Dollar keeps falling as investors bet on Fed rate cut continues
During the European trading session on Tuesday (November 21), market sentiment was mild, European and American stock markets fluctuated within a narrow range, the U.S. dollar maintained its decline, and gold was once again approaching the 2,000 mark. Investors are waiting for today’s Federal Reserve meeting minutes, and bets on the Federal Reserve’s interest rate cuts are currently increasing.
The dollar extended its losses, while U.S. Treasury yields edged lower after a strong 20-year Treasury auction in the previous session.
U.S. Treasury yields fell after strong bidding at an auction of $16 billion in 20-year Treasuries on Monday, suggesting the market still expects inflation to slow and the Federal Reserve to cut interest rates next year.
The 10-year U.S. Treasury bond yield fell 1 basis point to 4.41%; the 30-year U.S. Treasury bond yield fell 3 basis points to 4.547%.
Lower yields put the dollar at a disadvantage, with the dollar index falling 0.1% to 103.30, having hit a near three-month low of 103.17 earlier in the session. The U.S. Dollar Index is a measure of the U.S. dollar’s exchange rate against a basket of six major currencies.
Traders have almost fully priced in the possibility that the Fed will keep rates on hold in December, with some already pricing in a rate cut as early as March, according to CME Group’s FedWatch tool.
The market expects the probability of the Federal Reserve to cut interest rates in March to be about 30%. Minutes of the last interest rate meeting, due to be released later today, may give markets a deeper look into policymakers’ thinking.
“We don’t expect any significant new information, but the minutes may not be as dovish as the current market pricing,” said Mohit Kumar, managing director at Jefferies International. “The minutes may indicate that the door remains open for another rate hike. , and stressed the need to keep interest rates on hold for longer.”
The yen rose to 147.155 yen against the dollar, moving further away from a one-year low of 151.92 yen hit last week.
U.S. stock futures were volatile on Tuesday, with some investors questioning the sustainability of a strong rally driven by expectations the Federal Reserve will shift to interest rate cuts.
European and American stock markets rebound
The Stoxx Europe 600 index was flat, hovering near a two-month high. The index is up more than 5% this month and is on track for its biggest monthly gain since January. Germany’s DAX eked out a gain of 0.15%, while France’s CAC 40 and Britain’s FTSE 100 fell slightly.
Basic resources stocks led gains after iron ore soared on optimism about China’s latest economic stimulus plan. Banks and energy stocks underperformed.
Among individual stocks, Banco de Siana fell after Italy sold 25% of its stake for about 920 million euros ($1 billion) as part of its plan to divest from the bailed-out bank. Shares in German biotech MorphoSys fell after the company announced mixed results from a trial of a drug to treat myelofibrosis. Shares of Swiss medical device company Sonova Holdings rose after the release of earnings.
S&P 500 and Nasdaq 100 contracts were little changed.
In the field of artificial intelligence, OpenAI’s investors are still trying to get co-founder Sam Altman to return to the leadership position of ChatGPT. Earlier, Microsoft Corp. shares climbed to new highs after hiring Altman and Greg Brockman to lead its research team. In late U.S. trading, Zoom Video Communications Inc rose on better-than-expected sales, ahead of Nvidia Corp reporting quarterly results on Tuesday.
The S&P 500 closed at its highest level since August and the Nasdaq 100 hit a 22-month high on Monday. But strategists at Goldman Sachs Group Inc said there was a risk of “disappointment” in the short term amid lingering concerns about economic growth and inflation. Meanwhile, peer Citigroup warned of the potential for a short squeeze in the market, derailing the rally.
Stock markets generally rebounded in November as a series of data showed that U.S. inflation may be slowing, stimulating market bets that the Federal Reserve has ended its monetary tightening policy and may cut interest rates next year.
“The rapid decline in inflation in the United States and Europe is very positive and considerable,” said Hani Redha, global multi-asset portfolio manager at PineBridge Investments. “Easing inflation and the subsequent easing of financial conditions have provided relief to risk assets.”
Trading is expected to be light for much of the week as Thursday is the U.S. Thanksgiving holiday and data is sparse this week.
“While the market is more certain about peak interest rates and possible rate cuts in 2024, there are few upside catalysts,” said Susana Cruz, a strategist at Liberum. “Corporate guidance has been quite weak this earnings season, with expectations for the fourth quarter Forecasts have fallen and we may see more downward revisions. This is why we expect stocks to experience a period of weakness in the first half of 2024.”
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, having earlier hit 511.05 points, its highest level since September 5. Japan’s Nikkei ended lower but remained close to Monday’s 33-year high. The index is up about 28% this year, making it Asia’s best-performing stock market.
Elsewhere, oil prices gave up two days of gains following speculation that OPEC+ could further cut supply at its meeting this weekend.
Spot gold rose to $1,994 an ounce, its highest level in more than two weeks, helped by a weaker dollar.