U.S. Markets Decline as Yields Rise
U.S. equities fell on Tuesday, marking their first decline since the election. This was driven by a surge in the 10-year Treasury yield to 4.43%, approaching four-month highs, as investors adjusted to expectations of tighter monetary policy. The likelihood of a Federal Reserve rate cut in December has diminished, despite a 60% market pricing of a 0.25% cut. Key inflation data, including the October Consumer Price Index (CPI) and Producer Price Index (PPI), are anticipated to shape future interest rate expectations.
Dollar Strength and Bitcoin’s Surge
The U.S. dollar reached its strongest intraday level since early May, buoyed by potential fiscal policy shifts, including tax cuts, deregulation, and potential trade adjustments under the incoming administration. Bitcoin continued its upward momentum, briefly surpassing $90,000, reflecting speculative optimism and increased adoption.
Fed Insights and Policy Developments
Former Federal Reserve official Loretta Mester indicated inflationary pressures stemming from tariffs and fiscal policies could delay rate cuts into 2025. President-elect Donald Trump announced a new Department of Government Efficiency to streamline regulatory processes, appointing Elon Musk and Vivek Ramaswamy as co-leads. The department, which will operate outside the formal structure of government, aims to reduce waste and improve efficiency. Musk will continue leading Tesla, SpaceX, and X while contributing to government innovation.
Latest Market Update
Global Market Reactions
- U.S. Equities: The S&P 500, Dow Jones, and Nasdaq all declined on Tuesday due to profit-taking and higher bond yields. Notable losses in Tesla and Trump Media contrasted with gains in Nvidia, Microsoft, and Alphabet.
- Asian Markets: Weak Chinese economic stimulus and apprehension around U.S. inflation data led to declines in the Nikkei and Hang Seng indices.
- European Markets: The Euro Stoxx 50 saw its largest drop since August, driven by weak German economic data and concerns over Donald Trump’s return to office. Mining sectors led losses, offsetting minor gains in technology.
Bond and Commodity Trends
- Treasury Yields: The benchmark 10-year yield exceeded 4.4%, reflecting strong economic growth and inflation expectations. This rise pressured investment-grade bonds.
- Oil Prices: Brent crude prices inched higher, supported by tight supply indicators, but remained near two-week lows, capped by OPEC’s downgraded 2024 demand forecast and weak Chinese consumption.
Equities on the Move
Key Movers
- Home Depot: Surpassed Q3 earnings estimates, driven by hurricane-related spending and strong contractor demand, prompting an upgrade in its annual forecast.
- Shopify: Outperformed revenue expectations due to increased adoption of AI-driven tools and a surge in holiday season merchant activity.
- AstraZeneca: Revised its annual forecast upward, boosted by high demand for cancer treatments and rare disease therapies. The company also announced a $2 billion U.S. investment to expand R&D operations, while addressing concerns around its operations in China.
Declines and Challenges
- Infineon: Reduced its FY25 sales forecast, citing weaker automotive demand and lower Q4 projections.
- Burberry: Shares declined by 8.0% as acquisition rumours involving Moncler were dispelled, following earlier speculation of a potential bid.
- Bayer: Faced a 20-year share price low amid pressures in agricultural markets and earnings declines.
Upcoming Economic Data
The focus remains on key inflation metrics, expected to influence Federal Reserve policy:
- CPI: Anticipated to rise by 2.6% annually, higher than September’s 2.4%.
- PPI: Forecast at 2.3%, signalling persistent cost pressures for producers.
These figures will be closely analysed for signals on price stability and monetary policy adjustments.
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