Nasdaq reflects optimism for 2024 as Fed Governors play Scrooge on early rate cuts

Last week’s ‘pivot’ rally has inspired some lofty bull market forecasts for equity markets in 2024, but a handful of Fed Governors played Scrooge by downplaying how soon and how far rates could fall. Meanwhile the Bank of Japan could raise rates tomorrow. At home, US housebuilders are getting more optimistic against the backdrop of almost a point decline in mortgage rates.

TODAY’S MAJOR NEWS

Fed officials question pace and scope of interest rate cuts

Last Friday, the Presidents of the Atlanta and New York Feds made different speeches from the Chicago Fed President, demonstrating the difference of opinion within the Committee:

Atlanta Fed President Raphael Bostic said he sees just two cuts next year, starting in Q3. “We've got to figure out definitionally what the 'neighborhood' looks like" where the inflation outlook is such that rate cuts are warranted, Bostic said. "Over the next several weeks ... I think we are going to start talking about that."

New York Fed President John Williams said it is "premature" to discuss a March. “We aren't really talking about rate cuts right now," he said in an interview with CNBC. When it comes to the question of lowering rates, "I just think it's just premature to be even thinking about that.”

Chicago Fed President Austin Goolsbee said on Sunday said the risks are becoming more balanced, implying that the Fed might need to cut interest rates to shift its focus towards the 'full employment' versus 'low inflation' element of its dual mandate.

Bank of Japan (BoJ) raising interest rates

The BOJ is not only the last of the G4 central banks to make its last 2023 policy decision tomorrow, but its higher interest rate policy is out of step with the rate cutting mood. Japanese authorities have signaled their desire to ‘normalize’ the previous long period of abnormally lower interest rates as they coped with deflation and sluggish economic growth. The impact of this policy has been a sharp rise in the Yen and underperformance by the Japanese equity market over the past two years: the former rose by 50%, for Yen/USD 100 to 150; the Nikkei 225 index rose by around 17%, lagging the bull market in other developed equity markets. It’s interesting to ponder how much of this well signaled policy tightening is now in market prices, and expectations of investors.

Housebuilders confident of a housing market recovery

Easing interest rate expectations and decline in the 30-year fixed-rate mortgage rate, to just over 7% from a peak close to 8% in October, has inspired greater confidence in housebuilders and a belief that spring will see a rebound in house prices and activity.

US homebuilder confidence rose to 37 in December, better than expected, up from 34 last month prior according to the National Association of Homebuilders/Wells Fargo Index
Confidence fell to the lowest since December 2022 in November
Prospective buyers have returned to the housing market, with the NAHB’s buyer traffic index reaching a year-high of 40 in July
Yet the index reading representing the price of new homes was unchanged at 36 in December

TODAY’S MAJOR MARKETS

Nasdaq leads markets as commentators get bullish on 2024

Official market forecasters at the major banks are getting bullish on 2024, and specifically on tech stocks. The Nasdaq rallied 0.7% in morning trade, the S&P 500 was up 0.5%, while the Dow and Russell 2000 were unchanged
The Nikkei 225 fell 0.6% ahead of the BOJ’s interest rate decision tomorrow, with the DAX off 0.6% and the FTSE 100 up 0.5%
The VIX, Wall Street’s fear index, was unchanged at 12.5

Bonds yields tick up, dollar unchanged

10-year TIPS index-linked yields rose to 1.73% yield, but are still historically low
2- and 10-year yields also rose marginally, at 4.47% and 3.96% yields, respectively
The dollar index was unchanged
Versus the dollar, the Yen and Sterling were off 0.6% and 0.8% respectively, while the Euro rose 0.2%

Oil prices rally on Mid East news

Oil prices rose 1.9% after news of an attack by Iranian-backed Houthis on an oil tanker in the Red Sea, as if the emphasize the regions volatility
Gold prices held steady at $2,040 per ounce, up 0.2%, while Silver prices fell 0.4% to $24.0 per ounce
The grain and oilseed sector was mixed despite plentiful news, while corn and wheat prices are slipping lower yet again
Soybeans were supported by risks in Brazil weather and in Red Sea shipping of cargoes on their way to China
Soybean meal and soybean oil found support from a move by Argentina to raise export taxes on those products from 30% up to 33% to match the tax currently on soybeans provide those headlines if they occur.

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

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

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.