After the November rally, where stocks and bonds rose a lot, now they are going down. Traders are taking a break and discussing whether interest rates should be lowered.
As the pause comes after a strong month, people are thinking about what might happen next.
The 10-year Treasury yield rose by five basis points, reaching 4.25%. Bitcoin jumped above $41,000, and gold briefly reached its highest point ever. At the same time, US futures showed small losses.
Traders Await Job Market Evaluation Data Coming Next Week
This week, some economic reports are expected to reveal how the US job market is doing. People want to know if the excitement in the markets about the economy getting weaker is too early and if that might lead to the Federal Reserve cutting interest rates.
JPMorgan Chase & Co. strategists, led by Mislav Matejka, cautioned that hopes for a gentle economic slowdown. They forecast relying on an economy moving slowly and seems delicate.
They have also warned that this makes the market vulnerable to the dangers of a more serious downturn.
Despite Federal Reserve Chair Jerome Powell emphasizing that it is too early to speculate on easing, bond traders have increased their bets, doubling down on the belief that the Federal Reserve will reduce interest rates next year.
The swaps markets currently indicate a likelihood of over 50% for a reduction in March, and they are fully pricing in a cut in May.
Tomorrow, the strength of those bets will face a test with the release of the latest data on US job openings (JOLTS) for October.
Following this, ADP’s National Employment Report is scheduled for Wednesday, with non-farm payroll data due on Friday.
Barclays Plc strategists, including Ben McLannahan, suggest that the ongoing strong demand and labor-market conditions in the US should make traders cautious about expecting further cooling of inflation.
In a report, they noted, “Further falls in inflation will be more difficult from here.”
10-Year Treasury Yield Drops
Encouragement about a possible peak in interest rates caused the benchmark 10-year Treasury yield to drop by 60 basis points in November, moving down from a 16-year high of 5% in the previous month.
This shift also brought a measure of the securities into positive territory for the year. During the same period, the S&P 500 rose approximately 9%, marking one of its most significant November gains in a century.
Danske Bank’s chief strategist, Piet Christiansen, expressed concern. Piet stated,
“Even though it makes sense for yields to decrease, the extent of the decline is too significant considering the recent data releases. I believe the market is being too forceful in anticipating rate cuts.”
Market Dynamics at the End of the Day
In premarket trading, shares of Spotify Technology SA increased after the streaming service announced a 17% reduction in headcount, marking the third job cut this year.
Roche Holding AG also saw gains as the Swiss drugmaker agreed to acquire Carmot Therapeutics Inc. for up to $3.1 billion, providing access to experimental medicines in obesity and diabetes.
In Europe, natural gas prices dropped as demand for the fuel remained consistently low, ensuring ample supplies.
Benchmark futures experienced a decline of up to 4.9%, breaking a two-day streak of gains for the contract.
Gold reached beyond $2,130 per ounce before retracing its gains for the day.
Meanwhile, Bitcoin surpassed the $41,000 mark, reaching its highest point since April 2022.
Read More: Stock Rally Falters as Bond Yields Surge