Dow makes all-time high in hopes of spring rate cuts

The Dow Jones achieved an all-time high of 35,802 in afternoon trade, signifying the equity market’s bullish tone spurred by hoped-for interest rate cuts. Traders are placing a 40% probability of a March rate cut in the Fed Funds rate. The Fed’s favored inflation measure cooled to 3.5% annual growth, welcome but still above its 2.0% target.

TODAY’S MAJOR NEWS

Fed’s favored inflation measure continued to cool in October

• The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Index, grew 3.0% year-on-year in October, down from 3.4% in September
• "Core" PCE, which excludes the volatile food and energy categories, rose 3.5%, as expected, and down from 3.7% last month
• In related data, personal income increased 0.2% month-on-month in October, as expected, while the September reading was revised up a tick to 0.4%
• Personal consumption expenditures also matched expectations by rising 0.2% month-on-month, down from 0.7% last month

Further oil production cuts by OPEC+ fail to benefit the oil price

• Traders took note of a bearish reversal in energy prices, with crude oil down roughly 3% at one point today, despite what would otherwise have been seen to be bullish news of output cuts from OPEC+ announced after its virtual meeting today
• OPEC+ will cut output by one million barrels per day in the next calendar year, in addition to Saudi Arabia’s current voluntary one million-bpd cut
• OPEC+ output is currently near 43 million bpd, down 5 million bpd from previous production levels, reflecting weak global demand conditions
• Reports from OPEC+ also indicate that Brazil will be joining the cartel in January, adding more weight to output cuts

Continuing unemployment claims surge

• First-time claims for unemployment insurance rose to 218,00 in the week ending November 25, much as expected, and up from 211,00 the previous week
• Four-week moving average claims were virtually unchanged at 220,000 claims
• Continuing claims for the week ending November 18 surged by 86,00 to 1.927 million, and the four-week moving average for continuing claims rose 28,750 to 1.866 million (both signs that the jobless are finding it more challenging to get back into the labor market)

China’s economic growth revised lower, PMI data weakens

International agencies are downgrading 2024 growth projections for China’s economy to the 4.6% – 4.7% range, down from expectations of 5.2 – 5.4% this year. Today’s Purchasing Manager’s Indexes (PMI) showed the economy failing to revive. Observers question whether China’s boost to infrastructure spending will be effective amid China’s new challenges of geopolitical risks, low birth rates, and an aging population.

• China’s official manufacturing PMI fell to 49.4 in November, missing market expectations of 49.7, and down from 49.5 in October – the manufacturing has been contracting since April
• The new domestic orders index slipped to 49.4 in November, down from 49.5 in October, and the new export orders subindex fell to 46.3 from 46.8 in October
• The non-manufacturing ‘services’ PMI also slid to 50.2 in November from 50.6 last month – the lowest this year
• The construction subindex was up from 53.5 to 55, supported by a new round of infrastructure construction

TODAY’S MAJOR MARKETS

Dow hits all-time high

• The Dow Jones index was today’s market leader, up 1.1% to an all-time high, with the Russell 2000 up 0.2%, the S&P 500 was down 0.2%, and the Nasdaq was down 0.8%
• Foreign markets followed the rally in US equities, with the Nikkei 225 FTSE 100 and the up 0.5%, 0.4%, and 0.3%, respectively
• The VIX, Wall Street’s fear index, rose to 13.3

Bonds yields rise, Dollar rallies

• 2- and 10-year yields rose to 4.70% and 4.34%, respectively.
• 10-year TIPS index-linked yields rose to 2.08%
• The dollar index rose 0.7% to 103.5
• Versus the dollar, the Euro and Yen were down 0.7%, while Sterling was down 0.5%

Gold and oil see profit-taking

• Oil prices fell 2.2% to $76.2 per barrel as demand concerns continue to hang over the market and despite OPEC+ announcing further production cuts
• Gold prices saw profit-taking, down 0.5% to $2,058 per ounce, while Silver prices rose 0.7% to $25.6 per ounce
• The 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