Rate cut bets boost stocks as bitcoin breaks $100,000

British Pound

Reuters: Sterling briefly dipped against the dollar on Wednesday after Bank of England Governor Andrew Bailey said gradual cuts in interest rates were likely over the coming year, and the process of falling inflation was well embedded. The pound fell as much as 0.33% to $1.2630 after Bailey's remarks to the Financial Times Global Boardroom event. But it quickly pared the losses and was last up 0.02% at $1.2675. The FT reported Bailey as saying the BoE expected four interest rate cuts next year. In the interview, he said that had been the expectation of financial markets when the BoE incorporated them into its most recent economic forecasts.

Asked whether companies should expect four rate cuts next year, Bailey said: "We always condition what we publish in terms of the projection on market rates, and so as you rightly say, that was effectively the view the market had - we emphasised in that report the word 'gradual'." Markets are currently pricing in three UK rate cuts next year. The pound gained slightly against the euro, with one euro at 82.82 pence, as the market awaited a vote by French lawmakers on no-confidence motions which are all but certain to oust the fragile coalition of Prime Minister Michel Barnier.

"European politics are taking centre stage in terms of the no-confidence vote that we have this afternoon," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank. Also in the mix, the S&P Global UK Services Purchasing Managers Index published on Wednesday showed Britain's dominant services sector lost steam in November, although not by as much as first feared. The survey showed employment in the services sector fell for a second month, although the pace of decline was less marked than in October.

Markets were also anticipating key U.S. jobs data this week, with U.S. nonfarm payrolls due on Friday and the private payrolls report, the ADP National Employment Report, later on Wednesday. "ADP today might give some indications of what we can expect for nonfarm on Friday," Kundby-Nielsen said.

US Dollar

Reuters: The euro rose marginally against the U.S. dollar on Wednesday, but came off session highs, after a widely expected collapse of the French government following a no-confidence vote by opposition lawmakers. The greenback, on the other hand, was little changed overall, as the December interest rate cut chances remained on track amid signs that the American economy was slowing. The South Korean won, one of the biggest movers on Tuesday, rose against the dollar, bolstered by suspected central bank intervention and the finance ministry's pledge of "unlimited" liquidity support to markets. That came a day after South Korean President Yoon Suk Yeol declared martial law in a late-night television address, only to lift it hours later.

The euro was slightly up against the dollar at $1.0512 after far-right and left-wing lawmakers joined forces to back a no-confidence motion against Prime Minister Michel Barnier and his government, with a majority 331 votes. Barnier is expected to tender his resignation and that of his government to President Emmanuel Macron shortly. "At this point, it really becomes a question of how much worse the situation gets from here," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey. "We don't have any kind of clarity on what the outcome of the votes is going to be and how long essentially the budget is used as leverage to get all the parties' political interest sorted."

Three sources told Reuters that French President Emmanuel Macron aims to install a new prime minister quickly if his government falls on Wednesday. Barnier's removal would deepen the political crisis in the euro zone's second-largest economy, and could further weigh on the euro. Investors also digested comments from European Central Bank President Christine Lagarde in a parliamentary hearing on Wednesday. She said the ECB will continue to lower rates, but did not commit to any pace of easing. The ECB will next meet on Dec. 12, and economists overwhelmingly expect another 25 basis-point rate cut, the fourth such move this year.

In the United States, the dollar index was flat at 106.33. Wednesday's data did not shake expectations of an interest rate cut later this month. U.S. private payrolls increased at a moderate pace in November, but it came below expectations, while annual wages for workers staying in their jobs edged up for the first time in 25 months. Private payrolls rose by 146,000 jobs last month after advancing by a downwardly revised 184,000 in October, the ADP report showed. Economists polled by Reuters had forecast private employment increasing by 150,000 after a previously reported 233,000 jump in October.

At the same time, the U.S. services sector activity slowed in November after posting big gains in recent months. The Institute for Supply Management's non-manufacturing purchasing managers index slipped to 52.1 last month after surging to 56.0 in October, the highest since August 2022. Economists polled by Reuters had forecast the services PMI easing to 55.5. U.S. fed funds futures raised the chances of a 25-bp cut this month to 78%, from 73% late Tuesday, while reducing the odds of a pause in easing to 22% from 27% the day before, according to the CME's FedWatch.

"It's possible the Fed cuts again in December, which can put tactical pressure on the dollar because the market is long dollars already," said Vassili Serebriakov, FX strategist at UBS in New York. "But unless U.S. data really deteriorates, which we don't see at the moment, any weakness in the dollar is going to be short-lived." The dollar edged higher after St. Louis Federal Reserve President Alberto Musalem said on Wednesday he expects the Fed to continue cutting rates, but said it is keeping options open on the Dec. 17-18 meeting. Musalem will be a voter on the Federal Open Market Committee next year.

Fed Chair Jerome Powell later on Wednesday seemed to signal his support for a slower pace of interest-rate cuts ahead, noting the economy is stronger now than the central bank had expected in September when it began easing. In South Korea, the won rallied on Wednesday after plunging overnight in the wake of President's declaration of martial law, which was reversed hours later. The dollar was last down 0.8% at 1,413.6 won, after jumping overnight. But politics remained in focus and South Korean lawmakers on Wednesday submitted a bill to impeach President Yoon.

