A look at the day ahead in European and global markets from Vidya Ranganathan.
Fed Chairman Jerome Powell has swerved in the figurative game of chicken the central bank has been playing with markets for months, and investors are jubilant.
U.S. stocks have rallied hard and the 10-year Treasury yield is below 4% for the first time in four months.
For, even though investors had anticipated Powell would hint at peak policy, his pivot was powerful, making clear the Fed is “not likely” to hike further and that the Fed is “very focused on not making the mistake of keeping rates too high for too long”.
Fed funds futures extended their rally in Asia and now imply an 85% chance of a first cut in March, with a staggering 156 basis points of easing priced in for all of 2024.
The dovish mood is proving infectious as investors prep for rate cuts across much of the developed world. The European Central Bank, the Bank of England, the Swiss National Bank and Norges Bank all meet on Thursday and steady outcomes are expected except for Norway, where there might be a hike given the weakness of the crown.
The ECB meeting was shaping up to be an eventful one even before the Fed spoke, given that inflation has slowed. After the overnight developments, markets expect any pushback by ECB hawks against market pricing for cuts starting in March will be muted.
The Dec 2024 EURIBOR futures jumped to their highest since January and now imply more than 100 basis points of easing by September.
The market has priced in rate cuts by the BOE, too, in 2024. The SNB is the least likely to be dovish; on the contrary, it is likely to consider intervention to restrain the franc, which hit a nine-year high on the euro last week. [ECILT/US] [ECILT/EU] [ECILT/GB].
The S&P 500 and Nasdaq hit fresh closing highs for the year, and Nasdaq is up 40.7% for the year.
Asian stock markets are less euphoric, as a rising yen weighs on Japanese stocks while Chinese markets remain somewhat disenchanted with the Central Economic Work Conference’s focus on risks rather than stimulus.
Key developments that could influence markets on Thursday:
Central bank policy decisions: ECB, BOE, SNB, Norges Bank
Debt auctions – Reopening of UK 30-year government debt
(By Vidya Ranganathan; Editing by Edmund Klamann)
