In the just concluded November US election month, it seems that politics, especially the policy impact of former US President Trump's upcoming return to the White House, is the only factor driving global market trends. Investors are looking forward to putting an end to another glorious year for the US stock market: the S&P 500 index rose more than 25% in the first 11 months of this year.
The rise of the 'Trump deal' has further boosted the rise of the US stock market over the past month. However, in the coming week, people may need to be prepared for a rigorous reality test of the 'super week':
This week's US labor market data, including the crucial November non farm payroll report to be released on Friday, will have a significant impact on the Federal Reserve's interest rate cut plan. And this will also become a big test that stock market investors, bond traders, and all other participants in the financial market need to face. In the same week that the heavyweight data was released, many Federal Reserve officials, including Federal Reserve Chairman Powell, will also release speeches one after another, which will be particularly crucial in the context of the recent expectation of "near increase and far decrease" in Federal Reserve interest rate cuts
In the past few weeks, many investors may have focused their attention on the many economic policies of US President elect Trump, especially the highly destructive tariff policies. But in fact, the expected changes in the Federal Reserve's interest rate cuts also appear quite subtle.
On the one hand, the expectation of the Federal Reserve cutting interest rates in December has actually heated up in recent times. According to the Chicago Mercantile Exchange's Federal Reserve Watch tool, as of last Friday, the market expects a 65% chance of the Fed cutting interest rates at its last meeting of the year on December 18th, significantly higher than about 50% a week ago.
On the other hand, in the long run, investors increasingly believe that the Federal Reserve's next path of easing will be difficult. Expectations in the interest rate futures market indicate that due to the increasingly pessimistic outlook for combating inflation, market traders now expect the Federal Reserve to only cut interest rates twice next year, which is far less than the four rate cuts implied by the Fed's September dot matrix.
Behind the expectation of a near increase and far decrease in interest rate cuts by the Federal Reserve, it largely reflects people's concerns about the current health of the US economy and labor market, as well as anxiety about the resurgence of inflation under the Trump administration in the future. And this week's key economic data and speeches by Federal Reserve officials are likely to further amplify or eliminate the impact of related monetary policy expectations.
Brent Schutte, Chief Investment Officer of Northwestern Mutual Wealth Management, said, "I think the market wants to see some positive things in Friday's non farm payroll data, but also doesn't want the data to perform too well. If the data is very optimistic, it will raise questions about whether the Federal Reserve will really further cut interest rates
Previously, the number of non farm payroll jobs added in the United States in October unexpectedly dropped to 12000, the lowest level since 2020, far below the expected 100000. Although most Wall Street analysts believe that the poor data is mainly due to the two hurricanes in October and the Boeing strike, some analysts are concerned that the job market is indeed deteriorating. Therefore, whether the non farm payroll data for November this Friday can return to normal or at least exceed market expectations will be highly valued.
According to a median survey by industry media, economists generally expect non farm payroll employment to increase by 195000 in November, significantly higher than the previous month's 12000. However, a potential downside is that the unemployment rate may further rise to 4.2%, higher than the previous month's 4.1%.
The Wells Fargo economic team, led by Jay Bryson, wrote in a report to clients, "Through monthly fluctuations in non farm payroll employment, we expect the November employment report to reiterate that although the labor market remains robust in absolute terms, the weak trend in employment conditions has not stopped. This information may be conveyed more clearly from the unemployment rate - we expect the unemployment rate to rise to 4.2%
Angelo Kourkafas, senior investment strategist at Edward Jones, said that employment data "will provide a clearer picture of underlying trends, which is important because there is a lot of debate and uncertainty surrounding the Fed's interest rate path
In addition to non farm payroll data, the speeches of Federal Reserve officials in the coming week can also be described as extremely intensive - no less than double digits of Federal Reserve officials will make public appearances this week, including the most attention grabbing Federal Reserve Chairman Powell, who will be invited to be interviewed at the DealBook/Summit conference hosted by The New York Times at 02:45 am Beijing time on Thursday.
From recent statements by Federal Reserve officials, although policy makers have differences on specific details, most officials generally believe that the Fed's current rapid pace of interest rate cuts will not continue. In his last speech in November, Federal Reserve Chairman Powell stated that the Fed does not need to rush to cut interest rates, citing a stable job market and inflation rates still above the 2% target. Powell's latest speech this week regarding the prospects of interest rate cuts in December and next year may undoubtedly attract high attention from market participants.
Deutsche Bank's Chief US Economist Matthew Luzzetti predicts that the Federal Reserve is expected to cut interest rates again in December and then pause rate adjustments throughout 2025, waiting for further progress on inflation. The urgency of cutting interest rates is much smaller, and it may make sense to slow down the pace of rate cuts earlier than they expected
Steve Blitz, Chief US Economist at TS Lombard, stated in a report last week that the problem facing the Federal Reserve is to substitute current inflation data into the Taylor rule (a formula used by economists to determine where interest rates should be based on inflation levels and economic growth) to indicate that the federal funds rate should remain at its current level.
He said, "Although I believe the Federal Reserve still tends to cut interest rates, the November employment data is ultimately crucial for this data dependent Federal Open Market Committee
Sarah House, a senior economist at Wells Fargo, stated at a media roundtable last month that "as we enter 2025, we may see a slowdown in the pace of future interest rate cuts, and the Federal Reserve may cut rates every other meeting." Her team expects the Fed to cut rates three times in 2025.