April 25, 2024

Sputters Rally on Speculations that Fed Might Pivot

Investors have halted their participation in the ongoing market rally. Stocks in the US and Europe have fallen on Wednesday as a result. The rally was driven by speculations that the Feds are about to reduce their hawkishness.

A Break from the Rally

Investors are waiting on the sideline to see if inflation is getting moderate. Each of the S&P 500 and Nasdaq 100 lost 0.6% of their December contracts. This came after the indexes went beyond their two weeks heights early on Tuesday.

The Stoxx 600 in Europe also stopped its advances in the last three days. Likewise, oil prices changed a bit ahead of the OPEC+ meeting. It is expected that the organization will announce a production cut.

Treasury bonds fell and the US Dollar oscillated between profit and losses. Although some asset managers are cautioning the market against high Fed pivot expectations. They said traders underestimate the economic difficulty that might follow the dovish maneuver. 

Note that the US economic jobs report is due to be released on Friday. Meanwhile, there are new earning data also ahead. This puts traders in the mood to watch out for more economic catalysts.

Barclay’s Head of European Equities, Emmanuel Cau, wrote about the dovish speculation. He said such a pivot will require evidence of slower economic growth. Furthermore, it will equally require an assurance of a decisive inflation fall.

Market Considerations

In the final analysis, Cau doubts if stocks can fully recover yet. Although stocks gained some ground across Asia as markets raced up to US overnight sales. Stocks in Hong Kong posted their best day rallies since March following a day’s break.

But the stocks benchmark in Europe dropped by 0.5%. It, therefore, shed some of the 5.3% gains made three days ago. This was majorly due to shares falling from telecommunications, auto parts, and real estate.

Treasuries in the US dropped off at the curve as the ten-year yield added 4bps. The US, then, gained 0.2% following an earlier 0.1% trade down.

The oil stock of West Texas Intermediate sold above $86/barrel. This constitutes an average loss for the oil index. OPEC+ begins its meeting on Wednesday where it might cut production.

The OPEC+ meeting might reduce production by up to 2 million barrels/day. This was according to delegates at the Vienna meeting.

While at that, the attention of investors is focused on the coming NFP data. The data coming on Friday is expected to show the addition of 263,000 jobs.

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