Post-election Wall St booms as Fed cuts, China spurs
A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street's S&P500 .SPX looks poised to test 6,000 for the first time as the Federal Reserve underscored a post-election stock surge with its second interest rate cut of the year on Thursday and a nod to more.
Overseas, Friday's focus was on China's widely expected debt-raising stimulus plans - although the readout was these were in line with prior indications and China's yuan CNH=, bond yields CN10YT=RR and stocks .CSI300 all edged lower.
Already lifted to record highs by this week's quick and decisive election results and the prospect of President-elect Donald Trump's promised tax cuts, the S&P500's 25% year-to-date gains are the biggest by this stage of the year in almost 30 years.
December S&P stock futures crossed the 6,000 mark for the first time on Thursday and tried to retain a foothold there overnight. The VIX .VIX "fear index" of implied equity volatility probed below 15 for the first time in over a month.
Although the final results are still awaited, it now seems all but certain Trump's Republican party will have a "clean sweep" of Congress too - bolstering tax cutting speculation alongside his tariff raising pledges.
But the Fed's expected quarter-point rate cut late yesterday also helped calm restive Treasury markets as Chair Jerome Powell indicated further easing was in store even though the economy has strengthened and core inflation remains elevated.
Fed futures now see a 90% chance of another quarter point cut next month and almost 100 basis points of easing are priced through the end of next year. Ten-year U.S. Treasury yields US10YT=RR slipped back below 4.3% on Friday and Treasury volatility gauges plunged back to their lowest in a month.
Powell indicated that as long as encouraging disinflation trends persisted the Fed would continue a gradual process of getting interest rates back to a neutral level well below current levels and said it would not react to speculation about government policy shifts until concrete plans were presented.
But in an intriguing press conference exchange about whether Trump would allow him to remain as Fed Chair, Powell insisted he would not step down a year early even if asked to do so. "Not permitted under the law," he replied.
Earlier on Thursday CNN quoted a Trump advisor saying Powell would be allowed to serve as Chair until his term expires in May 2026 but also that Trump was considering either former Fed Governor Kevin Warsh, a persistent Fed critic, or former White House economist Kevin Hassett as replacements.
There's some concern that naming a likely successor early may undermine Powell's policy statements in the final months of his tenure.
As Trump starts to name his cabinet, markets now await his pick for Treasury Secretary.
Following the relatively dovish take from the Fed - compared to initial post-election speculation at least - and softer Treasury yields, the dollar .DXY remained on the backfoot on Friday - but held about half of its initial post-election surge.
Sterling GBP= was firm and gilt yields GB10YT=RR retreated after Thursday's Bank of England rate cut too - with the Bank lifting next year's inflation forecast due to the recent government stimulus but confident it could keep reducing rates gradually nonetheless.
Markets, however, don't see the next UK rate cut until February at the earliest.
The euro EUR= slipped again as investors eyed the unfolding German political crisis.
Germany's conservative opposition leader Friedrich Merz on Friday described Chancellor Olaf Scholz's decision to delay a parliamentary confidence vote in his government until 2025 as "irresponsible" and as the chances of a early election rise.
After a frenetic couple of weeks of critical events, Friday's diary is mercifully thin.
Stocks in Asia and Europe were generally lower, with many investors now trying to parse the risks of a widening global trade war as Trump takes office and details of his draconian tariff plans are awaited.
Key developments that should provide more direction to U.S. markets later on Friday:
* Awaiting final election results for House of Representatives
* University of Michigan November sentiment survey; Canada Oct employment report
* Federal Reserve Board Governor Michelle Bowman speaks
* US corporate earnings: Paramount Global, Baxter, NRG
G10 central bank interest rates Nov. 7, 2024 https://reut.rs/3CiHajt
US inflation and interest rates https://reut.rs/4fhWbAy
Inflation expectations rising https://reut.rs/4fCzHdp
China's augmented debt https://reut.rs/40GAXYL
German coalition crumbles https://reut.rs/3Oj1wfr
By Mike Dolan,
mike.dolan@thomsonreuters.com
Editing by Ros Russell
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