Stocks Surge as Traders Anticipate December Fed Rate Cut
Global stocks started an eventful week on a positive note on Monday, as investors found encouragement in the increasing expectations of a Federal Reserve rate cut in December, despite ongoing divisions among policymakers regarding this potential action. Markets were preparing for potential catalysts, including the upcoming release of US retail sales and producer prices data later in the week, while British finance minister Rachel Reeves is poised to unveil her highly anticipated budget. Geopolitical developments were prominently featured in trading rooms, following the announcement from the United States and Ukraine regarding the establishment of a “updated and refined peace framework” aimed at concluding the war with Russia, which maintained pressure on oil prices amid hopes for a potential supply boost. Following a tumultuous week for global equity markets, influenced partly by concerns regarding elevated tech valuations, Monday’s trading session in Asia provided stocks with a much-needed respite. Trading was subdued with Japan’s markets closed for a holiday, yet MSCI’s broadest index of Asia-Pacific shares outside Japan increased by 0.4 per cent, while South Korea’s tech-heavy Kospi index saw a rise of 0.7 per cent. Nasdaq futures and S&P 500 futures increased by 0.64 percent and 0.45 percent, respectively, while EUROSTOXX 50 futures saw an advance of 0.78 percent.
The recent uplift followed comments from prominent Fed official John Williams, who stated on Friday that interest rates could decrease “in the near term,” increasing the chances of additional easing in December. “We expect another Fed cut in December, followed by two more moves in March and June 2026 that take the funds rate to 3-3.25 per cent,” said Jan Hatzius in a note. “The risks for next year are tilted toward more cuts, as the news on underlying inflation has been favorable and the deterioration in the job market – especially for college-educated workers – might be difficult to contain via the modest cyclical growth acceleration we expect.” Fed funds futures currently indicate a 57 percent likelihood that the Fed will implement a 25 basis point cut next month, an increase from under 30 percent just a week prior. Trading of cash US Treasuries was halted in Asia on Monday due to the Japanese holiday, while futures remained stable. A recent US government shutdown, which concluded earlier this month, has complicated the perspective on US rates. Policymakers are now contending with data gaps that would typically inform their understanding of the world’s largest economy. The US Bureau of Labor Statistics announced on Friday that it had cancelled the release of October’s consumer price report due to the shutdown hindering data collection.
The currency market’s primary attention was directed towards the yen, which experienced a decline of 0.2 per cent to 156.72 per dollar, remaining close to a 10-month low. Traders remain vigilant regarding the potential for intervention by Japanese authorities aimed at stabilizing the declining yen, which faces increasing pressure due to concerns over the country’s fiscal health and persistently low domestic interest rates. Finance Minister Satsuki Katayama intensified her verbal interventions last week, which appears to have stabilized the currency for the time being, although investors are increasingly wary of a potential intervention. “Dollar/yen will definitely be going upwards even if you try to intervene.” It seems they will have to accept this reality. “The only way for them to do it is intervention to stop the pace maybe, but I don’t think they can stop the direction,” said Saktiandi Supaat. “It will be expensive… you are going to contend with a strong current. The dollar seems to be very supported now. Japan can actively intervene in the currency market to mitigate the negative economic impact of a weak yen,” Takuji Aida said.
In other markets, the dollar remained strong despite increasing expectations for Fed easing, causing the euro to hover near a two-week low at $1.1506. Sterling experienced a slight decline of 0.06 per cent, settling at $1.3091 in anticipation of Wednesday’s budget announcement. In commodities, Brent crude futures decreased by 0.16 percent to $62.46 a barrel, while US crude declined by 0.17 percent to $57.96 per barrel. Spot gold experienced a decline of 0.3 percent, settling at $4,054.19 an ounce.
