Roaring Bull Hits Rate Wall as Central Bankers Ring Inflation Bell

Alexander Garcia
19 Dec, 2024
New York City

Market indexes rebounded in Thursday's trading and recalibrated interest rate outlook after the Federal Reserve offered a more cautious outlook for 2025. 

The S&P 500 index jumped 1% and the Nasdaq Composite advanced 0.9% a day after a sharp fall on Wall Street. 

The Federal Reserve cut its overnight lending rate range by 25 basis points to between 4.25% and 4.50% and also signaled a possible rate cut of 50 basis points in 2025. 

The possible rate-cut outlook was revised to 50 basis points from the previous estimate of 100 basis points, denting market enthusiasm and halting the roaring bull market. 

The Federal Reserve raised its economic growth and inflation estimate but lowered its unemployment rate outlook, prompting many investors on Wall Street to forecast the Fed to pause rates at the end of its next meeting in January. 

The Fed revised its GDP growth estimate in 2024 to 2.5% from the previous estimate of 2.0% in September, the unemployment rate to 4.2% from 4.4%, and PCE price inflation to 2.4% from 2.3%, respectively. 

Separately, the U.S. Bureau of Economic Analysis lifted its annualized third quarter GDP growth estimate to 3.1% from the second estimate of 2.8% and above 3.0% in the second quarter. 

 

Existing Home Sales Advanced at Fastest Pace Over 3 Years In November

Existing home sales advanced 6.1% from the previous year to an annual rate of 4.15 million, according to the latest data released by the National Association of Realtors. 

Home sales rose at the fastest pace since June 2021, and more buyers returned to the market as the economy continued to create new jobs. 

Single-family home sales advanced 5% to a seasonally adjusted annual rate of 3.76 million in November, up 7.4% from the previous year. 

The median existing single-family home price was $410,900 in November, an increase of 4.8% from a year ago.

Home prices advanced in all four regions, and the median price for all housing types rose to $406,100, an increase of 4.7% from $387,800 a year ago. 

The share of first-time home buyers increased to 30% in November from 27%, and cash sales accounted for 25% compared to 27% in the previous month, respectively. 

Individual investors or second-home buyers, who make up many cash sales, purchased 13% of homes in November, down from 17% in October and 18% in November 2023.

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.5% to 5,901.86, the Nasdaq Composite rose 0.6% to 19,511.75, and the Russell 2000 index advanced by 0.1% to 2,234.89. 

The yield on 2-year Treasury notes edged higher to 4.33%, 10-year Treasury notes inched up to 4.55%, and 30-year Treasury bonds increased to 4.74%.

WTI crude oil increased $0.42 to $70.44 a barrel, and natural gas prices edged up 10 cents to $3.47 a thermal unit.

Gold increased by $10.45 to $2,598.70 an ounce, and silver fell by $0.18 to $29.13. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher by 0.01 to 108.09.

 

U.S. Stock Movers 

Micron Technology, Inc. plunged 16% to $87.08 after the advanced chipmaker reported fiscal first quarter results that met investor expectations. 

However, the company's fiscal second quarter outlook fell short of market expectations. 

Lamb Weston Holdings dropped 17.1% to $64.88 after the frozen potato maker reported weaker-than-estimated quarterly results. 

Revenue in the fiscal second quarter ending on November 24 decreased 8% to $1.6 billion, and net income swung to a loss of $36.1 million from a profit of $215 million, and diluted earnings per share swung to a loss of 25 cents from a gain of $1.48 a year ago. 

The company attributed its profit weakness to higher-than-anticipated manufacturing costs and softer volumes, and the frozen potato maker estimated softness to persist well into the next fiscal year. 

The company reduced its fiscal 2025 net sales target range to between $6.35 billion and $6.45 billion, net income between $330 million and $350 million, and diluted earnings per share between $2.30 and $2.45. 

Darden Restaurants jumped 14.4% to $182.70 after the operator of The Olive Garden and LongHorn Steakhouse chain reported better-than-expected fiscal second quarter results. 

The restaurant company also lifted its annual revenue outlook. 

 

European Markets Drop 1% After Fed's 2025 Rate Outlook, Norway and UK Hold and Sweden Cuts Rates 

Stock market indexes in Europe headed lower, tracking losses on Wall Street after the Federal Reserve issued a hawkish rate outlook for 2025. 

Benchmark indexes in Paris, Frankfurt, Milan, and London declined between 1.3% and 1.7% following the Fed's rate decisions. 

The U.S. Federal Reserve lowered the fed funds rate range by 25 basis points as widely anticipated, but it was the Fed's outlook that spooked the markets. 

