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The turnaround in interest rates seems to be approaching, but patience is likely to be required

Last week's monetary policy decisions are still having an impact on the capital markets. Many investors are betting on falling interest rates, which led to a sustained record hunt on Wall Street and pushed the yield on ten-year US government bonds below 4% and thus only just above the lowest level since July. However, the latest statements from the head of the US Federal Reserve have already dampened hopes of a turnaround in interest rates in the near future, meaning that patience is still required. In Asia, stock markets made a subdued start to the new week, while oil prices rose slightly.

Alessandro Fezzi, LGT
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5 minutes
Fed interest rate pause
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The Dow Jones Industrial reached a new record high on Friday for the third day in a row. The Dow climbed above the 37,300 mark for the first time shortly before the close of the week. The Dow closed at 37,305.16 points on Friday, 0.15% higher than the previous day. Over the week, the stock market barometer thus achieved a gain of just under 3%. The latest rally is being driven by the prospect of an imminent interest rate turnaround by the US Federal Reserve, after the Fed's latest forecasts predict three interest rate cuts next year. On Friday, however, statements by the President of the New York Fed, John Williams, dampened these hopes. Williams said on CNBC that it was still "too early" to think about interest rate cuts in March. The S&P 500 ended trading on Friday almost unchanged at 4,719.19 points (-0.01%), while the indices on the Nasdaq gained around 0.5%. The benchmark yield on ten-year US government bonds remains below the 4% mark and currently stands at 3.91%.

Meanwhile, the latest data on industry in the US was negative. For example, sentiment in the regional industry in the state of New York unexpectedly deteriorated significantly in December. The Empire State Index fell from plus 9.1 to minus 14.5 points. Industrial production at a national level increased by 0.2% in November compared to the previous month. However, an increase of 0.3% was expected.

Oil prices rose moderately at the beginning of the new week. They were supported by a weaker US dollar on the one hand and the tense situation in the Red Sea after Iran-backed Houthi rebels attacked several ships there on the other.

In Asia, the stock markets opened the new week on a subdued note. After most Asia-Pacific markets rallied last week following the US Federal Reserve's decision to keep interest rates unchanged, the air seems to have been let out a little. Tomorrow, Tuesday, the Bank of Japan's interest rate decision will be in focus. The Japanese central bank is expected to leave its monetary policy unchanged. In Tokyo, the Nikkei 225 fell by 0.65% on Monday, while South Korea's Kospi made up for earlier declines and rose by 0.25%. The small-cap Kosdaq even rose by 1.75%. In Australia, the S&P/ASX 200  closed 0.2% lower, ending a six-day winning streak. In Hong Kong, the Hang Seng Index fell by 0.9% and the CSI 300 in mainland China also fell by 0.3%.

In the eurozone, sentiment among companies surveyed by S&P Global took a surprising turn for the worse towards the end of the year. The Purchasing Managers' Index for the services and industrial sectors fell by 0.6 points to 47.0 points, whereas economists had expected an improvement to 48.0 points.

In the UK, however, the business climate improved slightly in December. The Purchasing Managers' Index for the private sector climbed from 50.7 to 51.7 points. According to S&P Global, sentiment in the service sector brightened, but deteriorated in the industrial sector.

Corporate news in focus: Société Générale Capital Markets Day.

Economic data in focus: Switzerland KOF Forecasts (09:00), Germany Ifo Business Climate December (10:00), USA NAHB Housing Market Index December (16:00).



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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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