Market Movers: Fed Rate Cuts, Bitcoin, and Japanese Manufacturing

As Wall Street begins the final week of the year, markets are trading slightly lower. Investors are taking profits after a generally positive quarter, with attention now turning to key economic developments in the coming months. Here’s a look at what’s driving the markets:

1. Fed’s Next Rate Cut: March 2025?
The Federal Reserve recently cut interest rates by 0.25% in December, marking a 1% reduction since September. However, its updated outlook suggests a more cautious approach to easing in 2025. The Fed now expects only two rate cuts next year, down from the four cuts initially anticipated in September. Additionally, 15 out of 19 Fed officials are concerned that inflation could surpass projections.

Core PCE inflation, a critical measure for the Fed, is expected to reach 2.5% by early 2025, still above the central bank’s 2% target. Goldman Sachs predicts the next 0.25% rate cut will happen in March 2025, followed by two more cuts in June and September. Risks from geopolitical developments, including US-China trade relations and changes under the incoming Trump administration, could affect the outlook.

This week, investors will focus on weekly jobless claims, ISM manufacturing PMI data, and comments from Federal Reserve officials, including Thomas Barkin.

2. Futures Edge Lower as Investors Take Profits
US stock futures are slightly lower, with investors taking profits as 2024 comes to a close. By early Monday, the Dow futures were down 0.2%, the S&P 500 futures also dropped 0.2%, and Nasdaq 100 futures fell by 0.2%. Despite the slight pullback, the major indices are on track to close the year near record levels, with the S&P 500 and Dow up more than 25% and 14%, respectively, marking their best years since 2021. The NASDAQ Composite has gained more than 31%.

This week’s economic data includes pending home sales for November and December’s Chicago PMI, but market activity will likely be limited with a holiday closure on Wednesday.

3. Japan’s Manufacturing PMI Shows Signs of Stabilization
Japan’s manufacturing sector showed signs of improvement in December, as factory activity shrank at a slower pace. The final au Jibun Bank Japan Manufacturing PMI rose to 49.6, just below the neutral 50.0 mark that separates expansion from contraction. This marks the sixth consecutive month of contraction, but the index is slowly edging closer to stabilization after recent declines.

The Bank of Japan held interest rates steady at 0.25% in December, with Governor Kazuo Ueda taking a wait-and-see approach, awaiting more data and clarity on US economic policies before making any further rate changes.

As we head into the final days of 2024, these factors will continue to shape market sentiment and investor decisions.