US Stocks Rally into the Weekend – Dow up 0.6%
Wall Street closed out a stellar week with another positive day on Friday as US markets continued to price in a Republican clean sweep of government. The Dow once again led the way, closing up 0.59%, just shy of 44,000, with the S&P up 0.38% and the Nasdaq edging 0.09% higher. US treasury yields had a mixed day, with the more rate-sensitive 2-year adding 3.8 basis points to reach 4.258%, while the longer-term 10-year dropped 2.7 basis points to move back down to 4.318%. The dollar pushed higher again to lock in another strong week, as the DXY gained 0.58% to close at 105.01. Oil prices pulled back as storm risks to the Gulf of Mexico receded, with Brent down 2.3% to $73.87 and WTI off 2.7% to $70.35. Gold took another hit, posting its worst weekly performance in five months, falling 0.8% on the day to finish at $2,684.03 an ounce.
Inflation Back in Focus for US Markets – Fed Cut Expectations Fall
Markets are beginning to adjust their expectations for interest rate cuts from the Federal Reserve following last week’s election results and some fresh calculations that are somewhat alarming for traders who were expecting significant cuts over the coming year. Fed Fund futures are now pricing in a decline to around 3.7% by the end of 2025, which is nearly 100 basis points higher than was previously priced in September. A key factor here is just how much power the Republicans gain and how rigorously Trump pursues some of his campaign promises. Part one should become apparent over the coming days, and a combination of the two factors could see those rate cut expectations reduced even further. The Fed has stated it will continue to react to data in the short term, with the latest CPI numbers due out this week. Any signs of resilience in the market before Trump has a chance to implement his inflationary plans could lead to a strong market reaction.
Quiet Calendar Day Ahead to Start the Week
Traders are expecting relatively calmer trading conditions in the days ahead after last week’s avalanche of updates. The macroeconomic event calendar today is light, which should be welcome to many investors still digesting last week’s results and consequent moves. New Zealand markets will be on alert part way through the Asian session with the release of the latest Quarterly Inflation Expectation data. Any significant deviation from the previous 2.03% print could prompt movement in the New Zealand dollar. There is little on the calendar for the next two sessions, but traders should note that bank holidays in France, Canada, and the US may affect liquidity later in the day, potentially leading to sharp moves if any major news emerges.
