Unsteady start in Europe after mixed messages from the FOMC

• FOMC confusion stifles bullish push
• German Ifo and bankruptcies highlight continued grounds for concern
• Supply interruptions raise risk of inflationary pressures as red sea attacks take their toll

A changeable outlook from the Federal Reserve has markets in a spin this morning, with the post-FOMC boost starts to fade. A surprisingly dovish outlook from Fed Chair Powell seemingly set off the starting pistol for a year-end ‘Santa rally’, pushing the Dow, DAX, and CAC into record highs. However, Friday’s comments from Fed member Williams have brought markets back down to earth, warning that the Fed were in fact yet to even discuss rate cuts. With markets currently pricing the first of six 2024 rate cuts in March, we are seeing market confidence weaken as traders await greater clarity to clear up the current confusion.

Last week’s hawkish take from the ECB continues to baffle markets, with this morning seeing yet another batch of data that highlights the risk of keeping rates elevated for longer. With the eurozone composite PMI figure having contracted for seven consecutive months, this morning has seen the German Ifo survey post declines across business climate, current conditions, and expectations for December. The latest court data saw German bankruptcies rise 25% over the first nine-months of 2023 (year-on-year), there is a concern that the ECB’s monetary stance will deal progressively more damage until the ECB starts to ease financial conditions.

Inflation concerns have emerged on the prospect of surging transportation costs and supply chain disruptions, with four of the top five container shipping companies diverting their vessels away from the Red Sea thanks to repeated Houthi attacks in the region. With the European freight index limit-up, and the dry bulk shipping ETF rising 7% on Friday, markets are well aware of the implications in terms of ship availability and prices charged. While Friday’s crude gains are fading this morning, markets will be keeping a close eye out for signs that energy supplies are similarly going to be interrupted by security concerns in this crucial supply passage.