Market Uncertainty Grows Amid Fed Rate Cut Speculation

Investors faced a cautious market on Monday amidst a week filled with major central bank meetings and crucial U.S. inflation data that could determine the fate of early next year's anticipated round of rate cuts. Despite a positive close on Friday, fueled by an encouraging U.S. jobs report, optimism waned as expectations for a March cut by the Federal Reserve decreased, though May still held a 76% chance.

As the Federal Reserve's last meeting of 2023 approached, along with a U.S. inflation report, the stock market rally faced scrutiny. The possibility of rate cuts had boosted U.S. equities, contributing to the S&P 500's nearly 20% gain in 2023. However, some investors expressed concerns about market vulnerability to reversals if consumer prices didn't cool or if the Fed proved less dovish than expected.

The Wells Fargo Investment Institute had a 2024 price target for the S&P 500 of about 4,700, suggesting potential downside risks.

The Federal Reserve, widely expected to maintain rates at 5.25-5.50%, shifted attention to Chair Jerome Powell's press conference. The upcoming consumer price report for November was anticipated to influence market outlook, with analysts predicting an unchanged headline rate and a 0.3% increase in the core.

Meanwhile, the Treasury market faced a test with $108 billion in new supply, keeping yields on 10-year notes steady at 4.25%. The federal funds futures market reflected a 46% chance of a cut in March and nearly 80% in May. 

Amidst the complex economic landscape, forecasts regarding a U.S. recession varied among top investment banks. Goldman Sachs anticipated a deceleration without contraction, while Deutsche Bank predicted a mild recession followed by substantial rate cuts. Investor caution was evident in outflows from equity and bond funds, indicating heightened risk aversion, despite the strong November rally for stocks and bonds.

Goldman Sachs adjusted its projection, foreseeing two interest rate cuts by the Federal Reserve in 2024, with the first cut expected in the third quarter due to cooling inflation. This marked a shift from their earlier prediction of rate cuts starting in December. The market, despite a robust U.S. labor market, anticipated Fed rate cuts in March amid declining prices.

The final central bank meetings of the year, including those of the Fed, ECB, and Bank of England, added to market uncertainty. Bitcoin's rally contrasted with the pivotal role the Fed played in shaping rate cut expectations. The Fed's policy statement and Chair Powell's comments were eagerly awaited for hints on when rate cuts might occur.

Data for Technical Analysis (5H) CFD US30 DJIA

Resistance : 36257.3, 36264.8, 36276.8

Support : 36233.3, 36225.8, 36213.8

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 36208.3 - 36233.3 is touched, but the support at 36233.3 cannot be broken, the TP may be set around 36257.3 and the SL around 36195.8, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 36232.3 - 36257.3, TP may be set around 36280.0 and SL around 36220.5, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 36232.3 - 36257.3 is touched, but the resistance at 36257.3 cannot be broken, the TP may be set around 36224.6 and the SL around 36269.8, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 36208.3 - 36233.3, TP may be set around 36190.0 and SL around 36269.8, or up to the risk appetite.       

Pivot Points Dec 11, 2023 11:30AM GMT

Sources: Investing 1, Investing 2