Stocks steady, dollar gains as investors mull Fed outlook

Stocks steady, dollar gains as investors mull Fed outlook

Global shares hovered around three-month highs on November 22 and the dollar found support as investors tempered some of their earlier enthusiasm about the prospect of the start of a series of US interest rate cuts.

The MSCI All-World index slipped into negative territory following November 21's decline on Wall Street, after minutes from the Federal Reserve's most recent meeting offered little new insight into policymakers' thinking on rates.

Overnight, the S&P 500 snapped a five-session winning streak and fell 0.2%. Chipmaker Nvidia reported revenue well above Wall Street expectations after the market close, but shares fell 1.7% due to the company's downbeat China sales outlook.

Nasdaq futures recovered from an earlier fall to rise 0.2% while those on the S&P 500 were also up 0.2%. Volumes are likely to be light through the rest of the week because of November 23's Thanksgiving holiday in the United States.

"We're just at that moment where the market is consolidating and particularly ahead of the Thanksgiving holiday, we wouldn't expect to see any big moves over the coming days," City Index market strategist Fiona Cincotta said.

The Fed minutes showed policymakers pledged to "proceed carefully", which traders did not interpret as new information, and also contained no confirmation that policymakers had ruled out more rate hikes.

"They couldn't whisk that off the table completely. That would have created a rather larger market move," Cincotta said.

"That's where we are in the market - broadly speaking, it's supportive of stocks and broadly speaking, unsupportive for the US dollar," she said.

The dollar index was up 0.12% on the day, rising for a second consecutive session, but is still on track for its worst monthly performance in a year, with a drop of 2.7%.

The MSCI global shares index, meanwhile, is up 8.2% in November, marking its biggest monthly rally since late 2020, and at its highest since mid-August.

Ten-year Treasury yields were 4.5 bps lower at 4.37%. They have fallen about 50 basis points since the Fed held rates steady early in the month.

Interest rate futures markets see almost no chance the Fed hikes again and price about 90 basis points of rate cuts through 2024, with a 30% chance they begin as soon as March.

"Since the (Fed) believes that a soft landing is in sight, it would be foolish to risk it by hiking further than necessary," said Rabobank's senior US strategist Philip Marey.

"If we were to see stronger economic and inflation data before the December meeting, longer-term rates are likely to rebound and substitute for a rate hike. Therefore we do not expect further hikes."

PROSPECTS FOR THE YEN

In currencies, the dollar, which has been sliding since last week's benign U.S. inflation report, lifted from multi-month lows against a number of other currencies.

It traded at $1.0907 versus the euro and was up 0.2% against the yen at 148.745 yen.

"We expect bond yield gaps to remain a tailwind for the yen and renminbi as inflation in the US continues to moderate and investors discount more rate cuts from the Fed," said Jonathan Petersen, senior economist at Capital Economics.

China's yuan, which has gained 2% in the past week, was down 0.2% at 7.159 against the dollar.

China's major state-owned banks have been buying the yuan to hasten its recovery lately, two sources told Reuters on November 21.

British Finance Minister Jeremy Hunt presented his autumn budget that contained plans for tax cuts for businesses but assumed growth would be a lot weaker in the coming years than previously expected.

The pound was last down 0.1% against the dollar at $1.2527, while 10-year gilt yields were down 4.7 bps at 4.06%, around session lows.

In commodities, Brent crude futures dropped 4% to $79.14 a barrel on reports an upcoming meeting by the Organization of the Petroleum Exporting Countries might be delayed.

Bitcoin rose 2.1% to $36,510, recovering from an overnight low of $35,651 after Binance chief Changpeng Zhao stepped down and pleaded guilty to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement resolving a years-long probe into the crypto exchange.

Binance's own token was up 3.2% on the day at $232.80, having lost nearly 10% the previous day in its largest one-day slide in year.