Markets were largely a headline-driven mess this week, with gold and silver at the epicentre of some volatile moves, surging to record highs before pulling back. Ongoing tariff (Greenland) and geopolitical tensions (Iran and Venezuela) and weak US dollar sentiment continued as key drivers. US equities were flat to soft following mixed earnings from 4 of the Magnificent 7 as Asia continued to outperform on AI-related gains. The USD index fell to 4-year lows, despite Fed Chair Powell signalling increased confidence in the outlook for the US economy as the FOMC left rates on hold (3.5-3.75%), while Q3 GDP growth was revised up to 1.1% quarter-on-quarter, its fastest in 2 years. Some stabilisation came from President Trump's nomination of Kevin Warsh to succeed Powell at the Fed when his term concludes in May.
Warsh was regarded as an inflation hawk having previously served as a Fed governor (2006-2011), though recent statements indicate a preference towards lower interest rates, aligning with Trump's views. The confirmation of Warsh to the post is set to face some hurdles, notably from Senator Tillis who has vowed to oppose any nomination until the investigation into Chair Powell by the Department of Justice has run its course.
The local AUD remains a key beneficiary of USD weakness, rising north of 0.70 to highs since early 2023. Support has also come from domestic factors after strong Q4 inflation data (see here) upped market odds for an RBA rate hike at next week's meeting to around 70%. Headline CPI rose 0.6% in the December quarter to 3.6% over the year (prior 3.2%) and the key trimmed mean or underlying measure was 0.9% in the quarter and 3.4% over the year (from 3%). Those outturns put inflation above the RBA's 2-3% target band and were higher than the central bank's forecasts.
