Market Review: December 18, 2024

Economic data from December 18 reveals a mixed economic picture. Housing starts fell below expectations, while building permits showed unexpected strength, signaling future resilience in the housing market. The Fed held interest rates steady at 4.50%, but upward revisions to interest rate projections for the next three years suggest a tighter monetary policy stance. The current account deficit widened significantly, reflecting external imbalances. Crude oil inventories showed modest drawdowns, maintaining stable supply dynamics.

Key Highlights:

Housing Data:

• Building permits rose sharply to 1.505M, exceeding expectations and signaling future strength in housing construction.
• Housing starts declined to 1.289M, below forecasts, reflecting current challenges in the housing market.

Interest Rate Projections:

• Short-, medium-, and long-term rate projections were revised higher, signaling expectations of sustained Fed tightening over the next three years.

Crude Oil Inventories:

• Inventories fell by -0.934M barrels, a smaller drawdown than expected, while Cushing inventories showed a modest increase of 0.108M, reflecting stable supply dynamics.

Fed Interest Rate Decision:

• The Fed held interest rates at 4.50%, aligning with market expectations and signaling a cautious approach amid mixed economic data.

Impact Analysis:

• USD Impact:
  Higher interest rate projections and resilient building permits support USD strength, but the widening current account deficit tempers the bullish sentiment. The overall USD impact is neutral to slightly bullish.

• Gold Impact:
  Gold faces bearish pressure from higher rate projections, which increase opportunity costs, but is supported by the widening current account deficit and weaker housing starts. The overall gold outlook is neutral to slightly bearish.

• Equities Futures Impact:
  Equities may react positively to the Fed’s decision to hold rates steady, but higher rate projections and weaker housing starts could weigh on sentiment. The overall equities outlook is neutral to slightly bullish, with strength in consumer-related sectors.

Today’s data highlights the balancing act between Fed policy, external trade imbalances, and housing market trends. Markets will likely focus on the Fed’s forward guidance as rate projections signal sustained tightening while growth momentum remains uneven.