Investing.com – Market Outlook

U.S. inflation data will shape Federal Reserve interest rate expectations and test the stock market rally. The ECB meets, and Bitcoin has surged past the $100,000 mark.

1. US CPI

The U.S. will publish November consumer price inflation data on Wednesday, giving the Federal Reserve insight into price pressures ahead of their final policy meeting of the year. The Fed has reduced interest rates by 75 basis points since September, and markets expect a further cut of 25 basis points at the December 17-18 meeting.

Expectations for the Fed to cut rates were bolstered by a stronger-than-anticipated jobs report. However, any signs that inflation is not returning to the Fed’s 2% target may trigger a revision in market expectations. Concerns over inflation resurgence are heightened by the President-elect's plans to raise tariffs on imports, which could be inflationary.

2. Stock Market Test

The S&P 500 and Nasdaq Composite reached record highs on Friday, fueled by expectations of continued Fed rate cuts amid robust economic growth. Wednesday’s inflation report will test the durability of the U.S. stock rally as a hotter than expected report could dampen rate cut expectations. Analysts anticipate a more gradual rate cut pace next year as policymakers await clarity on fiscal policies post inauguration.

3. ECB Rate Cut

The ECB will hold its final policy meeting of the year on Thursday, expected to announce another 25-bps rate cut, marking the fourth cut of the year. While Eurozone inflation ticked higher in November, it still appears to be moving toward the 2% target. The ECB will also revise growth and inflation forecasts which may be adjusted down for next year, facing tariff risks, political turmoil, and a weakening euro.

4. Bitcoin Record

Bitcoin soared past the $100,000 milestone after Trump appointed Paul Atkins to lead the SEC and announced David Sacks as the new A.I. & Crypto Czar. While they advocate for leniency in regulation, key issues regarding the classification of crypto tokens will significantly influence the industry's regulatory landscape. Speculations for Bitcoin's price, including $200,000 in 2025, have risen, though historical volatility remains.

5. Oil Prices

Oil prices dipped over 1% on Friday, solidifying weekly losses due to anticipated supply surplus despite OPEC+ delaying output hikes and extending production cuts to 2026. Brent crude fell over 2.5% for the week, while WTI futures dropped 1.2%. OPEC+ agreed to postpone planned output increases until April 2024 and maintain cuts until the end of 2026, but energy traders are concerned about weak demand, especially from China, the second-largest oil consumer. Recent geopolitical tensions have failed to mitigate these concerns.