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Fed cut hopes lift risk assets

US equities rebounded on Tuesday after a weak start to December, led by technology stocks, while expectations for an interest rate cut by the Federal Reserve (Fed) next week pushed cryptocurrencies sharply higher and nudged US Treasury yields lower. Asian stock markets were mixed on Wednesday, with gains in Japan and South Korea contrasting with renewed weakness in Chinese equities, as investors digested stronger but slightly below‑forecast Australian growth data. In Europe, equities closed mostly firmer on Tuesday despite a slight uptick in euro-area inflation, which remained just above the European Central Bank’s target. Attention on Wednesday will turn to a raft of services PMI releases across major economies, Swiss inflation data and the ADP employment report out of the US.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

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US equities recovered on Tuesday after a weak start to December, with the technology-heavy Nasdaq 100 rising 0.8% to 25,555.85 points and briefly touching its highest level in almost three weeks, while the broader S&P 500 added 0.3% and the Dow Jones Industrial Average gained 0.4%. Sentiment was supported by a rebound in cryptocurrencies and ongoing expectations for another interest rate cut by the Fed next week. The market now puts the probability of a 25-basis-point Fed cut above 80%, compared with below 40% a week earlier. Bitcoin was trading sharply higher around USD 93,900 following a sharp drop in October and November. Gold prices were little changed, trading around USD 4210 per ounce, while US Treasury yields were slightly lower, with the 2-year and 10-year yields around 3.5% and 4.1%, respectively.

Asia stocks mixed as Fed cut hopes rise

Asian equity markets traded mixed on Wednesday, with Japan’s Nikkei 225 and South Korea’s KOSPI leading gains of around 1.2% to 1.1%. In China, the real estate sector continued to drag down sentiment, with Hong Kong’s Hang Seng Index trading 1.4% lower and mainland China’s CSI 300 down 0.7%. In Australia, the S&P/ASX 200 was 0.2% higher after data released Wednesday showed Australia’s gross domestic product increased 2.1% year on year in the third quarter, its fastest pace in about two years but slightly below market projections. With inflation accelerating to 3.8% in October and still above the Reserve Bank of Australia’s target range, the economy likely remains too strong for the central bank’s comfort, leading market participants to expect policy rates to remain on hold at 3.6% next week, with the risk of further tightening not excluded.

Japan services activity growth strengthens

Japan’s services sector maintained solid momentum in November, with the S&P Global services PMI inching up to 53.2 from 53.1 in October, according to survey data released on Wednesday. The expansion, which has now continued for eight straight months, was driven by stronger domestic demand and faster growth in new business, even as export orders declined for a fifth month and input costs rose at the quickest pace in six months due to higher staff, energy and construction expenses. Service-sector employment increased at its fastest rate since January amid the highest business confidence since then, helping lift the Composite PMI, which includes manufacturing, to 52.0 from 51.5. A recently approved fiscal stimulus package from Prime Minister Sanae Takaichi’s government, following an economic contraction in the third quarter, could further support demand and output in the coming months.

Euro area inflation edges higher in November

Euro-area consumer price inflation increased to 2.2% in November, up from 2.1% in October, according to flash estimates released by Eurostat on Tuesday, leaving it just above the European Central Bank’s 2% objective. Services prices are expected to have risen 3.5% year-on-year, a slight acceleration from 3.4% in October, while core inflation, excluding energy, food, alcohol and tobacco, remained steady at 2.4%. The ECB kept its key deposit rate at 2% for the third consecutive meeting in late October, after a cut in June that formed part of a cycle lowering rates from a peak of 4% last year. Meanwhile, euro-area unemployment stood at 6.4% in October, unchanged from September and slightly above the 6.3% recorded a year earlier, according to Eurostat data released separately on Tuesday. European stock markets were mostly firmer on Tuesday. The Euro Stoxx 50 rose 0.4%, while Germany’s DAX added 0.5% and the Swiss Market Index increased 0.3%. France’s CAC 40 bucked the trend, slipping 0.3%.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Salesforce.

Economic data in focus: Services Purchasing Managers’ Index releases from several major economies, including Italy (09:45), France (09:50), Germany (09:55), euro area (10:00), UK (10:30), US (15:45) and US ISM (16:00); Swiss Consumer Price Index (08:30), European Central Bank President Christine Lagarde speaks (09:30), US ADP National Employment Report (14:15) and European Central Bank President Christine Lagarde speaks (14:30, 16:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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