The recent rise of political influence, particularly US policies, in shaping global market dynamics has come into sharp focus over the past month. As we approached the closure of November, it became evident that the S&P 500 index had surged by over 25% in the first eleven months of the year, leading many investors to anticipate a strong finish for the US stock market.This surge can be attributed in part to a growing interest in “trading,” which had taken center stage in the preceding weeks. However, traders and investors are bracing for what has been labeled a “super week,” a critical period of upcoming economic tests. Most notable among these is the employment data set to be released, including the key non-farm payroll report for November, which will play a crucial role in determining the Federal Reserve's plans for interest rate cuts.This pivotal data will place all participants in the financial markets, including stock investors and bond traders, under scrutiny. Compounding the anticipation is the presence of several Federal Reserve officials, including Chair Jerome Powell, who are scheduled to deliver remarks that could further influence market expectations regarding monetary policy amidst this evolving landscape of increasing near-term expectations for rate cuts and distant hesitance.For much of the recent weeks, many investors have fixated on US economic policy, particularly its aggressive tariff measures that pose significant implications for the economy. Yet, the subtle shifts in expectations for Federal Reserve rate cuts have also garnered attention. In fact, expectations for a rate cut in December have been underscoring a warming sentiment; the Chicago Mercantile Exchange's FedWatch tool indicated a 65% likelihood of a cut during the Fed's last meeting of the year on December 18, a notable increase from the approximate 50% just a week prior.In contrast, the long-term view appears less optimistic. There is a growing consensus that the Fed’s path toward further easing may not be straightforward. The futures market is indicating that market traders anticipate only two additional rate cuts next year, a significant reduction from the four anticipated in the Federal Reserve’s dot plot released in September. This juxtaposition underscores anxiety about the current health of the US economy and labor market, as well as fears of a resurgence in inflation under any future administration.The tension between rising short-term expectations and the looming concerns about inflation has become a focal point leading up to the release of pivotal economic data. Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Company, noted, “With the non-farm payroll data set to release on Friday, there is a hope among market participants for a positive outcome, but there is also a cautionary preference against overly positive results. Should the data prove too optimistic, it may lead to questions regarding the Fed’s commitment to further cutting rates.”Investors are particularly cautious in light of the dramatic downturn indicated in the October non-farm payroll data, which revealed a startling addition of only 12,000 jobs, the lowest figure registered since 2020 and far below the expected 100,000. Many analysts on Wall Street attributed this disturbing data to external influences such as hurricanes and labor strikes affecting Boeing. However, there is an undercurrent of concern that the employment situation is genuinely deteriorating. As a result, the November non-farm report will be closely monitored for signs of normalcy or at least improvement.As per industry surveys, economists anticipate an addition of approximately 195,000 jobs for November, a substantial recovery from the previous month. However, there is a potential downside: the unemployment rate could rise to 4.2%, slightly exceeding October's rate of 4.1%.The economic team at Wells Fargo, led by Jay Bryson, has expressed cautious optimism, stating, “Through the monthly fluctuations in non-farm payroll data, we expect the report to underscore that while the labor market remains robust in absolute terms, the trend of weakness in employment has not abated. We anticipate this message may be more explicitly conveyed through the unemployment rate, which we expect to rise to 4.2%.”Moreover, Edward Jones Senior Investment Strategist Angelo Kourkafas emphasized the importance of upcoming employment data, noting that it “will provide a clearer picture of underlying trends, especially given the ongoing debate and uncertainty surrounding the Federal Reserve’s rate path.”In addition to the employment data, the coming week is marked by a plethora of speeches from Federal Reserve officials. More than two dozen officials are set to appear publicly, including the highly scrutinized Chair Powell, who is scheduled to be interviewed at The New York Times’ DealBook Summit on Thursday around 2:45 AM Beijing time.The statements from recent Federal Reserve speeches suggest a lack of consensus, but a general inclination that the current pace of rate cuts may not persist. Powell’s previous comments indicated that there was no immediate urgent need for cuts, citing the robust labor market and inflation rates still above the 2% target. Observers will be eager to see how he addresses the prospect of rate cuts for December and the upcoming year.Furthermore, Deutsche Bank's Chief US Economist Matthew Luzzetti has predicted a likely cut from the Fed in December, with a pause on rate changes throughout 2025 as the focus shifts to assessing progress on inflation. Luzzetti remarked, “The urgency for further cuts appears significantly diminished, and it may be reasonable for the Fed to ease back on the pace of rate cuts earlier than previously expected.”TS Lombard's Chief Economist Steve Blitz highlighted that the Federal Reserve faces the challenge of aligning current inflation data with the Taylor rule, which dictates appropriate interest rates based on inflation and economic growth. He stated, “While I believe the Federal Reserve still leans toward further cuts, the employment data from November will prove critical for this data-dependent Federal Open Market Committee.”Senior Economist Sarah House indicated during a media roundtable last month, “As we progress into 2025, we may witness a gradual slow down in the pace of rate cuts, with the Fed potentially implementing one cut per meeting.” Her team has forecasted that there could be three cuts in 2025.
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