Why is the ASX 200 index leaping to a 10-week high today?

ASX investors are clearly expecting a happy December.

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Well, it's turning out to be a stunning start to the trading week for the S&P/ASX 200 Index (ASX: XJO). The ASX 200 ended last week on a bit of a sour note, falling by 0.2% to 7.073.2 points.

But the index has more than made up for that today. At the time of writing, the ASX 200 has surged by an enthusiastic 1% up to 7,142.5 points. That's after getting as high as 7,167.6 points this morning.

A couple of points to make about that. For one, this surge has resulted in the ASX 200 hitting a ten-week high. Yep, ASX shares haven't been at these levels since the middle of September. So that's a very pleasant December surprise indeed.

Additionally, this rise means that the ASX 200 is now up an impressive 5.6% or so from the new 52-week lows we saw at the end of October. So it's been a very lucrative month for the Australian share market so far.

Most ASX 200 index big hitters are enjoying some happy gains. For instance, the BHP Group Ltd (ASX: BHP) share price is currently up 2.41% at $47.44 a share.

Commonwealth Bank of Australia (ASX: CBA) shares have vaulted 1.14% higher, with CSL Limited (ASX: CSL) just behind with a 1.12% gain to $265.80 a share.

But it's the gold sector that is really shining today. Many of the ASX 200 index's biggest winners are currently gold shares. Chalice Mining Ltd (ASX: CHN) has surged by more than 14%. West African Resources Ltd (ASX: WAF) and Bellevue Gold Ltd (ASX: BGL) are both up around 5% respectively.

So why have the markets had such a jubilant start to the trading week today?

Why is the ASX 200 at a new 10-week high?

As always, it's difficult to know for certain. But it's likely that interest rate expectations have at least something to do with it. As many investors would be aware, low inflation and falling interest rates are usually good news for ASX shares. Especially if they are accompanied by robust economic growth.

Over in the US, the markets have continued to rally as inflation comes off the boil and investors increasingly anticipate that the US Federal Reserve's next move will be a rate cut. According to reporting from CNBC:

The [stock market's] latest leg up came as investors increasingly bet that the Federal Reserve will stay put at its policy meeting this month and start cutting rates next year…

Market pricing indicated a more than 70% chance of a rate cut starting March next year… Moreover, futures are pointing to cuts totaling 1.25 percentage points by the end of the year, the equivalent of five quarter percentage point reductions.

It's a similar story in other regions too. My Fool colleague Tristan highlighted just this morning that inflation across Europe has come down to 2.4%.

In our own economy, signs are pointing to cooling inflation too. Inflation was running at 4.9% over the 12 months to 31 October, down from 5.6% to the 30 September.

As my colleague Tony noted today, our own Reserve Bank of Australia (RBA) is meeting tomorrow to determine our own cash rate's next move. As he posited, most economists are expecting the RBA to sit on its hands, which could give the ASX 200 index another boost. Not to mention that a slight majority of economists reckon that interest rates have now peaked.

So it seems that ASX investors are increasingly excited over the prospects of falling inflation and potentially lower interest rates. Now, we don't yet know what will happen with these economic indicators going forward. ASX investors have certainly gotten ahead of themselves before.

But it's this optimism that is arguably the most likely catalyst for the ASX 200's new ten-week highs today. Let's see if today's enthusiasm turns into a Santa rally over the rest of December.

Motley Fool contributor Sebastian Bowen has positions in CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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