The Feel-Good Fed Rally Continues
The feel-good Fed rally shows no signs of slowing down as Asian stocks climb to a four-month peak, setting Europe up for another strong session. This week, the MSCI World index is on track for its seventh straight winning week, marking its longest run in six years. The bullish narrative among global investors is that the U.S. economy will achieve a remarkable soft landing. This belief gives the Fed room to pivot toward rate cuts earlier than previously anticipated.
Both the European Central Bank (ECB) and the Bank of England (BoE) have maintained cautious postures. However, even their reserved stances couldn’t dampen the overall market mood. While speculation for an imminent end to negative rates may have cooled down, the next opportunity for a rate cut is just a month away. Consequently, markets appear to be preparing for Governor Kazuo Ueda’s press conference next Tuesday.
It’s challenging to predict the exact impact these developments will have on markets. However, the Bank of Japan’s dovish position, as an outlier, has anchored global bond yields throughout 2023.
Potential for a Global Stocks Pullback
Although the global stocks rally has shown remarkable strength, there is still room for a potential pullback, possibly even before the weekend. On Thursday, the Dow reached a record high, which may tempt some investors to secure profits and take money off the table.
Furthermore, concerns are mounting that markets have already overreached. Currently, 150 basis points of Fed rate cuts are priced for next year, which is double the amount indicated by the Fed’s median forecasts.
Other Factors Influencing Markets on Friday
In addition to the ongoing Fed rally and potential stock pullbacks, several other developments could impact markets on Friday. These include key data releases and influential speeches:
– France and Italy CPI for November
– France, Germany, UK, and euro area PMIs for December
– US industrial production for November
– NY Fed manufacturing for December
– PMIs for December
– Speeches by BoE Deputy Governor Dave Ramsden and Bank of Canada Governor Tiff Macklem
In summary, the feel-good Fed rally remains robust, driving Asian stocks to a four-month peak and setting up Europe for another strong session. The bullish narrative surrounding the U.S. economy supports the expectation of earlier-than-expected rate cuts by the Fed. While concerns of an overshot market and potential stock pullbacks persist, other key factors such as CPI data, PMIs, and notable speeches will likely influence market movements on Friday.