A look at the day ahead in U.S. and global markets from Mike Dolan
With interest rates tumbling across the world and set to fall stateside again next week too, Wall Street stocks are sizing up one of the best years of the century so far.
The tech-laden Nasdaq surged again on Wednesday and closed above 20,000 for the first time ever – almost four times the peaks of the dot.com bubble in 2000 and up almost 35% for 2024 to date.
With long-lingering recession fears now dismissed by most investors and U.S. interest rates and taxes set to fall further next year, the broader S&P500‘s near 28% gain so far this year is a whisker away from its best calendar year since the pandemic hit and close to a first 30%-plus year since 1997.
While comparisons with the final throes of the late 1990s bubble may make some uncomfortable, the bulls remain in rude health as futures markets bake in another 25 basis point cut from the Federal Reserve next week despite sticky – if expected – consumer price inflation readouts this week.
Facing much weaker economic outlooks and trade war threats, central banks in Europe and Canada are stealing a march on that.
And jumbo rate cuts have been the order of the week so far.
The Bank of Canada delivered a half point rate cut on Wednesday, even if it colored that with some caution about further moves next year, and the Swiss National Bank on Thursday surprised with a half point cut in its policy rate to just 0.5% – its biggest reduction in almost 10 years.
The return of Swiss rates to near zero is a remarkable turnaround for financial markets convinced of a “higher for longer” rate environment worldwide. Even though the SNB said the chances of relapse into negative rates territory was small, it refused to rule it out in any new battle with deflation and an overvalued franc.
The franc fell back and Swiss stocks perked up after.
The European Central Bank is up next later on Thursday and is widely expected to lop a quarter point off its deposit rate to just 3% – with markets seeing just under a one-in-five chance it joins the Swiss and Canadians with a larger half point cut.
On the other side of the planet, China this week shifted its overarching policy orientation to easier money for the first time in over a decade – with Reuters sources saying it’s prepared to meet U.S. tariffs with a weaker yuan too.
Chinese long-term government yields fell to record lows on Thursday, widening the yield gap with 10-year U.S. Treasuries to the biggest in 22 years and piling more pressure on the yuan.
But that yawning gap on Thursday was as much to do with a backup in Treasury yields despite the global easing wave and the cemented Fed rate cut view.
Even though bond market volatility gauges fell on Wednesday to their lowest since before Fed started hiking rates in 2022 and another heavy week of debt sales met with decent demand, 10-year yields crept back above 4.3% for the first time in a fortnight.
November’s U.S. producer price report and weekly jobless claims numbers are due out later.
The frenetic policy easing has helped U.S. crude oil prices perk up above $70 per barrel, with base effects seeing the year-on-year oil price turn positive for the first time since July.
The world oil market will be comfortably supplied in 2025, the International Energy Agency said on Thursday, even after OPEC+ extended oil supply cuts and issued a slightly higher than expected demand forecast.
The rapidly shifting global interest rate picture left the dollar relatively steady, holding just off Wednesday’s best levels against the euro as the ECB was awaited.
U.S. stocks futures took a breather ahead of Thursday’s bell, dialing back a touch after the tech-led surge yesterday.
During that session, Tesla (NASDAQ:TSLA) shares climbed nearly 6% to a record high as the electric vehicle maker extended a rally in the wake of the U.S. presidential election. Nvidia (NASDAQ:NVDA) and other megacap growth stocks, including Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), also finished higher, adding between 1.2% and 5.5%. Apple (NASDAQ:AAPL) underperformed and edged down 0.5%.
Broadcom (NASDAQ:AVGO) jumped 6%, meantime, following a report that Apple is working with the company to develop its first server chip specially designed for artificial intelligence.
Key developments that should provide more direction to U.S. markets later on Thursday:
* European Central Bank policy decision and press conference
* US November producer price report, weekly jobless claims
* Federal Reserve issues Flow of Funds accounts for Q3 2024
* US corporate earnings: Broadcom, Costco (NASDAQ:COST)
* U.S. Treasury sells $22 billion of 30-year bonds
(By Mike Dolan,; [email protected])
