Yesterday marked a day of optimism for markets as the Federal Reserve (Fed) hinted at rate cuts for the first time. This, together with the US Consumer Confidence Index ticking up in November, brought gains to the stock and bond markets.
Fed Governor Christopher Waller Hints at Rate Cuts
Yesterday, the stock and bond markets continued to extend November's gains. The main reason was the words of a voting member of the Fed that reinforced speculation that the central bank will have room to cut interest rates in 2024.
Just days before the blackout period in which Fed officials do not speak publicly, Governor Christopher Waller said he is, “increasingly confident that policy is currently well positioned to slow the economy and make inflation returns to 2%”.
Stocks are Being Bought on Further Confidence in Rate Cuts
Two-year US bond yields fell 12 basis points to below 4.8%. This is the bond that is most sensitive to the Fed’s interest rate changes.
Waller is generally a hawk, so this is a real turnaround on his part and the first indication from any Fed official that rate cuts could be on their way. The market is already pricing in a 75% chance of a rate cut in May, although this has not been supported by the Fed until now.
As a result, there has been significant selling of US Dollars along with buying of stocks.
EUR/USD Reached 1.10 For First Time Since Last August
The EUR/USD pair surpassed the psychological level of 1.10 yesterday for the first time since last August. Technically, it is already trading above 1.0960, which is the 0.618% Fibonacci retracement of the entire previous bearish leg. This scenario anticipates greater advances toward the 1.1080 zone, which is the next reference zone.
US Consumer Confidence Index Came Out Higher Than Expected
All of this despite the fact that the Consumer Confidence data published yesterday was higher than expected. It came out at 102.0 vs. 99.1 the previous month. This figure shows the strength of the economy and that would presumably have strengthened the US Dollar.
This scenario favours the stock market and the indices that were initially doubtful had another day of gains after Waller's statements, despite the overbought technical levels.
Best Buy Inc. Shares Were up 13%
The shares of the retail chain Best Buy Inc. were up 13% from the lows of November 10th and are beginning to show improved technical perspectives.
Best Buy daily chart, November 29, 2023. Source: CAPEX.com WebTrader.
Key Takeaways
- Fed Governor Christopher Waller hinted at rate cuts yesterday.
- The stock and bond markets continued to extend November’s gains.
- Two-year US bond yields fell 12 basis points to below 4.8%.
- A 75% chance of a rate cut in May has already been priced in by the market.
- The EUR/USD pair passed the 1.10 level yesterday.
- The US Consumer Confidence Index data came out higher than expected.
- Shares of Best Buy Inc. gained 13% from their November 10th lows yesterday.
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Sources: Bloomberg, Reuters
