World Shares Reach Near Two-Year Highs, UK Bond Yields Shake Markets

World shares reached their highest point since March 2022 on Wednesday, buoyed by a significant drop in inflation that surpassed economists’ expectations. 

The United Kingdom took the lead in a government bond rally, triggering increased speculation of global interest rate cuts in the coming year.

Oil prices climbed to their highest level in nearly three weeks due to concerns about Red Sea disruptions caused by increased attacks on commercial ships by Yemen’s Iran-aligned Houthi militants.

UK inflation experienced a significant decline in November, reaching its lowest rate in over two years at 3.9%, defying the 4.4% expectation by Reuters economists. 

Investors responded by pricing in 135 basis points of Bank of England (BoE) rate cuts for the next year, leading to drops in British bond yields and the pound.

Market analysts cautioned against aggressive rate-cut expectations, emphasizing that the market may be reacting too sharply, particularly when headline inflation globally remains nearly double the target.

Global bond markets also saw declines in US Treasury yields and German bond yields.

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Markets React to Rate Cut and Commodity Concerns

World shares reached their highest point since March 2022 on Wednesday, buoyed by a significant drop in inflation that surpassed economists’ expectations.

Rate cut expectations persisted for the US Federal Reserve, with a focus on potential steeper rate cuts in 2024.

Rate cut anticipations continued to uplift riskier assets, including equities, with MSCI’s global equity index reaching its highest point since March 2022 and posting its 10th consecutive day of gains.

Energy markets experienced an uptick in Brent and West Texas Intermediate crude prices, with Brent surpassing $80 a barrel for the first time since December 1. 

Suez Canal disruptions raised concerns about potential inflationary implications, particularly in commodity markets.

Commodity-sensitive currencies like Norway’s krone and Australia’s dollar reached multi-month highs, while in Asia, the yen rebounded after the Bank of Japan’s policy announcement.

Chinese shares dipped more than 1% following the central bank’s decision to maintain benchmark lending rates. 

Gold prices saw a slight decline, closing at $2034.39 per ounce.

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