US Election

Stocks rallied from early losses this morning as traders weighed this morning's jobs report and positive consumer sentiment data all of which pointed to which pointed to a soft landing. Futures markets pushed out the much hoped-for first rate cut to next summer echoing some Fed official’s mantra of ‘higher rates for longer.’ Predictably, bond yields and the dollar rose, while gold fell back from its peak.

The Yen was very strong versus the dollar, hitting a 3-month high of 151.35 after traders anticipated a rate hike from a comment by Bank of Japan’s Governor Kazuo Ueda. The oil price dipped below $70 per barrel for the first time since June. The Dow Jones barely held on to recent gains in morning trade, with the NASDAQ up 1.4% and the S&P 500 up 0.8%. Fundamental direction has been thin with jobs data mixed thus far, and the official employment report still on tap tomorrow morning.

The oil price slid 4% to $69.4 per barrel on fears that promised OPEC+ production cuts wouldn’t be enough in the face of weaker demand. Gold continues to flirt with all-time highs. Bond yields are moving down to levels seen over the summer, helping to lower mortgage rates and boost activity in the property market. Equity markets marked time ahead of key labor market data.

We consider factors which are boosting crypto prices, not just the Bitcoin rally. Optimistic scenarios that drove the equity market to new highs are giving way to more realistic view that the Fed will not be able to swing quickly to rate cuts in early 2024. The CME’s FedWatch shows traders expecting a 50 bps rate cut by June and at least 125 bp for 2024, in contrast with the latest Fed dot plot that shows a wide range of expectations from Fed participants, anticipating a 50 bp more modest reduction.

Bullish factors The contraction of the Brazilian GDP in Q3 is expected to reduce the attractiveness of Brazilian assets and reinforce the need to cut the basic interest rate (SELIC), which could decrease foreign investments in the country and weaken the BRL. Bearish factors Slightly positive data for the American economy can reinforce the perception that the Federal Reserve will not raise interest rates further and contribute to the global weakening of the USD. Disclosure of data for the Chinese economy can reinforce the perception of a faster rebound, favoring currencies' performance from commodity-exporting countries like Brazil.

Bitcoin has risen 20% in the past four weeks, hitting an 18-month high, boosted by speculation that interest rates have peaked and hopes for a major Bitcoin ETF launch. Other than bargain hunting in the Russell 2000, up 1.0%, US equities were down on profit-taking. Gold took a pause and stepped from recent all-time highs. The oil price continued its downward move despite last week’s announced OPEC+ production cuts.

The Dow Jones made another all-time high of 36,265 in morning trade, despite Fed chair Powell trying and failing to talk down hopes that interest rates will be cut in the spring. Gold rose 1.6% to a new all-time high of $2,089 per ounce. Paradoxically, weaker manufacturing data, and the belief that interest rates have thus peaked is the best explanation.

The Dow Jones achieved an all-time high of 35,802 in afternoon trade, signifying the equity market’s bullish tone spurred by hoped-for interest rate cuts. Traders are placing a 40% probability of a March rate cut in the Fed Funds rate. The Fed’s favored inflation measure cooled to 3.5% annual growth, welcome but still above its 2.0% target.

Gold stood out again, rallying within a few dollars of its August 2020 all-time high of $2,075, with supporters arguing that a peak in nominal and real interest rates would underpin a continuing bull market. Oil prices also continued to recover despite no news on next year’s production quota from OPEC. The Vix fear index continues to trade near multi-year lows, reflecting growing confidence that the economy can have a soft landing in 2024, with the Fed expected to cut rates by mid-year, even though it continues to insist that will not be the case.

Gold continued to impress, up 1.4% to $2,040 (versus a one-year high of $2,085). Oil spiked 2.2% to $76.5 per barrel. Today’s consumer sentiment and holiday spending data were very strong. Two Fed governors indicated different opinions on official interest rates: Michelle Bowman thinks the Fed will have to raise rates further to bring inflation down, but Christopher Waller said he believes current rates are about right. Stocks again made little progress, with the economically sensitive Russell 2000 off 0.6%.

Bullish factors November IPCA-15 may slightly accelerate versus October, bringing some points of concern regarding inflation dynamics for the upcoming months and potentially weakening the real. Bearish factors The possibility of advancing important economic agendas for the government in the National Congress could reduce the perception of fiscal risks for Brazilian assets and strengthen the real. Data for the American economy can reinforce the perception that the Federal Reserve will not raise interest rates further and contribute to the global weakening of the USD.