General Market Analysis – 16/10/24

The Chips Are Down – Nasdaq Drops 1%

US stock indices declined for the second trading day of the week as concerns over demand in the dominant chip sector weighed on the market. The Dow dropped 0.75%, the S&P 500 fell by 0.82%, and the Nasdaq led the losses, closing down 1.01%. The US bond market had a mixed session following its return from the long weekend, with the 2-year yield gaining 1.1 basis points to 3.982%, while the benchmark 10-year yield fell by 3.9 basis points to 4.034%. Oil prices remained volatile, declining by over 4% after a report indicated that Israel would focus its operations on military targets in Iran, sparing oil and nuclear sites. Brent crude dropped by 4.14% to $74.25 per barrel, while WTI fell by 4.40% to $70.58. Gold continued to rise, adding 0.42% to close at $2,661.67, inching closer to its record high.

Market Now 90% Certain of 25-Basis Point Fed Cut

The futures market is now pricing in a nearly 90% probability that the Federal Reserve will cut rates by 25 basis points at its next meeting in November. However, many traders caution that market sentiment can shift rapidly, as it did in September. Recent US economic data has shown resilience, increasing the likelihood of a ‘soft landing’. This, combined with more balanced comments from FOMC members, has led to the current rate expectations. Nevertheless, traders recall that a similar situation unfolded in September, when market pricing abruptly shifted to favour a 50-point cut, which was ultimately what the Fed delivered. With the US election looming, many investors remain cautious about relying on market predictions for long-term strategies.

Inflation Data in Focus for Traders Today

Traders are focusing on inflation data today as key CPI figures are set to impact central bank decisions. The first significant release will be from New Zealand during the Asian session, with quarterly CPI figures expected to show a 0.7% increase. A lower-than-expected result could prompt more aggressive rate cuts from the Reserve Bank of New Zealand (RBNZ). Later, attention will shift to Europe, where the UK’s year-on-year CPI figure, expected to be 1.9%, will take centre stage. Any major deviation from this figure could trigger significant movements in the pound. The New York session has a relatively light macroeconomic calendar, with stock traders continuing to monitor earnings reports and geopolitical developments.

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