Rising Rate-Cut Bets Boost Sentiment Across Assets

Index Update:  New York Fed President John Williams signaled that a near-term rate cut is still on the table, noting that labor market softness is now a bigger concern than inflation. This pushed market expectations for a December 25 bps cut to about 69%, up from 44% last week. At the same time, reports suggest U.S. officials are exploring whether Nvidia may be allowed to sell its H200 AI chips to China, following CEO Jensen Huang’s lobbying for eased export restrictions amid rising competition in the Chinese market.

Market Movers:  On Friday, the top gainers were Foxx Development Holdings Inc. (+75.16%), followed by Mobile-health Network Solutions (+56.25%). On the contrary Mawson Infrastructure Group Inc. (-39.34%), and Geospace Technologies Corporation (-25.90%) declined the most the same day.

Commodities Update:  WTI and Brent crude futures fell to one-month lows, marking their fourth straight session of losses, as hopes for a U.S.-backed Russia-Ukraine peace deal raised the possibility of sanctions on Russian oil being lifted and adding to an already oversupplied market. WTI slipped to $57.6 and has dropped over 5% this month, while Brent neared $62 and is down more than 3%, with both set for a fourth consecutive monthly decline. Gold edged up to around $4,070 per ounce after a mild weekly dip, supported by rising expectations of a December Fed rate cut following dovish comments from Fed President John Williams. Markets now see a 69% chance of a 25 bps cut, up from about 40% last week. Gold has gained roughly 55% this year on strong safe-haven demand, central bank buying, and ongoing geopolitical and fiscal concerns.

Macro Updates:  The dollar index held above 100, near a six-month high, as markets reassessed the Fed’s policy outlook. Comments from New York Fed President John Williams kept the possibility of a near-term rate cut alive, lifting December cut expectations to 69% from 44% a week earlier, though policymakers remain split, with Boston Fed President Susan Collins undecided. The dollar strengthened against the euro and pound amid rising fiscal concerns in Europe, while the yen pared some of Friday’s gains despite renewed verbal intervention from Japanese officials.

Bonds Commentary:  The U.S. 10-year Treasury yield dropped to 4.06%, its lowest since late October, as expectations for a December Fed rate cut strengthened. NY Fed President John Williams and Governor Miran signaled support for further near-term easing, while Dallas Fed President Logan cautioned against cutting without clearer evidence of faster inflation cooling or a weaker labor market. Market odds of a December cut have jumped to about 71%, up from under 30% earlier in the week. The 10-year yield is now headed for its biggest weekly decline since early October.

Futures Update:  U.S. stock futures were higher on Monday as traders weighed the likelihood of another Federal Reserve rate cut in December. Dow, S&P 500, and Nasdaq futures were up 0.3%, 0.6%, and 0.9% respectively. While some Fed officials support a cut to support a weakening labor market, others warn against moving ahead due to outdated data following the government shutdown. Despite this divide, markets still assign over a 70% probability to a 25-basis-point cut, following similar reductions in September and October.

Stocks initially showed a lack of clear direction early in Friday's session but gained significant momentum throughout the day. The S&P 500 rose by 64.21 points, or 0.98%, closing at 6,602.98. From a technical perspective, the index found support at key levels and gradually moved higher, suggesting the potential for an upward trend in the near term. However, a close above the key moving average would be an important level to watch. The 14-day Relative Strength Index (RSI) remains below the midpoint, indicating underlying weakness. Key support levels are around 6,500, while resistance is expected near 6,740.