The rate-setting committee estimated a rate cut of about 50 basis points in 2025, smaller than 100 basis points previously estimated at the end of the third quarter. 

The Fed's revised outlook is tacit acknowledgment that despite eleven rate hikes over 2022 and 2023, inflation is still well anchored, and prices are rising faster than the Fed's target rate of 2%. 

Moreover, most of the decline in interest rates over the last eighteen months is a reflection of sharply lower oil prices and not the Fed's policy effects. 

Investors recalibrated their rate outlook, and stock market indexes fell sharply in New York in Wednesday's trading. 

The Swedish Riksbank lowered its benchmark policy rate by 25 basis points to 2.5%, meeting investor expectations, and the central bank signaled possible additional rate cuts "if the outlook for inflation and economic activity remains unchanged."

The Norges Bank held its reference rate steady at 4.5%, a 16-year high, citing elevated inflation, and the central bank signaled that policymakers are open to possible rate cuts from March. 

However, the central bank noted that the overall and core inflation remain high, but wage growth is likely to slow from 5.2% to 4.5%, and the weakness in the krone could force the monetary policy committee to review "a higher policy rate than currently envisaged may then be required." 

The Swedish krona traded around 11.05, and the Norwegian krone hovered near 11.35 against the U.S. dollar, respectively. 

The Bank of England held steady its benchmark rate at 4.5%, following the faster-than-expected rise in inflation and wages in recent months. 

 

EU Passenger Car Registration Eased In November 

Passenger car sales in the European Union struggled to advance in November, reflecting higher interest rates and cost of living. 

Car registrations fell by 1.9% from a year ago to 869,196 units, and France led the way with a sharp decline of 12.7%, followed by Italy with a fall of 10.8%, while the German market stagnated slightly with a rise of 0.5%.

Among the four major economies of the European Union, only Spain recorded positive growth with an increase of 6.4%, the European Automobile Manufacturers' Association reported Thursday. 

For the first eleven months of 2024, passenger car registration edged up only 0.4% to 9.7 million vehicles, largely driven by 5.1% in Spain but 3.7% decrease in France, 0.4% fall in Germany, and 0.2% decrease in Italy. 

Registrations of battery-electric vehicles fell by 9.5% to 130,757 units in November, primarily driven by a significant decrease in registrations in Germany of 21.8% and in France of 24.4%. 

Total market share of battery electric vehicles in the first eleven months to November shrank to 13.4%, 5.4 percentage points lower than a year ago. 

It resulted in a year-to-date market volume 5.4% lower than the same period last year, with the total market share now at 13.4%.

 

Europe Indexes and Yields

The DAX index decreased by 1.3% to 19,989.92; the CAC-40 index fell by 1.7% to 7,262.49; and the FTSE 100 index inched lower by 1.4% to 8,087.72.

The yield on 10-year German bonds edged higher to 2.29%, French bonds inched up to 3.11%, the UK gilts increased to 4.60%, and Italian bonds increased to 3.48%.

The euro edged lower to $1.04; the British pound inched up to $1.25; and the U.S. dollar advanced to 89.58 Swiss cents.

Brent crude decreased $0.08 to $73.30 a barrel, and the Dutch TTF natural gas rose by €0.01 to €41.11 per MWh. 

 

Europe Stock Movers

Skanska AB declined 1.3% to SEK 231.0 after the Swedish construction company divested its multifamily rental company, C. F. Mollers Have, in Denmark. 

Stellantis NV decreased 1.3% to €12.57 after the Italian vehicle maker reported a decline in sales in November. 

Serco Group plc rose 7.5% to 149.10 pence after the security services provider estimated full-year revenue of £4.8 billion, reiterating its previous guidance. 

SoftwareOne Holding AG jumped 10.9% to CHF 6.50 after the Swiss software company announced a deal to acquire Crayon Group Holding. 

Douglas AG declined 2% to €19.25, despite the German cosmetic company reporting a turnaround to net profit in the fiscal fourth quarter. 

 

BoJ Holds Rates, Nikkei Drops to 3-Week Lows, Yen Weakens to 5-Month Low 

Stock market indexes in Tokyo fell sharply after investors reviewed rate decisions from the Bank of Japan and the U.S. Federal Reserve. 

The Nikkei 2225 stock average declined as much as 1%, and the broader Topix index dropped 0.4% before recovering some of the losses in the session. 

The Bank of Japan held its policy rate around 0.25%, the highest level since 2008, citing that Japan's economy is on a moderate recovery driven by improving corporate profit and business spending, but the growth in industrial profits and exports is lagging. 

