The technology-heavy Nasdaq achieved a historic milestone on Wednesday, breaking through the 20,000-level barrier for the first time, as markets responded positively to US inflation data that strengthened expectations of a Federal Reserve interest rate cut next week.
The consumer price index rose to 2.7 per cent in November from 2.6 per cent in October, meeting analysts’ forecasts. Monthly inflation increased to 0.3 per cent from 0.2 per cent, whilst core inflation, excluding food and energy costs, remained steady at 3.3 per cent year-on-year.
The Nasdaq’s remarkable performance saw it close up 347.65 points at 20,034.89, marking its 37th record close of 2024. The broader S&P 500 also enjoyed substantial gains, climbing 49.28 points to 6,084.19, whilst the dollar index edged up 0.2 per cent against major currencies.
Market sentiment remains overwhelmingly bullish regarding an imminent rate cut, with the CME Fed Watch Tool indicating a 94.9 per cent probability of a quarter-point reduction at the December meeting. This would lower rates to a range of 4.25 to 4.5 per cent, marking the Fed’s third cut of 2024.
Bank of America analysts suggest that whilst softening price pressures support a December rate cut, the recent uptick in inflation likely rules out any further adjustments in January. The Federal Open Market Committee’s forthcoming ‘dot plot’ projections may indicate just three rate cuts for 2025, down from the four previously forecast.
Political considerations are increasingly weighing on monetary policy outlook, with economists warning that potential Trump-era tariffs of up to 60 per cent on Chinese imports could force the Fed to maintain higher rates for longer than currently anticipated.
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