Markets are starting to wind down for the year. The four major central banks, the FOMC, ECB, BoE, and SNB all left policy rates unchanged, and most dialed back their hawkish biases. But while officials tried to push back and say that early rate cuts are not on the table, the markets quickly equated the steady stance and shift in bias to pricing in rate cuts sooner than later. Indeed, the markets ran with expectations for easing as soon as the first half of the year, if not March for the FOMC.
Economic Indicators & Central Banks:
- FED: Fed’s Bostic sees two 25 bp cuts in 2024, but said it’s not an “imminent thing,” in a Reuters interview. New York Fed President Williams said it’s too early to begin thinking about cuts. Still, US futures are already finding buyers again after a mixed close on Wall Street Friday.
- Japan: The BoJ is the focal point this week as it’s the last major bank to meet. Risks for no action have picked up as data have failed to give Governor Ueda the confidence needed to exit negative rates or YCC at this point.
- China’s PBOC resumes 14-day cash injections. The move likely designed to smooth liquidity conditions over the year-end. Borrowing costs were held unchanged at 1.8% and 1.95% respectively.
Market Trends:
- Treasury yields slightly higher; However, the 2-year still closed the week with a 28 bp drop, marking the lowest closing since mid-May. The 10-year notes stood at 3.91%.
- Asian stock markets declined, and European futures are also in the red, after Fed comments on Friday tried to push back against excessive rate cut speculation.
- Stocks: The JPN225 slumped 0.7% on weakness in Yen. The US500 futures inched up 0.3%, while US100 added 0.2%, EU50 futures slipped 0.3% and UK100 at 0.1%.
Financial Markets Performance:
- The USDIndex at 102.00 after drifting to 101.43.
- EURUSD corrected to 1.0920 after a solid weekly gain. If Eurozone activity fails to stabilize, Lagarde will be under pressure to change her tune and prepare for rate cuts earlier rather than later.
- GBPUSD moves sideways today and is at 1.2685, while USDJPY corrected again and is trading at 142.55 (38.2% Fib from 2023 upleg).
- Gold turned above $2000 as drop in the US Dollar, yields and the Fed’s dovish pivot have helped to boost demand for the precious metal.
- Oil steadied above $72 after 5-month low last week amid worries supply will continue to outstrip demand. The weaker USD and dovish Fed comments helped to boost sentiment. The IEA said in its monthly report that it expects global oil consumption to rise by 1.1 million barrels a day in 2024, which means it has revised its demand forecast higher. That added further support and helped oil prices to at least stabilize over the second half of this week. Lower exports from Russia and attacks by the Houthis on ships in the Red Sea offered some support as well.
- Bitcoin holds above 40K for 11 days in a row, with increasing bullish bias.
- Key Mover: Goldman has raised year-end 2024 S&P 500 index target from 4700 to 5100, representing 8% upside from the current level. Decelerating inflation and Fed easing will keep real yields low and support a P/E multiple >19x.
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Andria Pichidi
Market Analyst
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