Next Fed cut, Bitcoin, Japanese manufacturing - what's moving markets
Wall Street is seen trading slightly lower Monday, starting the final week of the year on a negative note as investors bank profits from the generally positive final quarter. Future moves by the Federal Reserve will be in focus, as bitcoin retreats further from its all-time high.
1. Fed’s next rate cut in March?
The Federal Reserve cut rates by a quarter point earlier this month, completing a full percentage point reduction since September, but its updated forecasts pointed to a more cautious stance on easing in 2025.
Most officials now anticipate only two cuts next year, down from four projected in September, and notably, 15 of 19 Fed officials see a risk that inflation could exceed projections.
Core PCE inflation, a key measure for the Fed, is projected to reach 2.5% by early 2025 if recent trends persist, above the central bank’s 2% target.
Goldman Sachs (NYSE:GS) recently predicted that the Federal Reserve will deliver its next interest rate cut of 25 basis points in March 2025, adding, in a note on Friday, that the move is expected to be followed by two additional cuts of the same magnitude in June and September.
However, the firm highlights risks from geopolitical developments, particularly US policy shifts, including higher tariffs on China and autos, lower immigration, and new tax cuts under the incoming Trump administration.
The focus this week will be on weekly jobless numbers on Thursday and ISM manufacturing PMI data a day later, as well as comments from FOMC member Thomas Barkin.
2. Futures edge lower; profit-taking ahead of year end
US stock futures edged lower Monday, with investors taking profits as a generally positive year draws to a close.
By 03:45 ET (08:45 GMT), the Dow futures contract was down 85 points, or 0.2%, S&P 500 futures dropped 11 points, or 0.2%, and Nasdaq 100 futures fell by 40 points, or 0.2%.
The major averages are set to close 2024 near to record levels, with the S&P 500 and Dow Jones Industrial Average up more than 25% and 14%, respectively, and on track for the best year since 2021. The NASDAQ Composite has gained more than 31%.
The benchmarks are also headed for a winning fourth quarter, in the wake of Donald Trump’s election win, with the Nasdaq on pace for its longest quarterly winning streak since the second quarter of 2021.
The economic data slate Monday includes pending home sales for November as well as the December Chicago PMI, but activity is likely to be limited with the market closed on Wednesday.
3. Japan’s manufacturing PMI shows improvement
Japan's factory activity shrank at a slower pace in December, according to a private-sector survey on Monday, edging closer to stabilisation after recent falls.
The final au Jibun Bank Japan manufacturing purchasing managers' index rose to 49.6 in December, just below the 50.0 threshold that separates growth from contraction for the sixth straight month.
The index was slightly higher than 49.5 in the flash reading and 49.0 in November.
The Bank of Japan held interest rates steady at 0.25% earlier this month, with Governor Kazuo Ueda seeking to examine more data and looking for clarity on the incoming U.S. administration's economic policies before committing to another rate hike.
However, some Bank of Japan policymakers saw conditions falling into place for an imminent rate hike, and more signs of an economic recovery could keeping alive the chance of a January hike
4. Bitcoin has major upside - Pantera
Bitcoin fell Monday amid soft year-end trading volumes, weighed by rising US Treasury yields after the Federal Reserve turned hawkish at its last policy meeting.
The benchmark 10-year US note hit a more than seven-month high last week, and the yield hovered close to that mark on Monday, at 4.625%.
At 03:45 ET, Bitcoin fell 1.6% to $93,817.0, down about 4% on the month after retreating from the record high of $108,379.28 hit on Dec. 17. It has surged about 120% so far this year.
Yet, despite these losses, Dan Morehead, the founder and managing director of hedge fund Pantera Capital, thinks the digital asset story is just beginning and the number of users is going to grow a lot.
Bitcoin, the flagship cryptocurrency, has been doubling in value every year for 11 years, and Morehead is confident that Bitcoin's steady performance and its role in the bigger picture of tech and economic change are what's driving it.
Morehead added that Bitcoin's market capitalization could hit $15 billion by 2028, which would represent 10,000% growth, with the number of people using the cryptocurrency jumping from the current 300 million to as much as 5 billion in the next 10 years.
5. Oil slips lower in holiday trade
Crude prices slipped slightly Monday in thin holiday-impacted trade at the start of the final week of the year.
By 03:45 ET, the US crude futures (WTI) dropped 0.4% to $70.34 a barrel, while the Brent contract fell 0.4% to $73.50 a barrel.
Both benchmarks are on course for hefty losses in 2024, with the WTI contract down around 1.5% and Brent over 4% lower so far, largely on concerns over slowing demand in China, the world’s largest oil importer.
Both OPEC and the IEA have forecast slower demand growth in 2025 due to slowing demand in China, the second-largest economy in the world.
Investors are eyeing China's PMI factory surveys due on Tuesday, for further clues over the strength of its economic recovery, especially after Reuters reported that Chinese authorities agreed to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2025 in order to boost economic growth next year.