Next Fed Cut, Bitcoin, Japanese Manufacturing - What's Moving Markets

On Wall Street, trading began slightly lower this Monday, marking the start of the year’s final week on a pessimistic note as investors take steps to secure profits from the generally favorable performance seen in the concluding quarter of the year. The focus is now directed towards upcoming actions from the Federal Reserve, while Bitcoin continues its decline from the record highs achieved earlier this month.

1. Anticipation for Fed’s Next Rate Cut in March

This past month, the Federal Reserve implemented a quarter-point rate cut, finalizing a total reduction of a full percentage point since September. However, the updated forecasts suggest a more restrained approach towards easing will be adopted in 2025.

Currently, most Fed officials foresee only two rate cuts next year, a decrease from the previously estimated four cuts in September. Additionally, 15 out of 19 officials express concerns that inflation could surpass current projections.

The core Personal Consumption Expenditures (PCE) inflation, a vital metric for the Fed, is anticipated to reach 2.5% by early 2025, exceeding the bank's target of 2%. Goldman Sachs recently stated that the next interest rate cut, anticipated to be 25 basis points, will likely materialize in March 2025, followed by two additional cuts of the same size in June and September. Nonetheless, Goldman Sachs warned about risks stemming from geopolitical developments, including potential changes in U.S. policies, such as higher tariffs on imports from China and the automotive sector, along with reductions in immigration and new tax initiatives championed by the incoming Trump administration.

This week, key attention will be given to upcoming weekly numbers on Thursday, complemented by data released on Friday, alongside remarks from members of the Federal Open Market Committee.

2. Futures Tread Lower; Profit-Taking Ahead of Year-End

U.S. stock futures displayed a slight decline on Monday as investors capitalized on profits amidst a positive closing year. By 03:45 ET (08:45 GMT), key contracts reflected a downturn, with the Dow Jones falling by 85 points, or 0.2%, the S&P 500 dropping by 11 points, or 0.2%, and the Nasdaq declining by 40 points, also down 0.2%.

The major stock indices are poised to conclude 2024 near historic peaks, with the Dow and the S&P 500 showing gains of over 25% and 14% respectively, on track for their most successful year since 2021, while the Nasdaq is reporting over 31% growth.

All benchmarks appear to be gearing towards a successful fourth quarter, riding the wave of Donald Trump's election victory and with the Nasdaq reaching its longest quarterly winning streak since Q2 of 2021.

This Monday's economic data agenda will feature the November Retail Sales figures, as well as the Consumer Confidence index for December; however, overall activity might be subdued as the markets will be closed on Wednesday.

3. Improvement Noticed in Japan’s Manufacturing PMI

In Japan, data from a private-sector survey indicates that factory activity contracted at a slower rate in December, moving closer towards stabilization following a series of declines. The au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI) rose to 49.6 in December, remaining just below the pivotal 50.0 mark that differentiates between growth and contraction, continuing a trend below this threshold for six consecutive months.

This latest figure slightly surpasses the initial calculation of 49.5 and the 49.0 recorded in November.

Earlier this month, the Bank of Japan elected to keep interest rates unchanged at 0.25%. Governor Kazuo Ueda is keen to analyze more data and await clearer insights into the economic policies of the incoming U.S. administration before deciding on another potential hike. Nonetheless, certain policymakers within the Bank of Japan perceive conditions conducive to a near-term rate increase, and more signals pointing towards economic recovery could heighten the likelihood of a hike as soon as January.

4. Bitcoin Faces Challenges, but Analysts See Major Upside

Bitcoin prices slid on Monday due to diminished trading volumes as the year winds down and due to rising U.S. Treasury yields following a hawkish stance from the Fed in its recent policy meeting. The yield on the benchmark 10-year U.S. Treasury note surged to a more than seven-month peak last week, hovering close to that level at 4.625% on Monday.

As of 03:45 ET, Bitcoin dropped 1.6% to $93,817, a decrease of about 4% for the month as it retracts from its all-time high of $108,379.28 set on December 17. Despite these setbacks, Dan Morehead, CEO of hedge fund Pantera Capital, remains optimistic, asserting that the narrative surrounding digital assets is only beginning, with substantial user growth anticipated.

Morehead points to Bitcoin’s historical trend of doubling in value each year for the past 11 years, expressing confidence in its robust performance and role in broader economic and technological transformations. He forecasts that Bitcoin's market capitalization could reach $15 billion by 2028, reflecting a staggering 10,000% growth, and predicts the user base will escalate from approximately 300 million currently to as high as 5 billion in the next decade.

5. Oil Prices Dip in Holiday Trade

Crude oil prices experienced slight reductions on Monday in light holiday trading conditions as the year draws to a close. By 03:45 ET, U.S. crude futures (WTI) declined by 0.4% to $70.34 per barrel, while the Brent crude contract also dropped 0.4% to $73.50 per barrel.

Both benchmarks are on track for significant losses throughout 2024, with WTI prices falling around 1.5% and Brent over 4% lower, primarily fueled by concerns regarding decreased demand from China, the largest oil importer globally.

The Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have both adjusted their forecasts, projecting slower demand growth in 2025, largely due to the weakening demand in China, the world's second-largest economy. Investors are eagerly awaiting China's PMI factory surveys set to be released on Tuesday, which could offer more insights into the trajectory of its economic recovery. Additionally, reports indicate that Chinese authorities have agreed to issue unprecedented special treasury bonds worth 3 trillion yuan ($411 billion) in 2025 to stimulate economic growth next year.

Fed, Bitcoin, Manufacturing