This Tuesday, December 9, marks the tenth consecutive session in which the CAC40 and Euro-Stoxx50 have traded within a narrow 1.5% range, with intraday fluctuations not exceeding 0.5%.
The CAC40 (-0.7% around 8,050) has remained locked between 8,050 and 8,150 points since November 25, while the E-Stoxx50 (-0.1% this Tuesday, with the DAX providing support at +0.5%) has hovered between 5,650 and 5,725, displaying a slightly upward profile.
The reopening of Wall Street is not expected to break this deadlock, with the Nasdaq up just 0.15%, the S&P 500 gaining 0.25%, and the Dow Jones rising by 0.35%, as the Federal Reserve kicks off its 48-hour FOMC meeting.
The bright spot on Tuesday is the halt in the sharp rise in bond yields seen over the previous two sessions: the yield on T-Bonds eased by 2 basis points to 4.153%, while the 30-year slipped by 2.8 points to 4.787%. With little suspense surrounding the anticipated announcement of a third rate cut tomorrow, the focus will turn to the content of the Federal Reserve's latest economic forecasts.
According to CME's FedWatch tool, over 89% of market participants now expect the Fed to cut its benchmark interest rate by a quarter point on Wednesday.
"The real issue is understanding what pace of easing will be implemented next year," notes Christopher Dembik, investment strategy advisor at Pictet AM.
"We will need to be patient and probably wait for the appointment of Jerome Powell's successor, which could occur in the coming weeks, to learn more," the analyst adds.
At J. Safra Sarasin, the team expects another "precautionary" rate cut tomorrow, but the Swiss private bank's analysts also believe it will become "much more difficult to implement all the rate cuts currently priced in by markets, even with a more dovish Fed chair."
In this context, market players will be watching closely for any clues from the Fed chief tomorrow to refine their bets on the continuation of the Federal Reserve's accommodative monetary policy next year.
Meanwhile, the latest JOLTS report adds further justification for rate cuts: while job openings increased marginally in October, hiring slowed, providing fresh evidence of the current slowdown in the U.S. labor market.
The number of job openings reached 7.67 million, up from 7.66 million the previous month, according to the latest Job Openings and Labor Turnover Survey (JOLTS) released Tuesday by the Department of Labor. Hires came in at 5.37 million versus 5.15 million in September, the report shows.
These statistics, used to gauge the strength of labor market demand, will be closely monitored to assess employment trends in the absence of the Department of Labor's official monthly data.
According to the bond markets, the prospect of two additional rate cuts in 2026 seems far from certain.
The deterioration is particularly striking in the United States, where Treasury yields have risen sharply in recent days, with uncertainty surrounding the Fed's statements prompting investors to offload long-term paper.
In Japan, long-term rates have plateaued but there is no improvement in sight (-1.2 points to 1.965% on the 10-year), while in Europe, the German 10-year Bund--a key benchmark for the eurozone--climbed 10 basis points on Monday to top 2.87%, before easing by 1.5 points on Tuesday to 2.852%. French OATs erased 2.5 points to 3.566%.
Even if the predictive power of yield curves is open to debate, the emergence of this contrarian signal in the bond market led equity markets to adopt a more cautious stance yesterday.
With little major news expected after the Fed meeting until year-end, some investors may even choose to close out their books early.
The euro is consolidating sideways around $1.1635, while oil continues its slide--down 1% after a 2.5% drop the previous day (Brent at $61.9, WTI at $58.3, compared to $56 at the end of October and early May)--approaching annual lows.
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