Inflation cools down, boosting market optimism, but crypto assets remain under pressure—Fed rate cut expectations reignited

U.S. November Consumer Price Index (CPI) unexpectedly declined, with an annual rate of 2.7%, marking the slowest growth since early 2021, well below market expectations of 3.1%, and core CPI dropped even further to 2.6%. This data immediately ignited market expectations for further Fed rate cuts, driving global stock markets higher, but cryptocurrency assets showed divergent performance.

Global Stock Markets Rise in Response, Cryptocurrency Markets Enter Correction

Supported by favorable inflation data, the three major U.S. stock indices closed higher on Thursday. The S&P 500 rose 1.16%, ending a recent losing streak; the Nasdaq Composite increased 1.81%, closing at 23,006 points; the Dow Jones Industrial Average gained 0.47%. The VIX fear index fell sharply by 4.37%, indicating improved market risk appetite.

In contrast, digital assets performed poorly. Bitcoin declined 1.25% over 24 hours, currently trading at $92,180; Ethereum fared slightly better, up 2.41% over 24 hours, now at $3,240. This divergence between traditional finance and digital assets warrants attention, possibly reflecting differing market expectations during central bank policy shifts.

Signals of Divergence in Bond and Commodity Markets

Following the inflation data release, U.S. Treasury yields fell. The 10-year yield dropped to 4.12%, and the 2-year yield fell to 3.43%, hitting a two-month low. The simultaneous decline in short- and long-term yields typically signals strong market expectations for rate cuts.

Commodity markets showed mixed signals. Gold slightly declined by 0.15%, at $4,332.5 per ounce, a normal movement amid easing inflation expectations; WTI crude oil fell 1.48% to $55.9 per barrel; the U.S. dollar index edged up 0.02% to 98.4.

Central Bank Policy Shift—Are Rate Cuts Nearing the End?

The Bank of England announced a 25 basis point rate cut to 3.75% on Thursday, the lowest since February 2023, in line with market expectations. However, BOE Governor Bailey commented that as rate cuts proceed, future decisions will become increasingly challenging, and the pace of cuts is expected to slow.

In Europe, officials reportedly believe the rate-cutting cycle may have already ended. After eight rate cuts and raising deposit rates to 2%, unless significant economic shocks occur, rates are expected to remain at current levels. However, the ECB also stated that if inflation remains below target for several months, further easing of monetary policy remains possible.

U.S. initial jobless claims also improved, decreasing by 13,000 to 224,000 for the week ending December 13, slightly below the expected 225,000.

AI Valuation Risks Surface—Market Concerns for 2026?

Deutsche Bank’s latest global market survey shows that 57% of respondents believe AI-related valuation risks will be the biggest single threat facing markets in 2026. The cooling of enthusiasm for AI could lead to a sharp decline in tech stock valuations, making it the top concern for investors, followed by worries about the new Fed Chair potentially implementing aggressive rate cuts.

Notably, about 71% of respondents prefer investing in stocks outside the “Big Seven” of the S&P 500, a preference that has remained stable since July this year, reflecting cautious attitudes toward tech giants’ valuations. The survey projects an average return of about 7% for the Big Seven in 2026, with the S&P 500 expected to rise nearly 7%, making this the most optimistic outlook in four years.

Hot Stocks and Corporate Developments

Micron Technology surged over 10% on optimistic earnings prospects, becoming a market focus; Amazon rose 2.5%, the best performer among Dow components; Tesla and Nvidia increased by 3.5% and 1.9%, respectively; Apple and Oracle saw modest rebounds.

However, Nike plummeted nearly 10% after hours to $59.20, with second-quarter net profit down 32% year-over-year to $792 million, and gross margin down 300 basis points from the same period last year, indicating ongoing consumer pressure. Meta is rumored to be secretly developing a new AI model codenamed Mango, expected to be released in the first half of next year; Oracle’s partnership with OpenAI for data center power supply in Michigan has been approved, with investments over $45 billion planned over the next three years.

Commodities Outlook: Copper Prices Remain Strong

BHP CEO stated that copper, like rare earths, is widely used in semiconductors, electronics, construction, and military applications, with an annual market value of $300-400 billion. Demand is projected to grow 70% by 2050, but supply is tightening, with tensions expected to persist into next year or even 2030.

NYMEX copper has risen 34% year-to-date; LME copper hit a record high of $11,952 per ton last week; UBS expects copper prices could reach $13,000 per ton by the end of next year. Additionally, market attention is turning to precious metals like gold and silver, with copper’s upward momentum remaining strong.

Key Economic Events Today and PPI Release Reminder

Today’s key economic events include: Bank of Japan interest rate decision, Japan November core CPI annual rate, Germany January GfK consumer confidence index, Germany November PPI monthly rate (expected to be released mid-European session), Eurozone December consumer confidence preliminary, US December University of Michigan Consumer Sentiment Final, US December one-year inflation expectations, US November existing home sales annualized data, and US oil rig count for the week ending December 19. The German PPI release is an important indicator to further verify the true inflation trend in Europe.

Currently, the global financial markets are at a policy turning point. The unexpectedly low inflation data has rekindled rate cut expectations, but cautious remarks from central bank officials have tempered excessive optimism. For investors, upcoming PPI and employment data will be crucial in confirming the real inflation trend, shaping the market’s rhythm for 2026.