As Thanksgiving nears, U.S. market activity is expected to decrease, with mixed performance in Asian indices amid cautious trading. Economic indicators show a slight rise in consumer spending, yet inflation control remains a challenge for the Federal Reserve, affecting interest rate predictions. Traders foresee a 65% chance of a rate cut in December. Meanwhile, South Korea’s central bank lowered rates, and commodity prices remained stable, influenced by geopolitical factors and expectations for future interest rate adjustments.
Thanksgiving Trading Trends and Market Sentiment
As the Thanksgiving holiday approaches in the United States, market activity is anticipated to slow down, with traders exhibiting caution in their decision-making. The MSCI index, which tracks Asia-Pacific stocks outside of Japan, experienced a slight decline of 0.07%, while the Japanese Nikkei index saw a modest increase of 0.46%. Investor sentiment remains delicate, particularly with ongoing concerns about the potential for a trade war stemming from the policies of U.S. President-elect Donald Trump.
Economic Indicators and Interest Rate Predictions
Recent data released on Wednesday indicated that U.S. consumer spending experienced a slight uptick in October, surpassing market expectations. However, efforts to reduce inflation have seemingly stalled in recent months. The Federal Reserve’s challenge in achieving its 2% inflation target, combined with the looming threat of higher tariffs on imports, may restrict the possibility of interest rate cuts in the upcoming year. Despite expectations for a third interest rate cut in December, the minutes from the Federal Open Market Committee (FOMC) meeting held on November 6 and 7 revealed a division among officials regarding the extent of the necessary rate reduction.
Kristina Clifton, an economist at the Commonwealth Bank of Australia, stated, “We continue to expect the FOMC to cut the funds rate by 25 basis points at its December meeting. However, another solid monthly core inflation reading in November will challenge the FOMC’s view that inflation is trending down to 2% per year. Doubts about the sustainable convergence of inflation towards the target would reduce market expectations for a cut in December.” Currently, traders are pricing in a 65% likelihood of a rate cut next month, with expectations for a total easing of 75 basis points by the end of 2025, according to LSEG data.
Macquarie strategists expressed concerns regarding the inflation outlook, suggesting that potential tariff threats from the incoming Trump administration could reignite upward pressure on commodity prices. They noted, “While the tariffs introduced in 2018/2019 ultimately did not prove inflationary, we caution against extrapolating to current circumstances.”
In a surprising turn of events, South Korea’s central bank announced a cut in its benchmark interest rates for the second consecutive meeting on Thursday, responding to economic stagnation and slower-than-expected inflation. Following this decision, the South Korean won weakened. Meanwhile, the Japanese yen decreased by 0.3% to 151.615 per dollar, although it remained near a one-month high achieved in the previous session. The Asian currency is on track for its strongest weekly performance since early September, driven by increasing expectations of a potential interest rate hike by the Bank of Japan next month.
The euro maintained stability after a 0.7% rise in the previous session, as investors tempered their expectations regarding a rate cut following comments from European Central Bank board member Isabel Schnabel, who indicated that cuts should be gradual and aim towards neutral, non-accommodative levels.
In the commodities market, oil prices remained steady, bolstered by alleviated supply concerns following a ceasefire agreement between Israel and Hezbollah. Brent crude futures showed little change, resting at $72.8 a barrel, while U.S. West Texas Intermediate crude held steady at $68.7. In contrast, spot gold prices dipped to $2,626 an ounce.