“Investors are being defensive today,” said Matt Maley, chief market strategist at Miller Tabak + Co. “They’re not jumping back into the market with both feet. So, if we don’t get some relief from the bond market soon, there might not be a Santa Claus rally this year.”
Elsewhere, President-elect Donald Trump and House Republicans struck a deal to avert a US government shutdown and suspend the federal debt limit for two years.
The cautious trading in the US on Thursday indicated investors are still digesting the Fed’s scaled rate cut expectations for 2025. The so-called hawkish pivot was likely what the central bank had planned for next year before the meeting, according to Evercore ISI’s Krishna Guha.
Powell said on Wednesday that some policymakers had begun to weave into their forecasts the potential impact of higher tariffs that Trump may implement.
“To a large degree the Fed decided to pad its forecast and pre-position for Trump – pulling forward much of what would otherwise have been a hawkish update in March,” Guha wrote in a note. That makes the Fed’s pronouncement of a new phase of policy “hawkish absolutely, but not as hawkish as it looked,” Guha wrote. He’s expecting the US central bank to skip an interest-rate cut in January unless cracks appear in the labor market.
The swaps market is now implying fewer than two quarter-point reductions for the entirety of 2025, even less than what was implied in the Fed’s so-called dot plot on Wednesday.
The Bank of England kept borrowing costs unchanged Thursday at 4.75%. Still, money markets now see two quarter-point reductions and a strong chance of a third in 2025 after three of the nine-member policy committee called for a cut at Thursday’s meeting. Swap traders had priced in less than two reductions next year prior to the announcement. The pound declined.
Mexico’s peso shrugged off losses after the country’s central bank delivered a fourth consecutive rate cut.
In Asia, data set for release Friday includes inflation for Malaysia and Hong Kong, and Taiwan export orders for November. China may release its one-year Medium-Term Lending Facility rate as early as today.
Elsewhere in Asia, Korea’s won weakened to levels that can force the National Pension Service to sell up to almost $50 billion of foreign exchange to hedge against losses, according to people familiar with the matter.
In commodities, oil edged lower Thursday after the Fed’s outlook for next year boosted the dollar. Gold was flat around $2,593 per ounce after stemming a two-day decline Thursday.