The policy committee estimated annual consumer price inflation to range between 2.0% and 2.5%, driven in large part by service inflation. 

The U.S. Federal Reserve lowered its fed funds rates range by 25 basis points to between 4.25% and 4.50% and signaled possible rate cuts totaling 50 basis points in 2025, compared to the previous estimate of as much as 100 basis points expected last quarter. 

Following the rate decisions announcement, the S&P 500 index dropped 3% and the Nasdaq Composite plunged 3.5%.

Benchmark indexes in Tokyo spent the entire session in negative territory after the Fed's hawkish outlook and confirming that the central bank is struggling to bring down inflation to its target rate of 2%. 

The Japanese yen faced renewed selling pressure after the BoJ postponed its rate hike and raised the possibility of the central bank waiting till the end of the annual spring wage negotiations. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average decreased 0.7% to 38,813.58, and the broader Topix index fell 0.2% to 2,713.83. 

Tech stocks led the decliners, but banks and shipping companies led the gainers in Tokyo trading. 

Advantest Corp. declined 0.8% to ¥8,690, Tokyo Electron decreased 1.4% to ¥23,450, Screen Holdings jumped 0.7% to ¥9,301, and SoftBank Group fell 4.4% to ¥9,025. 

Nissan Motor Co. Ltd. jumped 6.5% to ¥444.80 and extended two-day gains to over 27% after the company entered into merger talks with Honda Motor. 

Honda Motor Co. Ltd. decreased 1.9% to ¥1,220 and extended two-day losses to over 10%.

Mitsubishi Motors Corp corrected 3.8% to ¥469.0 after surging more than 15% in the previous session on speculation that the company may join the amalgamation talks between Honda and Nissan. 

Banks and financial services providers advanced after the Bank of Japan held steady its policy rate and signaled future rate hikes are likely to be "gradual." 

Sumitomo Mitsui Financial jumped 2.3% to ¥3,744, Mitsubishi UFJ Financial Group advanced 1.2% to ¥1,834.50, and Mizuho Financial Group jumped 2% to ¥3,857.0. 

Kawasaki Kisen Kaisha Ltd. jumped 2.4% to ¥2,142.50, Mitsui O.S.K. Lines added 1% to ¥5,280, and Nippon Yusen KK inched up 1.8% to ¥5,122.0. 

 

 

China and Hog Kong Stocks Trend Lower and Yuan Drops After Fed's Hawkish Outlook 

Stock market indexes in China and Hong Kong headed lower after rate decisions from the U.S. Federal Reserve and the Bank of Japan. 

The Hang Seng index recovered to a decline of 0.3% after falling as low as 1%, and the CSI 300 rebounded to a gain of 0.3% from the decline of 0.5%. 

Market sentiment soured after the U.S. Federal Reserve signaled fewer rate cuts in 2025 amid resurgent inflation and policy uncertainty. 

The Federal Reserve lowered the fed funds rate by 25 basis points, as widely anticipated, to a new range of 4.25% and 4.50% and raised the prospects of a rate pause at the next meeting in January. 

Benchmark indexes in New York quickly came under the pressure after the rate decision, and they dropped around 3.5% in overnight trading in New York. 

The Hong Kong Monetary Authority lowered its reference rate by 25 basis points to 4.75%, matching the U.S. Fed move and preserving the Hong Kong dollar's parity with the U.S. dollar. 

In other economic news, the Bank of Japan held its key rate around 0.25%, as widely anticipated, citing moderate improvement in economic conditions. 

The policy committee estimated annual consumer price inflation to range between 2.0% and 2.5% in 2025, driven in large part by service inflation. 

 

China Stock Movers 

The Hang Seng index fell 0.3% to 19,801.09, and the mainland-focused CSI 300 index added 0.3% to 3,952.92. 

The offshore yuan rate dropped to 7.32 against the U.S. dollar, the lowest since November 2023, after the Fed's rate decisions and more hawkish outlook than previously estimated.

Property stocks fell after the HKMA lowered rates tracking the U.S. Fed's move, but investors worried that slower and fewer rate cuts in 2025 could dent demand for new homes. 

Henderson Land Development Co. Ltd. decreased 3.5% to HK $23.25, Sun Hung Kai Properties Ltd. fell 2.4% to HK $72.20, and Hang Lung Properties dropped 2% to $6.18. 

Alibaba Group Holding dropped 1.5% to HK $82.80, Tencent Holdings jumped 2.9% to HK $417.60, and Meituan declined 1.5% to $157.80.