Yesterday afternoon we saw the worst reaction to a December Fed decision since 2018. The Fed announced a “hawkish cut”, where they cut the Fed funds rate by 0.25% as expected, but signaled in the dot plot of FOMC member forecasts that they are only expecting 2 quarter point rate cuts next year instead of their previous forecast of four. The hawkish Fed news sparked a late day selloff in stocks and cryptos, and a big rally in the US Dollar. Major US indices finished down 2.6% to 3.6% and the small cap Russell 2000 lost 4.4%.
This morning, US index futures are trying to rebound with gains of 0.6%-0.8%. European markets are selling off in catch-up trading. The Dax is down 1.0%, while the FTSE is down 1.25%. In commodity action, US Crude Oil is down 0.3%, and Copper is down 1.7%.
With the US 10-year treasury note yield climbing up above 4.50%, the US Dollar continues to soar, gaining another 0.4% to 0.6% against the Euro and Loonie. Gold is down 1.3%. The Pound is down only 0.25% against the US Dollar as the Bank of England held its benchmark interest rate. The Bank of Japan also did nothing as expected. Bitcoin is up 0.9% and holding above $100,000.
US Q3 GDP was revised upward this morning (3.1% vs street and previous 2.8%) providing evidence to support the Fed’s hawkish turn. US initial weekly jobless claims (220K vs street 230K) were also better than expected. The Philadelphia Fed Manufacturing Survey, on the other hand, was disappointing (-16.4 vs street 3.0).
Today is the last day for notable interest reports before the holiday season starts. Semiconductor producer Micron is down 11.7% premarket after posting weak guidance for its next quarter. Homebuilder Lennar is down 8.2% premarket despite beating the street on earnings. After the close today, results are due from FedEx and Nike.