(Bloomberg) — The dollar declined and Treasuries continued a November rally, on growing expectations that the Federal Reserve is done with policy tightening and may start cutting interest rates next year.
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The US currency fell for a fifth day as it weakened against all its Group-of-10 peers and most emerging-market counterparts. The New Zealand dollar jumped after the country’s central bank signaled there’s an increased risk it could hike again next year.
“The latest round of dovish Fed comments, which open the door to rate cuts in 2024, follows cautious comments from Fed officials in early October, which we noted as the start of the pivot,” said Tony Sycamore, a market analyst at IG Australia Pty. “In my thirty years in markets, I have not seen a central bank come close to executing such a well-timed pivot, punctuated by a patch of softer inflation and labor market data.”
The Bloomberg Global Aggregate bond index is up 4.9% in November, on course for its best month since December 2008. The MSCI All Country World Index of stocks has gained 8.8% so far this month, its most since November 2020.
Stocks in Asia were mixed, with increases in Australia after cooling inflation bolstered the case for the local central bank to resume pausing interest rates next week. Japanese shares fell, as the yen’s strength at a two-month high weighed on exporters. Equities in Hong Kong and mainland China opened lower.
Futures for US stocks were steady.
The kiwi dollar rallied about 1% against the greenback after the Reserve Bank of New Zealand’s new policy rate forecasts show a slightly higher track 2024, implying a chance of an increase, and no reduction until mid-2025. The central bank kept interest rates unchanged for a fourth straight meeting Wednesday.
Emerging Asian currencies also jumped, led by the Thai baht and Taiwanese dollar.
Fed swaps are anticipating over 100 basis points of rate cuts by the end of 2024 after Governor Christopher Waller said the bank is well positioned to push inflation to a 2% target. Billionaire investor Bill Ackman said the Fed could begin cutting interest rates as soon as the first quarter, sooner than markets expected.
Two-year Treasury yields dropped another four basis points to 4.70% after shedding 15 basis points Tuesday while a Bloomberg gauge of the dollar fell to its lowest since August and is on track for its worst month in a year.
In a speech entitled “Something Appears to Be Giving,” Governor Waller — one of the most-hawkish officials — said he’s “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” While acknowledging the many uncertainties, his colleague Michelle Bowman refrained from telegraphing an imminent hike.
Elsewhere, oil edged higher as focus turned to an OPEC+ meeting on Thursday. Gold extended gains to its highest level since May, also buoyed by hopes of a Fed policy shift.
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On the economic front, US consumer confidence rose for the first time in four months in November, aided by more optimistic views about the outlook for the labor market. Home prices hit a fresh record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.
In the corporate universe, Meituan shares tumbled the most in more than a year after the Chinese company warned that growth in its main meal delivery business would slow this quarter and spending on promotions rise.
Key events this week:
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OECD releases biannual economic outlook, Wednesday
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Eurozone economic confidence, consumer confidence, Wednesday
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Bank of England Governor Andrew Bailey speaks, Wednesday
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US wholesale inventories, GDP, Wednesday
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Cleveland Fed President Loretta Mester speaks, Wednesday
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Fed releases its Beige Book, Wednesday
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China non-manufacturing PMI, manufacturing PMI, Thursday
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OPEC+ meeting, Thursday
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Eurozone CPI, unemployment, Thursday
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US personal income, PCE deflator, initial jobless claims, pending home sales, Thursday
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China Caixin Manufacturing PMI, Friday
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Eurozone S&P Global Manufacturing PMI, Friday
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US construction spending, ISM Manufacturing, Friday
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Fed Chair Jerome Powell to participate in “fireside chat” in Atlanta, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 10:50 a.m. Tokyo time. The S&P 500 rose 0.1%
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Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 0.3%
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Japan’s Topix fell 0.5%
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Hong Kong’s Hang Seng fell 1.1%
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Shanghai Composite fell 0.3%
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Australia’s S&P/ASX 200 rose 0.4%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.1% to $1.1007
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The Japanese yen rose 0.4% to 146.83 per dollar
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The offshore yuan was little changed at 7.1260 per dollar
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The Australian dollar was little changed at $0.6655
Cryptocurrencies
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Bitcoin rose 0.1% to $38,009.52
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Ether was little changed at $2,053.59
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.29%
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Japan’s 10-year yield declined six basis points to 0.690%
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Australia’s 10-year yield declined 12 basis points to 4.38%
Commodities
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West Texas Intermediate crude rose 0.4% to $76.68 a barrel
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Spot gold rose 0.3% to $2,047.31 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Rob Verdonck.
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