Market Comment – Wall Street extends gains as dollar flounders, Fed minutes eyed

  • Microsoft leads Wall Street higher, lifted by AI mania and rate cut bets

  • But will FOMC minutes spoil the party?

  • Dollar slips to 3-month lows; aussie surges on hawkish RBA, China boost

Stocks enjoy pre-Thanksgiving rally ahead of Fed minutes

Equity markets got off to a positive start on Monday in what is a holiday-shortened week in the United States, while the upbeat mood seems to be mostly holding on Tuesday as investors await more clues on the path of interest rates.

The Federal Reserve will publish the minutes of its latest policy meeting a day early at 19:00 GMT to account for markets being closed on Thursday for Thanksgiving Day. Market pricing for the Fed rate path has moved rapidly over the past week as investors added to their rate cut bets following the softer-than-expected CPI numbers for October.

The minutes will therefore likely offer outdated views on the economy, as aside from weaker inflation, growth indicators have also deteriorated somewhat since the November meeting. Nevertheless, if the overriding message of ‘higher for longer’ is repeated in the minutes, rate cut expectations might suffer a knock, pulling stocks lower and giving Treasury yields a leg up.

AI rally lifts Wall Street, Asia subdued after China stimulus

However, Fed policy expectations are not the only driver on Wall Street this week, even amidst the light calendar, as AI mania is making headlines again.

After the unexpected ousting of Sam Altman as the CEO of OpenAI on Friday, Microsoft has snapped up both Altman and his cofounder Greg Brockman to join the tech giant’s new advanced AI research team. With many OpenAI staff threatening to quit the firm and potentially also joining Microsoft in protest at the sacking, this is seen as a major win for the latter.

Microsoft’s share price hit a new all-time high on Monday, while other AI stocks like Nvidia also rallied. The timing couldn’t have been better for Nvidia, which is set to report a jump in its Q3 earnings later today.

The Nasdaq 100 closed at a new 2023 high on Monday and is only about 4% below its record high from two years ago.

Further boosting sentiment today is the announcement of fresh measures by Beijing to increase lending and support the property sector. China is reportedly preparing a list of 50 developers who will qualify for special financing, aimed at preventing further defaults and shoring up the beleaguered property market.

However, shares in Asia were mixed today, underscoring the challenges that China faces in restoring confidence in the economy as well as the contrasting optimism in America.

Aussie supported by hawkish RBA, yen increasingly bullish

The Australian dollar initially spiked higher on the headlines as the country’s iron ore exporters stand to benefit from any recovery in China’s real estate sector, before giving up some of its gains. But the improving picture in China isn’t the only thing helping the aussie’s latest rebound against the US dollar as the RBA has taken a hawkish turn under the new governor, Michele Bullock. With both her comments as well as the minutes of the RBA’s November meeting from earlier today sounding concerned about inflation, the RBA is now the only major central bank apart from the Bank of Japan that has substantial odds of a rate hike priced in.

As for the greenback, it’s extending its slide today, falling to near three-month lows against a basket of currencies, mainly on the back of the sharp reversal in the yen.

The Japanese currency has seen its fortunes turn around dramatically this month as declining inflation in Europe and America is being seen as paving the way for rate cuts next year, while the Bank of Japan may finally be getting its wish of inflation holding sustainably above 2% and has been dropping subtle hints that it may soon exit negative rates.

Loonie eyes Canadian CPI and OPEC+ meeting

The dollar briefly hit a two-and-a-half-month low of 147.14 yen on Tuesday, while its Canadian counterpart was flat ahead of Canadian CPI numbers due later in the day.

The loonie hasn’t enjoyed much of a bounce against the greenback as oil prices have been heading lower since September. However, speculation that OPEC+ will announce further cuts to oil production when it meets on November 26 have managed to put a floor under oil prices for now.

WTI futures were last trading slightly lower, snapping two days of gains.

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