Home › Market News › FOMC WALKING BACK THE MARKET RESPONSE
The Economic Calendar:
MONDAY: NAHB Housing Market Index (9:00a CST)
TUESDAY: Building Permits (7:30a CST), Housing Starts (7:30a CST)
WEDNESDAY: MBA Mortgage Applications (6:00a CST), Consumer Confidence (9:00a CST), Existing Home Sales (9:00a CST), EIA Petroleum Status Report (9:30a CST), 20-Year Bond Auction (12:00p CST)
THURSDAY: Jobless Claims (7:30a CST), GDP (7:30a CST), Philly Fed Manufacturing Survey (7:30a CST), Consumer Spending (7:30a CST), EIA Natural Gas Report (9:30a CST)
FRIDAY: Building Permits (7:00a CST), November PCE (7:30a CST), Durable Goods (7:30a CST), U. of M. Consumer Sentiment (9:00a CST), New Home Sales (9:00a CST), Baker Hughes Rig Count (12:00p CST)
Key Events:
Traders anticipate the PCE report on Thursday. Analysts expect PCE inflation to cool further in November after similar outcomes in the CPI and PPI inflation reports.
The WSJ’s Fedwatcher Nick Timiraos says core PCE inflation is projected to have been a very mild 0.06% in November, which could see the annual reading of core PCE fall to 3.1% in November from 3.5% in October.
In the last two weeks, we saw data that beat expectations on payrolls and headline CPI, and a stock market booming, and now the Fed decides to PIVOT?
The Fed’s stance and volatility caught interest rate futures off-guard, and upside futures prices prevailed. The probability of a Fed cut in March went from 43% to 62%.
Interest rates on the 10-year U.S. treasury fell from 4.15% to a low of 3.88% last week.
The biggest story was on the front end of the yield curve in Fed Fund Futures and SOFR futures. See below the big moves in SOFR futures that started around the June 24 (M4) contract and priced out into the reds (Z4-U5) and greens (Z5-U6).
The market says, “Who cares – it’s CHRISTMAS!”
The market shrugs off Fed official’s attempt to walk back public comments as stocks and bonds continue the “Powell Pivot” rally.
Santa came early this year as stock indexes continued to boom into year-end. The S&P 500 was higher by +1.98% on the week and is +22.7 for the year. The Santa Claus rally refers to the prolonged upswing in the stock market typically observed around the Christmas holiday on December 25th. Most analyses suggest that these rallies manifest in the week preceding Christmas, while others observe trends extending from Christmas Day through January 2nd.
Let’s see if it continues.
The rally has spread from mega-cap stocks to small-cap stocks. The Russell 2000 has outperformed the S&P 500 by over +5.5% in the last 30 days.
According to UBS views for 2024 – they see another squeeze higher first. They write:
1. Stocks typically drop about 6-7 months before a recession.
2. The range of declines varies from 0 to 15 months before a recession.
3. P/E ratios are currently 2-3 points below their 2022 highs.
4. Given the strong economic backdrop, we anticipate more short-term upside.
5. However, we also anticipate a double-digit drawdown at some point in 2024.
The downward pressure on oil prices persists due to a confluence of factors, including global demand uncertainties, unexpected spikes in Consumer Price Index (CPI) inflation, and an expanding surplus of gasoline in the United States.
The resurgence of COVID-19 in China adds another layer of worry, particularly impacting travel-related sectors. In the U.S., the endeavor by refiners to bolster diesel fuel production in anticipation of winter inadvertently resulted in a surplus of gasoline, contributing to lower prices at the pump.
These apprehensions and the significant decline in oil prices may prompt operational adjustments, such as run cuts, and compel producers to curtail production. This scenario sets the groundwork for potential tightening in oil markets ahead.
However, the current softness in demand could be a seasonal phenomenon, and the market dynamics might shift unless it evolves into a full-fledged recession.
It’s worth noting that the historical trend for mid-December suggests that oil and related products typically reach a seasonal bottom around this time unless there is a deviation from the established pattern.
Monitoring these factors will be crucial in assessing the trajectory of oil prices in the near future.
Natural gas prices are trying to find a bottom. Prices have recently plummeted as talk of a polar vortex has dissipated.
Production levels continue to rise, putting stress on smaller producers. Something’s got to give in this market. Either we will have to see prices rise or production will fall.
The question is, what will come first?
Bitcoin futures prices continue in a technical bull flag pattern, trading around $42000.
Optimism regarding the potential approval of a spot bitcoin exchange-traded fund (ETF) by U.S. regulators has sustained positive sentiment among crypto investors for several months. Thirteen entities, including BlackRock, have pending applications with the U.S. securities regulator.
An ETF could simplify bitcoin investment for individuals who have not yet entered the market. However, regulatory authorities have thus far rejected these proposals, citing concerns that such products do not adequately protect investors.
As reported by several industry executives, recent discussions with regulators have progressed to crucial details, including custody arrangements, creation and redemption mechanisms, and disclosures related to investor risks. Despite these advancements, the Securities and Exchange Commission (SEC) has yet to convey whether it will approve these financial products.
These performance charts track the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.
