The US dollar softens, and stocks rebound as weak ADP and ISM data lock in expectations for a December Fed rate cut. Levels to watch for the day.
US dollar weakens; Dow leads rebound with high odds pricing of December Fed rate cut
Key takeaways
- US stocks extended their rebound for a second day, led by the Dow and Russell 2000, while tech lagged due to weakness in Microsoft and Nvidia.
- The US dollar softened further as weak ADP jobs data and a subdued ISM Services PMI strengthened expectations of another 25 bps Fed rate cut next week.
- Asia Pacific markets rallied alongside Wall Street, with Japan’s Nikkei 225 hitting a three-week high and the Hang Seng reversing early losses
On Wednesday, 3 December, the US benchmark stock indices recorded a second consecutive session of gain that erased Monday’s post-Thanksgiving losses triggered by the swift intraday plunge of 7%-8% seen in major cryptocurrencies.
The laggards, Dow Jones Industrial Average, and small-cap Russell 2000 led yesterday’s rally with gains of 0.9% and 1.9% respectively, while the technology-heavy Nasdaq 100 and S&P 500 rose modestly by 0.2% and 0.3%, dragged down by the underperformance of Microsoft (-2.5%) and NVIDIA (-1%) due to a negative news flow out that highlighted a reduction of sales quotas for Microsoft’s AI software products, which Microsoft later denied via an issued statement.
Despite Wednesday’s underperformance of the Nasdaq 100 and S&P 500, all four US benchmark stock indices managed to trade above their respective 20-day and 50-day moving averages since last Tuesday, 25 November, putting the recent AI bubble fears-induced sell-off from 12 November to 21 November on the back burner.
Most Asia Pacific stock markets also rode on the bullish wagon, with Japan’s Nikkei 225 rallying by 2.3% to hit a three-week high. Hong Kong’s Hang Seng Index erased today’s opening losses, reinforced by China’s property market woes, and reversed up to an intraday gain of 0.6% at the time of writing.
In the FX market, the US dollar has declined for the fourth consecutive session, led by gains in the EUR and GBP that rallied to their respective 7-week and 5-week highs against the greenback.
In today’s Asia session, the US Dollar Index remains soft, trading below its 20-day, 50-day, and 200-day moving averages. Meanwhile, the AUD (+0.3%) and JPY (+0.1%) outperformed the US dollar on an intraday basis.
The ongoing weakness of the US dollar since last Tuesday, 25 November, has been reinforced by a weak non-government compiled US jobs data, where the ADP employment change for October showed a jobs loss of 32,000, that was significantly below consensus estimates of a gain of 10,000, coupled with a tepid growth for November’s ISM Services PMI that came in at 52.6, slightly higher that October’s print of 52.4.
These two lacklustre key US economic data have managed to allow the Fed funds futures market to maintain a high odds pricing of an 89% chance (based on latest data from the CME FedWatch Tool) that the Fed is likely to cut the Fed funds rate for the third consecutive time on next Wednesday, 10 December, FOMC meeting by 25 basis points (bps) to bring the Fed funds rate lower to 3.50%-3.75%.
Our YouTube video above contains the latest intraday technical analysis on the US Wall Street 30, US Nas 100, US SPX 500, Hong Kong 33, Japan 225, Germany 30, EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold (XAU/USD), and West Texas Oil.
