Markets retreat on lower rate-cut odds

General market commentary

Global equities experienced a pullback on Thursday, as cautious remarks from U.S. Federal Reserve Chair Jerome Powell dampened momentum from last week’s post-election rally. Powell emphasised that the Fed sees no immediate need to cut rates, citing the ongoing strength of the U.S. economy, which led to a sharp reduction in market expectations for a December rate cut—from over 80% to just above 60%. The latest U.S. producer price index data, showing a slight rise in annual core inflation to 3.1%, also reinforced this outlook, suggesting inflationary pressures may persist longer than anticipated despite a slowly cooling labour market.

This cautious stance from the Fed sent bond yields higher, with the 10-year Treasury briefly hitting four-month highs before moderating as buyers entered the market. Equities broadly declined, with only energy and technology shares registering gains, as investors remained wary of inflationary challenges. The Fed’s slower approach to rate cuts appears to reflect a pragmatic strategy aimed at achieving a “soft landing” for the economy, balancing growth with inflation control.

In Asia, mixed economic data added to the cautious global sentiment. Japan’s GDP grew 0.9% year-on-year in Q3, slightly above expectations, but marked a sharp slowdown from the prior quarter. In China, industrial output grew 5.3% in October, missing forecasts, while retail sales rose 4.8%, bolstered by the Golden Week holiday. However, property investment continued to decline, with a 10.3% year-on-year fall, despite recent policy measures offering some support. The outcome of the U.S. election and concerns over potential trade tensions under a Trump presidency also weighed on investor sentiment across the region.

Latest market update

US equity futures point to a lower open, following Powell’s comments on fewer rate cuts and weaker corporate earnings.

Asian equities were mostly flat on Friday, with Japanese shares rising despite weak GDP, while Chinese and Hong Kong equities saw modest losses amid mixed data and trade war concerns.

The S&P 500 and Nasdaq both fell 0.6% on Thursday, while the Dow dropped 207 points, as investors reacted to inflation data and Powell's comments on rate cuts. In corporate news, Cisco shares dropped 2.1%, Super Micro fell 11.4%, and Disney surged 6.2% following strong Q4 earnings.

European markets closed sharply higher on Thursday, with the Stoxx 50 rising 1.9%. ASML surged 7% after strong sales forecasts, while Siemens gained 4.9% despite lowering its 2025 outlook.

The U.S. 10-year Treasury yield stayed above 4.45% on Friday, driven by expectations of fewer rate cuts and higher deficit spending under the new administration.

The US dollar strengthened to 106.8, boosted by reduced expectations of Fed rate cuts and higher Treasury yields. This support, along with inflationary policy bets, weakened the euro to 1.0540 against the dollar.

Oil prices slipped due to concerns over an oversupply, with slowing demand in China and rising production, compounded by a stronger dollar.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Applied Materials' Q4 revenue surpassed estimates, but its Q1 outlook was weaker than expected due to sluggish demand outside of AI chips, sending shares down. The company also faces ongoing challenges from export curbs to China and competition in the semiconductor equipment sector.

Walt Disney posted better-than-expected earnings and forecast strong growth, with high single-digit EPS growth in 2025 and double-digit growth in 2026-2027. The outlook is driven by investments in streaming, parks, and films.

Berkshire Hathaway disclosed new investments in Domino's Pizza and Pool Corp, with shares rising 6.9% and 5.7%, respectively, following the news. The firm also trimmed its stakes in Apple and Bank of America, amassing $325 billion in cash as it refrains from equity repurchases.

ASML expects 8-14% annual sales growth over the next five years, driven by AI chip demand, despite U.S. export curbs on China. The company also forecasts €44-60 billion in revenue by 2030, with stable margins.

Siemens reported a 7% profit beat in Q4, driven by strong performance in its Digital Industries division and higher-than-expected cash flow. The company forecasts 3-7% revenue growth for 2025, with continued positive momentum in software and Smart Infrastructure.

Deutsche Telekom shares rose over 3% yesterday after strong Q3 results, beating expectations, with solid growth in Germany and a raised 2024 EBITDAaL forecast, boosted by T-Mobile US.

Nissan shares rose over 4% this morning after reports that activist investor Oasis Management had taken a stake, following a similar move by Effissimo Capital.

Burberry shares rose 9.3% after outlining a strategy under CEO Joshua Schulman to refocus on core outerwear, despite a 20% drop in revenue and a £41 million loss in the first half.

Nvidia remains a strong buy for analysts at Wedbush and Raymond James, who expect robust AI-driven growth despite potential short-term volatility and supply constraints. Both firms raised their price targets, seeing any pullback as a buying opportunity.

Upcoming data and events

Today’s focus will be on the October US retail sales report, with a 0.3% month-on-month increase expected, reflecting moderate consumer spending.

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