Stocks hold ground as markets eye Fed rate cut
LONDON/SYDNEY, Dec 8 : Stocks held their ground on Monday as markets bet that the Federal Reserve would deliver a rate cut this week, though investors speculated that the meeting could be one of the most fractious in recent memory.
Futures imply around an 86 per cent chance of a quarter-point reduction in the funds rate, now 3.75 per cent-4.0 per cent, so a steady decision would be a seismic shock. A Reuters poll of 108 analysts found only 19 expecting no change, and the rest a cut.
"Everyone is expecting the Fed cut now ... but what’s more important will be how many dissenters there will be," said Nabil Milali, portfolio manager at Edmond de Rothschild Asset Management.
"It could be one of the first meetings in history where the decision could be split seven for a cut and five members against it, and that will be a huge signal for next year’s rate cut expectations."
The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and it has happened just nine times since 1990.
JPMorgan's head of U.S. economics Michael Feroli wrote in a note he expected at least two dissenters in favour of no action. Feroli also thinks the Fed will cut in January as insurance against a sustained weakening in the labour market, before going on a lengthy policy pause.
Central banks in Canada, Switzerland and Australia also meet this week and all are poised to hold steady. The Swiss National Bank might like to ease again to offset the strength of its franc, but it is already at 0 per cent and reluctant to go negative.
A run of hot economic data has led markets to abandon any hope of another easing from the Reserve Bank of Australia and even price in a rate hike for late 2026.
Hopes for more Fed stimulus have helped support equities in recent weeks, and both S&P 500 futures and Nasdaq futures were 0.1-0.2 per cent firmer.
Earnings this week from Oracle and Broadcom will test the appetite for all things AI-related, while Costco will provide colour on consumer demand.
BONDS HAVE A LOT RIDING ON FED GUIDANCE
Global stocks were broadly flat on the day, with European stocks doing the same.
Chinese blue chips gained nearly 1 per cent as data showed the country's exports topped forecasts in November and stayed resilient in the face of U.S. tariffs.
Beijing's diplomatic spat with Tokyo worsened as a Chinese carrier strike group launched intense air operations near Japan over the weekend. Elsewhere in the region, Thailand launched air strikes along its disputed border with Cambodia.
Government bond yields around the world continued to nudge higher, with Japanese government bond yields hitting fresh multi-year highs, as the Bank of Japan looks increasingly likely to hike rates next week.
Germany's 30-year government bond yield rose to its highest since 2011 on Monday, partly pressured by influential rate-setter Isabel Schnabel saying the next move from the European Central Bank may be an interest rate hike, although she doesn't expect a move any time soon.
Longer-dated Treasuries have been under pressure given the risk of hawkish guidance from the Fed, while there are also concerns President Donald Trump's attacks on Fed independence could lead to rates going too low and stoking inflation over the long run.
The U.S. 10-year Treasury yield was up nearly 2 basis points at 4.15 per cent, its highest in over two weeks, but was kept in check by expectations the Federal Reserve will cut rates this week.
The dollar gained 0.1 per cent on the yen to 155.53, with markets increasingly confident the Bank of Japan will raise its rates at a policy meeting next week.
The euro was a shade firmer at $1.1651, just short of its recent seven-week high of $1.1682.
Gold stood at $4,213 an ounce, after spiking as high as $4,259 on Friday, while silver was just off a lifetime peak.
Oil prices declined on Monday as investors monitored ongoing talks to end the war in Ukraine, which could put downward pressure on prices.
Brent fell 1 per cent to $63.09 a barrel, while U.S. crude also fell 1.1 per cent to $59.43 per barrel.
