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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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The best month of the year for U.S. stocks and bonds draws to a close on Thursday with investors bulled up by warm feelings about disinflation, even with one wary eye on the latest OPEC+ meet.

World stocks captured by MSCI’s all-country index are doing even better, with November gains of almost 9% marking their best month in three years. Total returns for the month on global sovereign and corporate bonds were flirting with their best four weeks since the crash of 2008.

U.S. Treasury yields alone held near lowest in around two months, with 10-year borrowing rates also heading for their biggest one-month fall since 2008’s banking bust – when the Fed floored rates to near zero and first launched its quantitative easing round of bond buying.

A street sign for Wall Street is seen in the financial district in New York, U.S., November 8, 2021.  REUTERS/Brendan McDermid/File Photo

With signs of turn emerging in Federal Reserve policy guidance and October PCE inflation readings set to encourage that later in the day, rate cut fever was in full flow across the Atlantic too.

Money markets now expect the European Central Bank to cut interest rates as soon as April – which would make it the first of the G3 central banks to budge – as November euro zone inflation figures came in much lower than forecast.

Headline annual inflation in the bloc fell as low as 2.4% – within arm’s length of the ECB’s 2% target. ‘Core’ inflation readings favored were higher at 3.6% – but also well below expectations.

Bank of Italy chief and ECB policymaker Fabio Panetta captured the mood on the end of the 20-month rate hike cycle by warning against ‘useless damage’ to the economy and finanical stability from any temptation to overtighten.

And while the U.S. dollar had been weakening of late on the back of falling U.S. yields – and futures pricing for as much as two quarter-point Fed rate cuts by June – the prospect of the ECB jumping the gun has dragged the euro back and buoyed the greenback again.