US market opened with mild gains in S&P 500 and Nasdaq Composite index on December 18, while the Dow Jones took a breather from its longest losing streak since 1978. All eyes are on US Federal Reserve's rates decision that will be announced later in the day. Market is expecting a 25 bps rate cut from FOMC led by chair Jerome Powell, however, a cautious tone has emerged due to uncertainties over rate cuts in 2025 by the Fed.
Dow Jones:
The Dow Jones Industrial Average (DJIA) index traded at 43,566.27, up by 116.37 points or 0.3%, after the benchmark opened at 43,459.70 and touched an intraday high of 43,613.47. With this, DJIA has halted its 9-consecutive losing streak which was the longest since 1978.
S&P 500:
The index opened at 6,047.65, and touched an intraday high and low of 6,057.19 and 6,041.49 respectively. Currently, the index is trading in a tight range at 6,056.30, marginally up by 6 points or 0.09%.
Nasdaq Composite:
The tech-heavy index also witnessed a mild upside of 15.53 points or 0.08% to trade at 20,123.92. The index opened at 20,114.98 and touched its day's high and low of 20,129.44 and 20,041.84 respectively. Currently, the index is closer to its all-time high of 20,204.58.
According to Trading Economics, investors are focused on the upcoming FOMC decision later in the day, where the Fed is widely expected to announce a 25bps cut to the federal funds rate. Additionally, the Fed will release updated economic projections, including the closely watched "dot plot" which outlines policymakers' expectations for future interest rate movements.
On the corporate front, shares of Nvidia were rising almost 3% after falling into correction territory this week. Other megacaps were mixed, with Apple (-0.5%), Microsoft (-1.2%), Amazon (-0.7%), Tesla (-3.3%), and Alphabet (-0.5%) falling while Meta traded around the flatline, the Trading Economics data said.
Dollar Index:
Meanwhile, the dollar index held onto the 107 mark against a basket of currencies, as cautious bets lingered ahead of Fed's rate cut expectations. There is a probability of 97% that the Fed will cut rates by 25 bps, taking its overall cut to 100 bps in three consecutive policies and in overall 2024.
On dollar, Dutch banker, ING in its note said, "Our view for today's Fed rate announcement is that the risks are broadly balanced for the dollar, and we see limited scope for a surprise driving major FX moves. The prospect of fiscal stimulus among other promised policies by US President-elect Donald Trump will, in our view, force some scaling back in expected rate cuts included in dot plot projections as rates are cut by 25bp, matching pricing and consensus."
Gold Prices:
On the other hand, gold prices traded in a tight range to around $2,645 per ounce, with a focus on Fed policy outcomes. A rate cut would most likely make non-yielding assets like gold attractive.
However, Trading Economics data also highlighted that traders are focused on clues for next year's interest rate outlook, amid uncertainty over how the incoming Trump administration's policies might influence the rate trajectory.
Treasury Yields:
Manish Bhandari, CEO and Portfolio Manager, Vallum Capital Advisors said, 10-year treasury is signaling - It has moved higher after the first-rate cut means People are estimating that Inflation is going to be higher. This negates the probability of a Rate cut. Usually, 10 yr and 2 yr are good indicators of the rate cuts of the future. Hence we believe there is less probability of a rate cut."
Fed's policy rates decision will take into a host of factors such as labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
At the moment, the US CPI inflation shot up for the second consecutive month to 2.7% in November 2024. While the country's producer prices data rose to 3% in November, making the biggest surge since February 2023.
Additionally, the US employment rate dipped to 59.80% in November, compared to 60% in the previous month. Alongside, the country's unemployment rate has also surged to 4.2% in November 2024. Meanwhile, the country's GDP growth was slow to 2.8% in Q3 of 2024, compared to 3% in the previous quarter.
Fed has cut rates twice in the past two back-to-back monetary policies. The first rate cut which came in after nearly four years, was in September 2024 when FOMC went aggressive with a 50 bps cut. This followed a 25 bps cut in November policy. So far, the Fed has trimmed key fund rates by 75 bps, taking it to 4-1/2 to 4-3/4 per cent.
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