Morning Bid: Fed Rate Cut Priced In as China Shifts Monetary Policy

Image Credit: Reuters

 

A strong U.S. employment report has not deterred markets from anticipating another interest rate hike from the Federal Reserve this month. Meanwhile, China introduced a historic shift in its monetary policy on Monday, signaling an easier money approach.

With major central banks like the European Central Bank, Swiss National Bank, and Bank of Canada expected to ease their policies this week, market sentiment remains positive, and Wall Street futures are hovering near record levels. The S&P 500 is up nearly 28% for the year, with just three weeks left in 2024.

While the financial markets are calm, geopolitical tensions persist. South Korea saw significant market declines due to political unrest, with the ruling party refusing to back the impeachment of the president following a failed martial law attempt. Meanwhile, Syria’s political instability further shook the Middle East, adding to the geopolitical challenges.

In the U.S., futures markets have started to factor in the likelihood of a Fed rate cut by December 18, spurred by signs of weakness in the labor market, despite strong November payrolls and earnings data. Fed Chair Jerome Powell’s position appears more secure after President-elect Donald Trump confirmed he would not attempt to remove him before his term ends in 2026.

Globally, central banks are easing monetary policy as China announced it would adopt an "appropriately loose" monetary stance in 2025, marking a shift from its previous "prudent" policy since 2010. This move, along with ongoing monetary easing in Europe, has impacted the U.S. dollar, with global demand for U.S. Treasuries rising despite strong domestic economic conditions.

In Europe, key central banks are expected to ease policy, with the euro and Canadian dollar showing slight gains. Meanwhile, discussions in Brussels will focus on the EU’s budget plans, with British finance minister Rachel Reeves in attendance, reflecting the UK's renewed push to strengthen ties with the European Union. The British pound was firmer against both the dollar and the euro at the start of the week.

Key upcoming events include the New York Federal Reserve's consumer inflation expectations survey, the U.S. November employment trends report, and October wholesale sales data. Additionally, Oracle’s earnings and the Eurogroup finance ministers' meeting in Brussels will provide more direction for the U.S. markets.

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.