Morningstar says the 10-year Treasury yield slipped to its lowest level since late October. “The latest dip comes after economic growth concerns saw European sovereign yields fall when Wall Street was shut, and despite a raft of reports released the day before that pointed to still-healthy economic activity in the U.S.,” notes a Morningstar report.
Investors will be keeping an eye out for data and anecdotes relating to Black Friday spending, with the market expecting confirmation that consumers remain relatively stoic, the report says.
Currently, markets are pricing in a 66.3% probability that the Fed will cut interest rates by at least 25 basis points from the range of 4.50% to 4.75% after its next meeting on December 18, according to the CME FedWatch tool.
“We continue to hold the view the Fed will reduce the Fed Funds Target Rate (FFTR) by another 25 bps to 4.25-4.50% at this upcoming FOMC. However, we are revising our 2025 rate cut trajectory to a total 75 bps of cuts (i.e. three 25-bps cuts, one in each quarter of 1Q, 2Q and 3Q 2025) and end the rate cycle to bring the terminal rate to 3.75% (upper bound of FFTR),” says UOB Global Economics and Markets Research.
On Nov 29, the rising 2-year US teasury yield at 4.20% came within a whisker of the 10-year US treasury yield at 4.21%. They have since diverged marginally. If the 2-year US treasury yield crosses above the 10-year US treasury yield, and stays in this stance, the yield curve will invert once again.
So far though, strategists reckon policies of the incoming US administration could support the US equity market. But could these policies cause a recession? Or worse stagflation in the US within the next four years? We will have to wait and see.
See also: STI steadies despite overbought US markets and rising US risk-free rates
“A 60% tariff on Chinese exports would have a material impact on China’s GDP, though the impact on Chinese equity markets could be limited, given that only a small percentage of corporate revenue for listed Chinese stocks is tied to exports to the US. After reacting positively to the country’s first stimulus announcement, local equities have been trailing off, with the second stimulus proving disappointing. We believe that given this reality, along with potential US trade challenges, investors should remain focused on companies whose business models are resilient to a low-stimulus outcome,” notes Rob Hinchliffe, Portfolio Manager, Head of Global Sector Cluster Research at PineBridge Investments, in an update on Nov 29.
“US President-elect Donald Trump has been clear about his policy priorities, which include a mix of widespread tariffs on imports to the US and more severe tariffs on Chinese imports (with the possibility that tariff threats could be used as a bargaining tool), along with mass deportations of immigrants believed to be in the US illegally; these are balanced with prospects for lower corporate tax rates and deregulation, and the extension of individual tax cuts. While certain policies could have an inflationary impact and potentially affect the arc of Federal Reserve rate cuts, we believe the global easing cycle will continue,” Hinchliffe and his team state in their report.
The Straits Times Index ended the week of Nov 25-29 at 3,739, down six points week-on-week but above the intra-week low of 3,708. The negative divergences between short term indicators and the index may persist but these may not have negative implications so long as quarterly momentum remains intact.
On Nov 18, the index made a post-Covid, post-global financial crisis high of 3,757 before retreating. An earlier breakout of 3,640 on Nov 7 indicated a measuring object of 3,980. This target represents potential rather than a absolute target. Support has been established at the bottom of the sideways range that formed on Nov 12-29, at 3,660.
