Bitcoin hits 18-month high, other markets take a breather

Bitcoin has risen 20% in the past four weeks, hitting an 18-month high, boosted by speculation that interest rates have peaked and hopes for a major Bitcoin ETF launch. Other than bargain hunting in the Russell 2000, up 1.0%, US equities were down on profit-taking. Gold took a pause and stepped from recent all-time highs. The oil price continued its downward move despite last week’s announced OPEC+ production cuts.

TODAY’S MAJOR NEWS

Fed will gain insight from weaker economic data ahead of next week’s interest rate decision

Traders braced for a plethora of key economic data this week ahead of next week’s meeting of the Federal Open Market Committee, which will review the Federal Reserve’s monetary policy. The focus is again on tepid economic activity, and the Federal Reserve will continue to walk a fine line next week as it considers potential changes to its monetary policy.

Official statements emerging from the meeting will likely focus on how the central bank’s policy is working to slow economic activity in an effort to bring inflation down to the 2% mandate, while stating that they need to stay the course to make sure that we do not see a resurgence of inflation, as happened in 1980 when the Fed pivoted too soon. Analysts will monitor individual member rate expectations, as shown in the dot plot graphic, for signs of pivot expectations going forward.

The Fed knows that the effectiveness of its policy is as much about market and consumer expectations as it is actual policy. The recently released consumer sentiment survey showed that consumers currently expect a resurgence of inflation in the month’s ahead, which has to be a concern of Fed members. Expectations of inflation being a longer-term problem tends to result in labor actions to increase wages, further perpetuating the inflation cycle.

November data showed US economy cooling fast

The last week of November saw a range of data suggesting the economy is cooling fast.  The slowdown in the labor market, investment, and spending contains were abrupt. Things were only gradually slowing before but suddenly the drop-off accelerated. Are we at a turning point toward a recession?  Cooling in the labor market has gained momentum recently. That is the main reason inflation is softening. The Atlanta Fed GDPNow’s estimate for 4Q GDP growth had fallen to just 1.2% from 2.1% a week earlier. 

US Jobs data will be key to the rate decision

Data in the coming week will likely continue the downbeat trend with a big focus on jobs. We get Job Openings and Labor Turnover Survey (JOLTS) on Tuesday, which is trending down as fewer workers leave voluntarily taking longer for others to find work.  The expected drop in job openings will bring the ratio of openings to unemployed workers to 1.44 from 1.50 in September. That’s still above the 1.2 level that persisted throughout 2019, but down from a peak of 2.0 in March 2022.

The ISM services gauge, also on Tuesday, likely continued cooling in November, though it’s expected to remain in expansionary territory and will likely show flat or declining employment in service industries.

On Thursday, we get Initial Jobless claims which are estimated to edge down due to seasonality around the Thanksgiving holiday, and nonfarm payrolls on Friday may send mixed signals about the state of the labor market. A solid nonfarm payroll print following a resolution to the UAW strikes is expected to contrast with a weak household survey, where the unemployment rate may edge up to 4.0%.

China’s most indebted property company allowed to restructure

China’s Evergrande Group – its most indebted real estate company with liabilities of $327 billion – will be allowed to extend its restructuring plan following a favorable court ruling in China. This gives it eight more weeks to come up with a solution to its spiraling debt problem amid a stagnant property market. China’s central bank vowed to safeguard against systemic risks in a recent statement, including worries about mounting debt for local governments.

The next focus will be China’s central economic work conference this month at which policymakers will discuss economic targets for the coming year. It’s a closed-door meeting, with the product of the meetings typically not announced until the following March. However, one has to wonder whether officials will release something earlier this year to reassure consumers that the economy will be fine. Weak consumer confidence is one of the primary factors undermining the property market currently.

TODAY’S MAJOR MARKETS

Dow hugs all-time high amidst profit-taking

• The Dow Jones index held on to its all-time high, down just 0.2%, while the Russell 2000 was today’s market leader, up 1.0%, with the Nasdaq and S&P 500 off 0.9% and 0.6% respectively
• European markets were weaker overnight, led by the Dax off 0.8%, the Nikkei 225 off 0.6% and the FTSE 100 off 0.2%
• The VIX, Wall Street’s fear index, rose to 13.2

Bonds yields rise, Dollar rallies

• 2- and 10-year yields rose to 4.64% and 4.29%, respectively.
• 10-year TIPS index-linked yields rose to 2.08%
• The dollar index rose 0.4% to 103.7
• Versus the dollar, Sterling was off 0.8%, while the Euro and the Yen were off up 0.4%

Gold and oil see profit-taking, ags stronger

• Oil prices continued last week’s decline, off 0.5% to $73.7 per barrel
• Gold prices fell 2.2%, retreating from a new all-time high back to $2,043 per ounce, while Silver prices fell 3.5% to $25.0 per ounce
• Wheat prices were stronger on Chinese demand combined and positive chart signals in recent days
• Corn had some strength late morning on today's export inspection data, but that waned when prices failed to even test the previous session's high
• Soybeans sold off overnight on high production estimates for Brazil, with prices breaking chart support, before rallying on disappointing rainfall totals for Brazil, but then they sold off again by midday

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com