Following a positive US jobs report for November, stocks declined on Monday as investors focused on the Federal Reserve’s interest rate policy. On Tuesday, markets are struggling to find direction as traders weighed data suggesting tighter policy may be required for longer with prospects for a slowdown in the rate of US rate hikes.
On the first day this week, S&P 500 saw its worst day in a month and ended the day barely below the 4000 level. The Dow Jones Industrial Average fell 483 points, or 1.4%, while S&P 500 dropped 1.8%, and the Nasdaq Composite fell 1.9%.
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Meanwhile, the rise in US-listed Chinese stocks continued as softening Covid limits in significant Chinese cities encouraged the hope that Beijing was moving more quickly to abandon its Covid Zero strategy. The Nasdaq Golden Dragon China Index, which tracks 65 Chinese stocks with US listings, rose 1.6%, bringing its weekly gain to 22%.
The Federal Reserve’s ability to move toward a pause in interest rate increases has been too seriously questioned by recent economic data. The November employment data released on Friday revealed that more jobs were added than anticipated in the U.S. economy, which suggests solid demand. Meanwhile, ongoing wage increases may predict resilient inflation.
Optimism about a reopening in China is being tempered by a strong US economy and persistent inflation, and money market futures and economists believe the Fed will need to raise rates higher than initially anticipated.
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As Fed continues to fight inflation, the central banker is anticipated to raise interest rates at its meeting on December 13-14. Yes, according to comments made by Fed Chairman Jerome Powell last week, the Fed is likely to increase the benchmark lending rate by only half a percent rather than the previous three-quarters of a point, as the rate of inflation has already started to decline. The Fed may raise rates more gradually but maintain doing so through 2023. US CPI numbers for November arrive on December 13.