The global financial markets experienced a downturn on Tuesday as investors anxiously awaited a series of central bank decisions, most notably an anticipated rate cut from the Federal Reserve. This market apprehension was reflected in falling stock prices and crude oil values. Meanwhile, Bitcoin surged to new record highs, and benchmark U.S. Treasury yields held steady in anticipation of what experts predict will be a “hawkish cut” from the Fed.
The Dow Jones Industrial Average concluded its ninth consecutive day in negative territory, a losing streak unseen since 1978. This prolonged decline underscores the current market uncertainty. “It’s a respite for most of the market,” noted Paul Nolte, Senior Wealth Advisor and Market Strategist at Murphy & Sylvest. He further observed that current market behavior reflects the significant divergence between growth and value stocks, as well as large and small cap performance, trends that dominated the first half of 2024.
Beyond the Federal Reserve, central banks in Japan, Britain, Sweden, and Norway are also scheduled to convene this week. While the Bank of Japan, the Bank of England, and Norges Bank are expected to maintain their current policies, the Riksbank is projected to implement a rate cut. The Federal Open Market Committee commenced its two-day monetary policy meeting on Tuesday, with widespread expectations of a 25 basis-point reduction to the key Fed funds target rate on Wednesday.
Market participants will closely examine the accompanying Summary of Economic Projections, anticipating a potential moderation of Fed policy expectations for the upcoming year. This adjustment is likely influenced by persistent inflation and robust economic data. “We’re getting a cut right now because it’s largely been priced in and (the Fed has) been sort of backed into it by their earlier commitments, and by the market,” explained Robert Pavlik, Senior Portfolio Manager at Dakota Wealth. He added, “Going forward, they’re going to be on a pause until more favorable inflation data comes their way… I’d rather have a hawkish cut than no cut.”
Reinforcing the strength of the U.S. economy, a retail sales report exceeded expectations. Conversely, weak retail sales figures from China raised concerns about potential softening in global demand. The Dow Jones Industrial Average fell 0.61%, the S&P 500 declined 0.39%, and the Nasdaq Composite dropped 0.32%.
European stocks also retreated to two-week lows, primarily impacted by energy and healthcare sectors. This decline was further exacerbated by the disappointing data from China, fueling anxieties about global demand. MSCI’s global stock gauge fell 0.44%. The STOXX 600 index and the FTSEurofirst 300 index both experienced declines. Emerging market stocks also saw a significant drop. In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan and Japan’s Nikkei both closed lower.
In the fixed-income market, yields on 10-year Treasuries receded from three-week highs in anticipation of the Fed’s decisions. The yield on benchmark U.S. 10-year notes, the 30-year bond yield, and the 2-year note yield all experienced slight declines.
The dollar strengthened against a basket of global currencies, buoyed by the positive retail sales data and the expectation of a more gradual easing pace from the Fed. The dollar index rose, while the euro weakened against the dollar. The dollar also weakened against the Japanese yen.
Bitcoin reached a new all-time high, potentially driven by the prospect of a strategic bitcoin reserve proposed by U.S. President-elect Donald Trump. Bitcoin gained in value, while Ethereum experienced a decline.
Oil prices declined amidst renewed concerns about demand following economic data releases from Germany and China. U.S. crude and Brent crude both saw price drops.
Gold prices retreated due to pressure from a strong dollar and diminished expectations for aggressive interest rate cuts. Spot gold and U.S. gold futures both fell.
In conclusion, global markets exhibited volatility as investors braced for crucial central bank decisions. While the U.S. economy showed signs of strength, concerns linger about global demand and future monetary policy. The coming days will be critical in determining the direction of the markets as central banks around the world unveil their policy decisions.
