March Fed Rate Cut Bets Hold Above 50%
Positive trade developments coincided with renewed hopes for a March Fed rate cut. Lower borrowing costs would increase company earnings and share prices. Cooling US inflation and a softer labor market have fueled speculation about a more dovish Fed rate path.
US unemployment rose from 4.4% in October to 4.6% in November, while headline inflation unexpectedly dropped from 3.0% in September to 2.7% in November. (There was no October CPI report because of the government shutdown.)
According to the CME FedWatch Tool, the chances of a March cut increased from 51% on December 15 to 52.9% on December 22.
Crucially, expectations of a more dovish incoming Fed Chair have raised expectations of further Fed policy easing, in contrast with the Dot Plot’s one-rate cut projection.
US GDP and Labor Market in Focus
US futures were steady during the Asian morning session on Tuesday, December 23. The Nasdaq 100 E-mini and the S&P 500 E-mini advanced 28 points and 5 points, respectively, while the Dow Jones E-mini was flat.
Later on Tuesday, US economic data will influence demand for US stock futures, with GDP and labor market figures in focus.
According to first-estimate data, the US economy expanded by 3.2% quarter-on-quarter (Q3) in Q3, cooling from 3.8% GDP growth in Q2. A lower GDP reading would likely raise expectations of a March Fed rate cut, reinforcing the bullish short- to medium-term outlook for US equity futures.
Meanwhile, the ADP will report weekly employment figures, following last week’s jobs report. The Kobeissi Letter commented on a weakening US labor market, stating:
“The US economy lost 983,000 full-time jobs in October and November, bringing the total down to 134.2 million, the lowest since December 2021. As a result, just 78.2% of the labor force is now employed full-time, the lowest since June 2021. This percentage has now declined 2.5 points since the June 2023 peak. In the past, such a trend has usually been seen during recessions. […] The labor market needs more rate cuts.”
Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500
Despite a steady Asian-session performance on Tuesday morning, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs. The EMAs indicated a positive medium-term bias.
Near-term trends will hinge on US data, Fed rhetoric, and Bank of Japan chatter. Key levels to monitor include:
Dow Jones
- Resistance: The December 12 record high of 48,917, and then 49,000.
- Support: 48,500 and then the 50-day EMA (47,484).