

The demand for tax-exempt bonds has remained strong, as rates have stayed near record lows despite a slight lift in the yield curve across all maturities this year. With rates set to rise next year, we still may see more issuance, trying to take advantage of still low rates.

Topic of the Week: Congress Finishes Up for the Year

Congress faced a slew of December deadlines when it returned to session after Thanksgiving, and many of these “hard” deadlines have been met. However, the “soft” deadline for passing Democrats' Build Back Better plan by year-end appears likely to be missed.

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Wells Fargo Research Team

Wells Fargo

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold adds to Thursday's gains as softer bond yields drag USD to over one-week low

Gold attracts buyers for the second straight day on Friday amid a broadly weaker US Dollar, though it remains confined in a two-week-old range. The USD Index (DXY), which tracks the Greenback against a basket of currencies, fell to a nearly two-week low as Federal Reserve Chair Kevin Warsh’s remarks at the Annual IMF and World Bank Group Meetings did little to alter the rate outlook.

Busy week for Ripple’s RLUSD: What changes for stablecoin holders?

Ripple’s RLUSD is gaining ground across institutional finance, with a major bank launching custody services, a new wallet integration making it easier for developers to build payments and agentic experiences on the network, and a brokerage platform planning to use the stablecoin for settlement.

Hot inflation, falling yields: A new test for global markets

Global markets are confronting a difficult combination: renewed inflation pressure, expensive capital and growing scrutiny of the investment supporting the AI boom. The most revealing development this week was the demand for government bonds even as US inflation accelerated. My assessment is that investors should treat this as a test of financing resilience.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.