Stocks slow and the dollar falls as markets await interest rate cuts from the Federal Reserve

Stocks slow and the dollar falls as markets await interest rate cuts from the Federal Reserve

  • Nikkei hits high, European stocks stable
  • The dollar declines as investor bets reach their peak
  • Fed minutes, European PMIs and Nvidia results are on display this week

SYDNEY/LONDON (Reuters) – Stocks were generally stable on Monday in thin trading ahead of the Thanksgiving holiday in the United States on Thursday and in the absence of important data that could give direction to the markets, while the dollar fell against major currencies.

The European STOXX fell just 0.04%, with US futures expected to follow suit.

The dollar index hit its lowest level at 103.53, its weakest level since the beginning of September, as investors appeared to boost their bets that US interest rates have peaked and that the Federal Reserve may start cutting interest rates next year.

Asian stock markets were more active earlier in the day with Japanese stocks hitting the highest levels not seen since 1990, thanks to strong earnings and overseas demand that fueled a three-week winning streak.

Japan’s Nikkei (.N225) saw profit taking at the peak, but remains up 8.2% for the month so far, with the Topix (.TOPX) not far behind.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.8%, after rising 2.8% last week to a two-month high.

Meanwhile, media reports said that Israel, the United States and Hamas had reached a preliminary agreement to release dozens of hostages in Gaza in exchange for a five-day cessation of fighting, but this has not yet been confirmed.

Black Friday sales will test the pulse of the consumer-driven US economy this week, while the upcoming Thanksgiving holiday will leave markets weak.

The flow of US economic data is turning into a steady stream this week, but minutes from the Federal Reserve’s latest meeting will give some color to policymakers’ thinking as they hold interest rates steady for a second time.

Signs of progress in the battle against inflation in the United States have led to a rebound in stocks this year as investors hope for an end to the cycle of rising interest rates that has been the main tool for policymakers to combat commodity price increases.

The S&P is now up about 18% this year and less than 2% away from its peak in July.

However, analysts at Goldman Sachs point out that the “Magnificent 7” stocks have returned 73% for the year so far, compared to just 6% for the remaining 493 companies.

“We expect large-cap technology stocks to continue to outperform given their superior expected sales growth, margins, reinvestment ratios, and balance sheet strength,” they wrote in a note. “But the risk/reward profile is not particularly compelling given the high expectations.”

Technology major Nvidia (NVDA.O) reported its quarterly results on Tuesday, and all eyes will be on the state of demand for its AI-related products.

Its price is great

Markets have priced in the risks of a US interest rate hike in December or next year, and are implying a 30% chance of easing from March. Futures also point to cuts of around 100 basis points for 2024, up from 77 basis points before October’s benign inflation report shook markets.

Those expectations helped bonds rise, with 10-year Treasury yields at 4.45% after falling 19 basis points last week and far from October’s high of 5.02%.

There was relief in Europe too for some of the affected sovereign names, as the risk premiums required by investors to hold Italian and Portuguese debt fell after ratings agency Moody’s updated its outlook on the two countries.

It raised the outlook for Italy from negative to stable, and pushed Portugal’s long-term issuer rating up two notches to A3 from Baa2, narrowing spreads on both bonds compared to benchmark 10-year German bonds in the region.

Closely watched surveys of European manufacturing are due this week and any sign of weakness will encourage further bets on early interest rate cuts from the European Central Bank.

“These surveys will be very important in the euro area services sector given the sharp deterioration we have seen recently,” NAB analysts said. “In the event of another e-print, expect the pricing of ECB cuts to extend beyond the current 100 basis point cuts priced in for 2024.”

Markets are implying there is a 70% chance of easing as soon as April, although many ECB officials are still talking about the need to keep monetary policy tight for longer.

The Riksbank meets this week and may raise interest rates again, given rising inflation and a weak currency.

In commodity markets, oil rebounded from four-month lows on Friday amid speculation that OPEC+ will extend or increase production cuts at its meeting on November 26.

Brent added 60 cents to $81.08 per barrel, while the price of US crude rose 31 cents to $76.2 per barrel.

Gold fell slightly to $1,978 an ounce, after rising 2.2% last week.

Reporting by Wayne Cole and Lawrence White Preparing by Muhammad for the Arabic Bulletin Preparing by Muhammad for the Arabic Bulletin Editing by Lincoln Feast and Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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