S&P 500 Traders Have A Very Busy Week Ahead
Federal Reserve Next Moves and Wall Street Expectations
Bulls are feeling a little more confident in their belief that the US Federal Reserve is moving closer to ending its tightening program after “minutes” from the November policy meeting showed “most” Fed members favored slowing the pace of interest rate hikes “soon.” According to the minutes, some officials even warned that continued rapid monetary policy tightening increased the risk of instability or dislocations in the financial system.
Most on Wall Street expect the central bank will raise its benchmark rate by 50-basis points at its upcoming December 13-14 meeting following four consecutive 75-basis point hikes.
Bears maintain that the more important issue is how high rates will ultimately need to go and how long the Fed will hold them there, which is of course dependent on how fast inflation comes down.
The most important inflation updates this week will be the PCI Prices Index on Thursday and the November Employment Situation on Friday.
Investors are also anxious to hear Fed Chair Jerome Powell discuss the US economic outlook during an appearance at the Brookings Institute on Wednesday afternoon.
Powell recently indicated that the Fed could shift to smaller rate hikes next month, but also said rates may need to go higher than policymakers thought would be needed by next year.
Data and Events to Watch
The Dallas Fed Manufacturing Survey is today’s key data.
In other news, investors are keeping an eye on China where widespread unrest over the country’s ongoing Covid restrictions has erupted in dozens of cities, including capital Beijing. Some protestors have even called for China leader Xi Jinping to step down, illustrating an extraordinary level of defiance that is extremely rare in the tightly controlled communist nation. Chinese authorities in several cities have said they will begin rolling back some Covid restrictions but that’s likely going to be a tall order with the country also battling a record number of cases.
Keep in mind, many on Wall Street have been anticipating a gradual end to China’s “zero-Covid” policy since rumors started swirling last month. Even as authorities said the claims were untrue, many still believed the Communist party would eventually relent due to the fact that nearly three years of ongoing lockdowns have crushed China’s economy.
Now, investors are worried about more extreme lockdowns in the days ahead as well as fallout from civil unrest that could compound manufacturing and shipping delays.
At the same time, some believe the growing discontent could lead China to rethink its position which would then be viewed as mostly bullish by investors.
A fully reopened China, however, would also likely put upward pressure on energy prices at a time when the world’s oil supplies are highly uncertain.
The US and its EU partners are currently still in talks regarding a “global price cap” on Russian oil. The so-called Group of 7 is aiming to finalize the details ahead of December 5, when Europe’s embargo on Russian seaborne crude takes effect. The EU is still importing close to 2.5 million barrels per day of Russian crude, meaning Europe could have a sizable supply gap to fill.
Another important date for oil traders is December 4, when OPEC+ will meet to discuss a potential output increase. Lots happening the first couple of weeks in December and many investors and money managers will be squaring up and making final adjustments ahead of the Christmas and New Year holidays.
Keep in mind, there are only 19 more trading days until the Christmas break!