Global stock markets opened the week on a positive note, buoyed by increasing expectations of a Federal Reserve interest rate cut in December. This optimism persists despite ongoing divisions among policymakers regarding the timing and extent of such a move. Investors are preparing for key economic indicators, including US retail sales and producer prices data, expected later this week.
On the political front, Rachel Reeves, the British finance minister, is set to present her much-anticipated budget on November 8, 2023. Geopolitical developments are also capturing attention, particularly as the US and Ukraine work on a revised plan to address the ongoing war with Russia. This new proposal aims to balance concerns, as the previous version was perceived as overly favorable to Moscow, potentially affecting oil supply dynamics.
Market Reactions and Economic Indicators
European stocks experienced a rally in early trading, recovering from a late bounce on Wall Street last Friday. The STOXX 600, which concluded last week down by 2.2 percent, gained 0.5 percent on Monday. Notably, defence sector stocks saw declines, but these losses were offset by gains in technology, pharmaceuticals, and banking sectors. Futures for the Nasdaq and S&P 500 rose by 0.8 percent and 0.55 percent, respectively, while the MSCI index of Asia-Pacific shares, excluding Japan, increased by 1 percent.
The latest upturn follows comments from influential Fed policymaker John Williams, who indicated that interest rates could decrease “in the near term.” This has led to an enhanced possibility of a rate cut in December. Jan Hatzius, chief economist at Goldman Sachs, stated, “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 percent.”
Market expectations currently suggest a roughly 60 percent chance of a 25 basis point cut by the Fed next month. However, an ongoing US government shutdown, which ended earlier this month, has complicated the economic outlook. The shutdown disrupted the collection of data, leading the Bureau of Labor Statistics to cancel the release of the October consumer price report.
Paolo Zanghieri, a senior economist at Generali Investments, expressed caution, stating that the market might be anticipating more rate cuts than the Fed is likely to implement. “We see the chance of a cut next month as 50/50. Given limited new data, it would be reasonable for the Fed to wait until January while signalling an easing bias,” he noted. Zanghieri also suggested that the market’s expectation of nearly four cuts next year, driven by hopes for rapid disinflation, might be overly optimistic, predicting only 50 basis points of easing by summer.
Currency and Commodity Market Developments
In currency trading, the focus remained on the Japanese yen, which is trading near a 10-month low against the dollar. The dollar strengthened by 0.3 percent to 156.86 yen, with the yen depreciating approximately 1.8 percent against the dollar so far in November, marking it as the worst-performing major currency this month. Traders are wary of potential intervention from Japanese authorities aimed at stabilising the yen, which has faced pressure due to concerns about Japan’s fiscal health and low domestic interest rates.
Finance Minister Satsuki Katayama has intensified her verbal support for the yen, which appears to have temporarily halted its decline. Saktiandi Supaat, head of FX research at Maybank, commented, “Dollar/yen will definitely be going upwards even if you try to intervene. 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.”
Meanwhile, the dollar weakened against most other currencies in light of rising expectations for a Fed rate cut next month. The euro rose by 0.16 percent to $1.15295, while the pound remained stable at $1.3098 ahead of Wednesday’s budget announcement.
In commodity markets, Brent crude futures fell by 0.5 percent to $62.27 a barrel, and spot gold prices held steady at $4,064 per ounce. Market participants are keeping a close eye on these developments as they could influence future trading strategies.
