US Stocks, Yields Drop as Traders Weigh Data: Markets Wrap

This content was published on December 20, 2024 - 15:41

4 minutes

(Bloomberg) — US stocks kicked off Friday’s session slightly lower, with investors anticipating that muted inflation data will do little to change the Federal Reserve’s decision to be more cautious about cutting interest rates next year. Treasuries rallied.

The S&P 500 fell 0.1% and the Nasdaq 100 dropped 0.4%. Bloomberg’s dollar gauge weakened. The US 10-year Treasury yield dropped six basis points to 4.51%.

While the Fed this week scaled back the number of cuts it anticipates next year, the latest data will likely reassure policymakers that the economy is indeed cooling. The central bank’s preferred gauge of inflation was muted in November. The core metric, which excludes food and energy items, increased 0.1% from October and 2.8% from a year earlier. The monthly advance was the slowest since May.

The Fed is now likely to wait and see how tariff and immigration policies unfold over the next coming months before implementing another cut, said Olu Sonola, Fitch Ratings’ head of US economic research. With the central bank facing these policy uncertainties from the incoming administration, odds still favor a pause on rate cuts in January, said Chris Larkin, managing director, trading and investing, E*Trade from Morgan Stanley.

Concerns are also growing about the implications of the Republican-led House rejecting a temporary funding plan backed by President-elect Donald Trump on Thursday, with a US government shutdown looming in less than 24 hours.

“The real problem is the shutdown, one wasn’t expecting this, it’s a surprise for the market, just as the Fed was a surprise, all in all this week is a difficult one,” said Jeanne Asseraf-Bitton, head of research and strategy at BFT IM in Paris.

Friday’s US options expiration, which has historically stoked turbulence, offers a final hurdle to end-of-year calm. The quarterly “triple-witching” will see some $6.5 trillion worth of options tied to individual stocks, indexes and exchange-traded funds fall off the board, this year’s largest, according to an estimate from derivatives analytical firm Asym 500.

Brazilian markets bounced at the end of the week amid extraordinary central bank moves to curb a selloff in the currency. The real gained as much as 1.4% on Friday, paring weekly losses.

Meanwhile, the UK’s long-term government borrowing costs are approaching the highest level since 1998 as investors struggle to work out how much the Bank of England will cut interest rates next year. In just one week, the market has gone from wagering on the possibility of four interest rate cuts next year to fewer than two, and then back to entertaining the chance of three.

In Asia, China’s one-year bond yield slumped to 1% for the first time since the global financial crisis, as traders ramped up bets on monetary easing.

The yen erased losses after Japan’s key inflation gauge strengthened for the first time in three months and Finance Minister Katsunobu Kato warned against currency speculation. A key gauge of Asian shares dropped for a sixth day.

Oil declined for a second day to extend a weekly fall, as a strengthening US dollar pressured prices. Gold advanced.

Some of the main moves in markets:

Stocks