Pre-Market Pulse 30th November – Investor optimism fuels rate cut bets, despite stronger growth

Overnight – Investor optimism fuels rate cut bets, despite stronger growth

Equities closed mixed overnight to remain on course to post big November gains amid fresh optimism that the economy will avoid recession and ongoing optimism of Fed rate cuts of early next year, despite stronger GDP numbers

The US economy grew faster than initially thought in the third quarter, as gross domestic product increased at a 5.2% annualized rate last quarter, revised up from the previously reported 4.9% pace. The stronger growth spurred optimism that the economy likely to avoid recession and comes a day ahead of fresh inflation data tonight with PCE, the Feds preferred inflation gauge.

Bond yields added to losses from a day earlier amid ongoing rate cut bets following comments from Federal Reserve Governor Christopher Waller, who suggested on Tuesday that the U.S. central bank’s monetary policy is “well-positioned” to cool inflation. Waller, normally known as a hawkish voice at the Fed, added that should inflation continue to ease back down to the Fed’s 2% target for “several more months,” there is a chance that officials “could start lowering” interest rates. The remarks were taken as another sign that the Fed were done hiking rates, driving investor sentiment to price in a noticeably more dovish path for rates over the year ahead.

The market reaction to Waller and GDP are at odds with each other as economic fundamentals dictate that hotter than expected growth, will almost certainly curtail any chance of rate cuts, but the equity markets has chosen the “glass half full” for both scenarios. This is likely to be due to thin, post-Thanksgiving trade conditions and month end.  

 Oil surged higher as investors weighed up an unexpected rise in U.S. crude production and a Black Sea supply disruptions ahead of crucial OPEC+ meeting to discuss future production levels. On the supply side, meanwhile, a severe storm in the Black Sea region has disrupted up to 2 million barrels per day of oil exports from Kazakhstan and Russia.