Nasdaq, S&P 500 rally ahead of Fed’s rate decision

Nasdaq and the S&P 500 rose 0.6%, reflecting traders’ optimistic view that the Fed will have a positive message of a soft landing for the economy with no more rate rises at this week’s FOMC meeting. This is jobs week, with crucial Non-Farm Payroll data due on Friday. Oil prices fell 3.1%, reflecting the market’s view that the fighting will be contained in Gaza. The United Auto Workers reached a tentative agreement with Ford and Stellantis last week, allowing it to escalate actions against General Motors.

Bottom line: Risk-on.

TODAY’S MAJOR NEWS

Optimism reigns despite solid job data, hot economy

Optimism reigns eternal on Wall Street ahead of Wednesday's policy statement from the Federal Reserve. Ironically, the next Fed decision comes along with critical jobs data to be released on Friday: 188,000 job additions are forecast for October after the blow-out of 336,000 for September, and an unchanged 3.8% unemployment rate.  The September Job Openings and Labor Turnover Survey (JOLTS) is due on Wednesday. August also showed a surprisingly strong 9.6 million job openings, up from a revised total of 8.9 million in July.

No rate hike priced

Fed fund futures give zero chances of a hike in the Federal Reserve’s benchmark interest rates when they meet on Tuesday and Wednesday. However, the odds of a rate hike in December remain at 24%, with the odds of a walk in January at nearly one in three. But the market has rarely been right about Fed actions in recent years – constantly expecting a rate hike when rates were low while expecting rate cuts when they were high.

It’s interesting to note that there is little correlation between market expectations and what the Fed does. Most rate cuts come when the market does not expect them. As such, I would suggest that we’ll see the Fed remain hawkish until the market gives up on its hopes for rate cuts, and then that’s when the cuts will come. Until then, the risk of higher rates remains, especially for the long end of the yield curve.

Biden-Xi summit meeting still uncertain

China’s Foreign Minister Wang Yi made it clear on Sunday that the US has some work to do before President Xi Jinping agrees to meet with President Joe Biden in San Francisco during the Asia-Pacific Economic Cooperation summit next month. The foreign minister stated that the “road to the San Francisco summit will not be smooth.”  Wang met with President Biden and his top aides in Washington over the weekend to work toward a possible bilateral meeting during the APEC meeting in two weeks.

TODAY’S MAJOR MARKETS

Nasdaq, S&P 500 lead market bounce

• Nasdaq and the S&P 500 rose 0.6% in morning trade, with the more broadly based Russell 2000 up 0.4%
• Foreign equity markets were mixed, with a 1.0% fall in the Nikkei 225, a 0.2% fall in the DAX, and a 0.5% rise in the FTSE 100
• The VIX, Wall Street’s fear index, fell back to 20.2

Bond yields unchanged, dollar slips

• 2- and 10-year yields held steady at 5.05% and 4.90%
• The dollar index was off 0.3% at 106.2
• Versus the dollar, the Euro rose 0.4% after recent weakness, the Yen rose 0.2%, and Sterling was up 0.2%

Gold and Silver rally, oils slips

• Crude oil prices fell 3.2% to $82.8 per barrel
• Spot gold prices rose 0.6% to 2,009 per ounce, while Silver rose 2.6% to $23.5 per ounce
• Grain and oilseed markets were mixed.

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

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