Central banks and US inflation to dominate this busy week

• Chinese stimulus hopes lift sentiment.

• Assad regime falls, provide uncertainty over implications.

• Central banks and US inflation to dominate this busy week.

The week has kicked off on a largely upbeat tone following the welcome announcement that Chinese authorities plan to enact further stimulus over the year ahead. China’s decision to adopt a “moderately loose” monetary policy has ignited optimism across markets, with investors anticipating further easing measures to support the country’s slowing economy. This shift has already fuelled sharp gains in key assets, with the Hang Seng surging 2.8% and commodities like copper, zinc, iron ore, and palladium rallying on expectations of increased demand. Attention now turns to the Central Economic Work Conference later this week, where additional fiscal and monetary signals are expected. While this policy adjustment is a step in the right direction, meaningful economic recovery will likely depend on the scale and speed of forthcoming fiscal support.

The swift collapse of the Assad regime has provided the basis for fresh uncertainty in the Middle East, with traders seeking to gain a grasp of what the knock-on implications could be for markets. With everyone awaiting clarity over who and how the country will be run, we have seen a great degree of uncertainty as this pivotal region falls into new hands. Crucially, the strategic geographical importance of the country means that we could see significant knock-on implications for the Iranian transport of weapons to Hezbollah, and Russian military presence in the region. The Israeli targeting of chemical sites in Syria does highlight the perceived risk of them falling into the wrong hands now that Assads regime has fled. As such, everyone will be watching closely for signs over whether this development will improve or worsen the ongoing conflicts in the region.

Today kicks off a week dominated by central banks, as the ECB, BoC, and SNB all look to cut rates in the face of depressed inflation and economic concerns. In Australia, the patient approach continues, with markets weighing up whether it will be February or April that we finally see the RBA kick off their easing phase. Elsewhere, inflation will come back into focus thanks to the latest US CPI report, with the fear around a possible Trump-led rebound in inflation providing the basis for the post-election dollar strength that saw DXY hit a two-year high of 108 in November. Thankfully, China continues to provide a deflationary role, with overnight data seeing CPI fall to 0.2% and PPI remain heavily in deflation at -2.5%. In any case, with markets expecting a US CPI reading of 2.7% (up from 2.6%), there are concerns that we are seeing the beginning of a second wave that could hinder the hopes for a dramatic decline in the Fed Funds rate.