US Stocks Hit After Government Reopens – Nasdaq off 2.3%
US equities dropped sharply on Thursday as traders digested the government’s reopening after a record 43-day shutdown. Inflation concerns and shifting rate-cut expectations were the main drivers as investors became nervous ahead of renewed data releases. The Dow dropped 1.65% to 47,457, the S&P 500 fell 1.66% to 6,737, and the Nasdaq led losses with a 2.29% slide to 22,870. The US dollar fell against the majors, the DXY slipping 0.32% to 99.15, while Treasury yields pushed higher as markets reassessed the Fed outlook. The 2-year yield rose 2.3 bps to 3.591%, and the 10-year gained 3.7 bps to 4.106%. Commodities were mixed. Brent edged up 0.32% to $62.91, and WTI added 0.22% to $58.62 following the previous day’s steep decline. Gold, despite an early push higher, reversed to finish the NY session down 0.57% at $4,171.52 an ounce.
Fed Rate Cut Drops to a 50–50 Chance in December
Expectations for a Federal Reserve rate cut in December have taken a sharp drop in the last few weeks, with estimates from the CME’s FedWatch dropping from a near-certain rate cut — over 95% — a month ago to now sit at a 50% chance. The US government’s reopening, which had fuelled positive risk sentiment in the early part of the week, saw a dramatic turnaround in trading yesterday when it occurred. Originally, thoughts that the resumption would see data renewed and confirm a rate cut from the Fed have led to increased concerns that the lack of recent data will force the FOMC to hold fire until they have more certainty on the state of the economy. Jobs numbers, which we have missed two releases of, and inflation data, as always, will be closely watched if or when they come out, with traders anxiously awaiting updates on when we will have the next releases and what form they will take. In the meantime, expect more volatility on news updates and what could then become a very ‘live’ Fed meeting in December.
Quiet Calendar Day to Close Out the Week
It is a quiet calendar day ahead for traders today, with little in the way of data or major central bank updates to move markets; however, volatility is expected to remain relatively high as the US government reopens and investors look ahead to renewed data releases. The Asian session does have some big data coming out of China that could move local markets: Industrial Production (exp. 5.5% y/y), Retail Sales (exp. 2.7% y/y) and the Unemployment Rate (exp. 5.2%) are all due out midway through the day. There is little scheduled in the London session to move markets; however, once again the New York day is expected to see plenty of action as traders hear the latest updates on the reopening of the US government and data release updates. We are also set to hear from Fed members Schmid, Logan and Bostic towards the end of the day.
