US stocks rebound
United States (US) stocks rebounded on Friday, benefiting from cooler inflation data, which helped alleviate concerns following the Federal Reserve’s (Fed) hawkish interest rate cut. For the week, the Nasdaq 100 dropped 2.25%, the S&P 500 fell by 1.99%, and the Dow Jones dropped by 987 points (-2.25%).
Cooling inflation sparks market optimism
Although key components within November’s consumer price index (CPI) and producer price index (PPI) reports hinted at a favourable personal consumption expenditures (PCE) inflation report, the reading was cooler than expected.
The Fed’s preferred measure of inflation, core PCE inflation, rose by only 0.1% month-on-month (MoM) in November, down from 0.3% previously. The annual rate stayed at 2.8%, below the expected 2.9% and was accompanied by minor downward revisions to the data from October and September.
Fed speakers remain cautious
Comments from Fed speakers on Friday night in the aftermath of Thursday’s Federal Open Market Committee (FOMC) meeting had little impact on pricing.
San Francisco Fed President Daly expressed comfort with the median expectation of two rate cuts in 2025 and supported Chair Powell’s stance that the Fed has entered a new phase of policymaking.
In contrast, Cleveland Fed President Hammack, who dissented, argued that the policy rate is near neutral, wanting more evidence of inflation returning to the Fed’s 2% target before further rate cuts.
US Senate acts to avoid shutdown
Over the weekend, the US Senate passed legislation to extend public funding and end a brief government shutdown after missing a midnight Saturday deadline. The new legislation extends government funding until 14 March and allocates $100 billion for disaster-hit states and $10 billion for farmers.
The legislation does not raise the debt ceiling, which President-elect Trump had urged Congress to address before his inauguration on 20 January. Congress might try to address the debt limit early in the new year, although the deadline for debt limit action is thought to be around July 2025.
Economic calendar highlights
Looking ahead, the economic calendar is light in a holiday-shortened week. The key events are as follows:
- Conference Board (CB) consumer confidence (Tuesday, 24 December at 2.00am AEDT)
- Durable Goods Orders (Wednesday, 25 December at 12.30am AEDT)
- Initial jobless claims (Friday, 27 December at 12.30am AEDT)
There are no Fed speakers scheduled. The rates market starts the week pricing in 44 basis points (bp) of Fed rate cuts for 2025, almost back to where it started last week before it collapsed to 31 bp after Thursday’s hawkish Fed rate cut.