Dealers said the Bank of Korea may have supported the won at Wednesday's open by selling dollars. The dollar also climbed against the yen , rising 0.6% to 150.52, after media reports raised doubts about market expectations the Bank of Japan would hike interest rates this month sent government bond yields lower.

South African Rand

Reuters: South Africa's rand slipped on Wednesday as growing tensions in South Korea drove investors to the safe-haven dollar, while markets awaited clues on the interest-rate path of the world's biggest economy. At 1500 GMT, the rand traded at 18.13 against the U.S. dollar, around 0.3% weaker than its previous close. "Geopolitical tensions sourcing from South Korea have weighed negatively against the rand this Wednesday as markets favour the safety of the greenback," said Warren Venketas, trading services manager at IG Group.

South Korean lawmakers on Wednesday proposed impeaching President Yoon Suk Yeol for his sudden decision to declare martial law, which he rescinded after a chaotic standoff between parliament and the army that damaged the country's standing. Meanwhile, data out of the U.S. showed private payrolls increased at a moderate pace in November. Markets will use the ADP employment report to make bets on the Federal Reserve's policy decision later this month. Chair Jerome Powell is also set to speak later on what is expected to be his last public remarks before the meeting.

"Markets are not fully convinced by a 25 basis point cut just yet, so any and all incoming data will be monitored carefully should they move the current outlook," Venketas said. Like most emerging market currencies, the rand takes direction from global drivers such as U.S. economic data in addition to local events. Domestically, South African private sector activity increased for a fourth consecutive month in November as firms took on more workers and grew more confident about the economic outlook, a survey showed. On the stock market, the Top-40 index closed about 0.6% higher. South Africa's benchmark 2030 government bond was weaker, with the yield up 4.5 basis points to 8.945%.

Global Markets

Reuters: Bitcoin broke $100,000 on Thursday as investors bet on a friendly regulatory shift in the U.S., while Asian stocks were firm after Wall Street indexes notched record highs on growing confidence in U.S. interest rate cuts. Bitcoin hit the $100,000 mark in the Asia morning and was last at $101,300. "At the end of the day, it's just a number," said Geoff Kendrick, global head of digital assets research at Standard Chartered. "But the reality is we've been able to get to this level because the industry has become institutionalised this year particularly - and that's mostly the ETF inflows," he said, referring to exchange traded funds approved earlier this year.

The S&P 500, Nasdaq and Dow had all notched record highs overnight. Over the past week and a half markets have all but priced in an extra U.S. rate cut for 2025 and the implied chance of a cut in December has lifted from even to around 75%. MSCI's broadest index of Asia-Pacific shares outside Japan was flat in morning trade as selling in Hong Kong offset gains in Australia and Japan. Japan's Nikkei rose about 0.6% to hit a three-week high. Hong Kong's Hang Seng fell around 1%.

The closely watched U.S. ISM survey showed services sector activity slowed in November after posting big gains in recent months. Benchmark 10-year Treasury yields fell three basis points to 4.182%. They were steady in Asia trade. Federal Reserve Chair Jerome Powell made balanced comments at a New York Times event on Wednesday, describing the economy as in good shape but not really pushing back on market pricing for rate cuts. Earlier this week Fed Governor Christopher Waller had said he was leaning towards a cut later in December.

European retail sales figures and German factory orders are due later in the day, though the week's focus is on U.S. employment data on Friday where a strong reading could reverse bond-market moves. "Generally data in the U.S. has continued to be pretty resilient," said RBC Capital Markets' chief economist in Sydney, Su-Lin Ong, noting measures such as the Atlanta Fed's GDPNow estimate are for solid growth at 3.2% in the fourth quarter. "We think the market has got too much priced in."

S&P 500 futures slipped a tad while European futures fell 0.3%. German stocks are up 4% in a week and at record-high levels. The dollar tracked U.S. yields lower in the foreign exchange market, although not by much. The euro was pinned at $1.0520 by political turmoil in France, where the government lost a confidence vote for the first time since 1962. The yen has retraced some recent gains and expectations for a rate hike in December have unwound following press reports pointing to policymakers' likely caution.

It was a tad firmer at 150.31 per dollar on Thursday. The Australian dollar, at $0.6420, was nursing what was its heaviest fall in a month on Wednesday following weaker-than-expected growth data. Financial markets in South Korea were broadly steady after President Yoon Suk Yeol's failed attempt to impose martial law late on Tuesday triggered volatility and a political crisis. In commodity trade lingering expectations of Chinese stimulus supported iron ore prices, while oil inched higher ahead of an OPEC+ meeting later in the day.

The Organization of the Petroleum Exporting Countries and its allies in OPEC+ are likely to extend their latest round of oil production cuts sources told Reuters. Brent crude futures rose 0.2% to $72.42 a barrel. Gold prices steadied at $2,649 an ounce.

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