Under the increasingly consistent expectation of interest rate cuts in the market, this week the US stock market continued to rise despite Powell's hawkish remarks, and the overall European stock market also turned red.
Multiple institutions believe that the timing and magnitude of the Federal Reserve's interest rate cut should not be underestimated at present. It is recommended to plan for loose trading in advance, and the Federal Reserve may appropriately lower policy interest rates by 0.5 to 1 percentage point in 2024.
Looking back at the performance of overseas markets this week, Wind data shows that as of the close on December 1st local time, the US stock market index, Nasdaq index, and S&P 500 index have risen 2.42%, 0.38%, and 0.77% respectively, with a collective weekly gain of five consecutive positive results. Among the major stock indices in the European market, the FTSE 100 index in the UK, the CAC40 index in France, and the DAX index in Germany also turned red on a weekly basis.
In order to reduce inflation and achieve the Federal Reserve's expected goals, the market consensus that the Federal Reserve will not cut interest rates soon once put pressure on the US stock market in the third quarter. However, with multiple economic data showing signs of slowing growth, the current market demand for the Federal Reserve to start cutting interest rates is increasing. From the actual actions of the Federal Reserve in the second half of the year, it can be seen that after resuming a 25 basis point rate hike in July, it has maintained interest rates unchanged for four consecutive months, and the market generally believes that this round of "epic rate hikes" has come to an end.
China International Capital Corporation (CICC) analysis suggests that the November Markit manufacturing PMI in the United States once again exceeded expectations and declined, and the previously strong non farm employment numbers were significantly lower than expected in October, indicating a weakening of economic growth momentum. Fundamental data supports investors' expectations for a shift in US monetary policy. In the high interest rate environment of 2024, factors such as a more fragile financial system may also accelerate the economic downturn, driving up expectations of monetary easing. Do not underestimate the timing and magnitude of the Federal Reserve's interest rate cut, and it is recommended to plan for loose trading in advance.
Ping An Securities believes that the Federal Reserve may choose a "preventive interest rate cut" for the possible "interest rate cut" path in 2024. Firstly, the current economic forecast of the Federal Reserve may be overly optimistic; Secondly, with inflation falling, the Federal Reserve has room to lower nominal interest rates to prevent real interest rates from being too high; Finally, even if interest rates are lowered by about 1 percentage point to around 4%, the Federal Reserve can still claim that it has not abandoned its "restrictive" policy stance. Taking all factors into consideration, the Federal Reserve may appropriately lower policy interest rates by 0.5 to 1 percentage point in 2024.
The multiple important economic data released next week will further affect the market's judgment on the Federal Reserve's subsequent measures, including the US November ADP employment, November non manufacturing PMI, November new non-farm employment, and November unemployment rate. Among other economic data, noteworthy ones include the October EU and Eurozone PPI data, Germany's November CPI data, as well as China's November import and export total, November CPI and PPI data.