Treasuries extend gains as Fed pivot bet grows: Markets Wrap

   2023-11-29 07:11

(Bloomberg) — Stocks advanced and Treasuries extended their November rally as expectations grew that the Federal Reserve is done with policy tightening and may start cutting interest rates next year.

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Bonds are climbing at the fastest monthly pace since 2008 as inflation continues to slow and Fed officials strike a dovish tone. The MSCI All Country World Index of stocks has gained 8.7% so far this month, its most since November 2020. The dollar paused a four-day retreat.

Europe’s Stoxx 600 index rose 0.5% and US equity futures pointed to gains at the open. Shares in Spanish construction firm Ferrovial SE jumped as much as 3.2% after it agreed to sell its stake in the parent company of the UK’s Heathrow Airport.

The latest leg higher for markets came after Fed Governor Christopher Waller suggested the central bank is well positioned to push inflation to a 2% target. Billionaire investor Bill Ackman said he’s betting Fed cuts could come as soon as the first quarter — earlier than market pricing is suggesting.

“The market is hanging on to everything Fed speakers say,” said Justin Onuekwusi, chief investment officer at UK wealth manager St James Place. “It was only the end of October when we were talking of 5% yields on US Treasuries. It does feel like the market is being a bit complacent.”

German bonds rallied for a third day, the longest stretch in a month, after data from the state of North Rhine-Westphalia showed that inflation continued to slow. Two-year Treasury yields dropped four basis points to 4.70% after shedding 15 basis points Tuesday. Fed swaps are anticipating over 100 basis points of rate cuts by the end of 2024.

Now, traders are looking ahead to data on Thursday that include the Fed’s preferred measure of underlying inflation, and a speech by Fed Chair Jerome Powell at the end of the week that could offer clues on potential policy easing.

“I would expect some pushback on market rate expectations,” said Marc Ostwald, chief economist & global strategist at ADM Investor Services Int. Ltd. “Inflation will have to drop sharply in the coming months, and the labor market will need to loosen a lot more to justify a rate cut in the first half of 2024.”

Elsewhere, oil climbed for a second day as traders awaited a high-stakes OPEC+ meeting on supply. Gold extended gains to its highest level since May, also buoyed by hopes of a Fed policy shift.

Key events this week:

  • OECD releases biannual economic outlook, Wednesday

  • Eurozone economic confidence, consumer confidence, Wednesday

  • Bank of England Governor Andrew Bailey speaks, Wednesday

  • US wholesale inventories, GDP, Wednesday

  • Cleveland Fed President Loretta Mester speaks, Wednesday

  • Fed releases its Beige Book, Wednesday

  • China non-manufacturing PMI, manufacturing PMI, Thursday

  • OPEC+ meeting, Thursday

  • Eurozone CPI, unemployment, Thursday

  • US personal income, PCE deflator, initial jobless claims, pending home sales, Thursday

  • China Caixin Manufacturing PMI, Friday

  • Eurozone S&P Global Manufacturing PMI, Friday

  • US construction spending, ISM Manufacturing, Friday

  • Fed Chair Jerome Powell to participate in “fireside chat” in Atlanta, Friday

  • Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.5% as of 10:24 a.m. London time

  • S&P 500 futures rose 0.3%

  • Nasdaq 100 futures rose 0.4%

  • Futures on the Dow Jones Industrial Average rose 0.3%

  • The MSCI Asia Pacific Index fell 0.3%

  • The MSCI Emerging Markets Index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.1% to $1.0977

  • The Japanese yen was little changed at 147.56 per dollar

  • The offshore yuan was little changed at 7.1321 per dollar

  • The British pound was little changed at $1.2691

Cryptocurrencies

  • Bitcoin rose 0.6% to $38,189.96

  • Ether rose 0.3% to $2,060.63

Bonds

  • The yield on 10-year Treasuries declined three basis points to 4.29%

  • Germany’s 10-year yield declined four basis points to 2.45%

  • Britain’s 10-year yield declined four basis points to 4.14%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Tassia Sipahutar, Masaki Kondo, Winnie Hsu, Shen Hong and Sujata Rao.

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