General Market Analysis – 19/12/24

US Stocks Smashed After Hawkish Fed Cut – Nasdaq Down 3.5%

It was a sea of red on Wall Street today as the Federal Reserve delivered a more hawkish rate cut than expected. While the Fed reduced rates by 25 basis points, adjustments to the dot plot and accompanying statements now indicate only two cuts in 2025, down from the previously anticipated three. The markets have reacted sharply. US stock indices were hit hard, with the Dow falling 2.58%, the S&P dropping 2.95%, and the Nasdaq closing 3.56% lower.

The US dollar surged following the Fed’s announcement, with the DXY index gaining over 1% on the day. Treasury yields also climbed to multi-week highs, with the 2-year yield rising by 10.4 basis points to 4.348% and the benchmark 10-year increasing by 11.3 basis points to 4.512%.

Oil prices were relatively stable, with weaker US inventories offsetting the Fed’s hawkish tone. Brent crude slipped 0.36% to $72.93, and WTI fell 0.11% to $70.03. In contrast, gold prices plummeted in response to the stronger dollar, with the precious metal closing the New York session down 2.25% at $2,587.44 an ounce.

Greenback Surges Higher After Hawkish Fed

The US dollar surged across the board in the wake of the Fed’s 25-basis point rate cut, which came with a distinctly hawkish tilt. The DXY index is up more than 1% on the day, trading at levels not seen since November 2022. Major currencies are approaching or breaking into new ranges, with the AUD, CAD, CHF, and NZD already trading at annual lows against the dollar.

In the coming sessions, traders will closely monitor the euro and pound sterling, both of which are at key technical levels. Breaks at these levels during the Asian market open could trigger even stronger moves in subsequent sessions.

More Central Banks in Focus Today

The market remains on edge following the Federal Reserve’s announcement and is now gearing up for a busy day ahead, with further central bank updates likely to sustain elevated volatility.

The Asian session begins with New Zealand GDP figures released early in the day, followed by the Bank of Japan’s key rate decision. The BOJ is widely expected to hold rates steady, but any shift in guidance could prompt sharp market movements.

Attention will then turn to the UK as the Bank of England announces its Official Bank Rate midway through the London session. While no change in rates is anticipated, sterling is expected to remain volatile around the announcement.

Later in the New York session, US data releases—including Final GDP, weekly unemployment claims, and the Philly Fed Manufacturing Index—are scheduled. However, the impact of the Federal Reserve’s hawkish stance is expected to dominate market sentiment throughout the day.

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