Wall Street Prepares for New Highs on Rate Cut Hopes: Markets Wrap

(Bloomberg) — U.S. stock futures and Treasury bonds held on to gains after an unexpected rise in new home construction, as investors bet that upcoming data would support Federal Reserve easing.

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Futures for the Nasdaq 100 pared an early gain to 0.1% after the tech-heavy index hit a record for a second straight session on Monday. Contracts on the S&P 500 gained 0.2%, with the underlying index nearing an all-time high.

New home construction in the U.S. rose sharply in November, suggesting builders continue to benefit from a limited supply of existing homes. Government data showed on Tuesday that housing starts rose 14.8% last month to an annual rate of 1.56 million.

“Overall, a solid read from the real estate sector that supports the soft landing narrative,” wrote Ian Lyngen of BMO Capital Markets. “Nevertheless, demand in the Treasury market continues even after the data is published.”

Earlier, Japan's Nikkei 225 stock index rallied and the yen fell 1.5% after the BOJ kept its key interest rate at -0.10% and signaled it is in no hurry to end negative interest rates. The move gave new impetus to global markets, which have rallied in recent weeks on expectations that central banks in the United States and Europe will begin their easing campaigns in the coming months.

“There is relief that yields in Japan are unlikely to spike,” said Lee Hardman, strategist at MUFG Bank Ltd. “This also removes some of the downside risk for other major global bond markets.”

The Japanese central bank was an outlier as it had not even started tightening its monetary policy, while many other central banks appear poised to moderate interest rate hike cycles. The meeting follows what appeared to be a dovish policy shift by the Federal Reserve last week that has investors pricing in several U.S. interest rate cuts next year.

The story goes on

These expectations are making investors the most optimistic since the start of 2022, according to a Bank of America Corp. survey. revealed on Tuesday.

Still, policymakers in Europe and the United States have tried to push back against such bets. Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester suggested Monday that expectations were premature. Atlanta Fed President Raphael Bostic will speak later on Tuesday.

“Fed officials are resisting the market’s aggressive pricing of rate cuts in 2024 and we expect investors will continue to ignore policymakers’ efforts,” Lyngen said.

Investors await this week's data releases, including durable goods orders, personal consumption expenditures – the Fed's preferred measure of inflation – and the final estimate of gross domestic product for the third quarter.

Oil prices stabilized after trading near their highest close in two weeks as more companies avoided the Red Sea following a spike in ship attacks along the key shipping route.

Important events this week:

• Inflation in Canada, Tuesday

• New Zealand releases its half-year economic and financial update on Wednesday

• Key interest rates for Chinese loans, Wednesday

• British inflation, Wednesday

• US Conference Board Consumer Confidence, Existing Home Sales, Wednesday

• Bank Indonesia interest rate decision, Thursday

• US GDP, Initial Jobless Claims, Conf. Leading board index, Thursday

• Nike results, Thursday

• Inflation in Japan, Friday

• UK GDP, Friday

• U.S. personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday

Some of the key moves in the markets:

Shares

• S&P 500 futures rose 0.2% at 8:46 a.m. New York time

• Nasdaq 100 futures rose 0.1%

• Futures on the Dow Jones Industrial Average rose 0.2%

• The Stoxx Europe 600 rose 0.3%

• The MSCI World Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.3% to $1.0962

• The British pound rose 0.7% to $1.2742

• The Japanese yen fell 1.1% to 144.32 per dollar

Cryptocurrencies

• Bitcoin rose 0.7% to $42,899.58

• Ether rose 0.5% to $2,226.05

Tie up

• The 10-year Treasury yield fell three basis points to 3.90%

• The 10-year German government bond yield fell six basis points to 2.02%

• The 10-year UK government bond yield fell three basis points to 3.66%

raw materials

• West Texas Intermediate crude oil barely changed

• Spot gold rose 0.1% to $2,029.91 an ounce

This story was produced with support from Bloomberg Automation.

– With assistance from Sujata Rao, Jason Scott and Tassia Sipahutar.

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