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Now traders are trying to bet on when the Fed could actually begin cutting interest rates, something that can juice prices for investments and provide oxygen for the financial system. The Fed has said that it plans to keep rates high for a while to ensure that the battle against inflation is definitively won, but traders are thinking cuts could begin early in the summer of 2024.
One source of potential worry about inflation has been receding in recent weeks. Oil prices have plunged amid worries about a mismatch between too much crude supply and too little demand.
A barrel of US crude for December delivery rose $US2.99 to settle at $US75.89 to recover some of its sharp losses from earlier in the week. But it’s still well below its perch above $US93 in late September.
Brent crude, the international standard, rose $US3.19 to $US80.61 per barrel Friday.
In the bond market, the yield on the 10-year Treasury dipped to 4.43 per cent from 4.44 per cent late Thursday. Just a few weeks ago, it was above 5 per cent, at its highest level since 2007 and undercutting prices for stocks and other investments.
Of course, too steep a drop in Treasury yields and too big a rally in stock prices could end up conspiring to work against Wall Street. Chair Jerome Powell said after the Fed’s last meeting on interest rates that it may not hike any more if the summer’s jump in Treasury yields and fall in stock prices remained “persistent.” That’s because such pressures could act like substitutes for more rate increases on their own.
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Since then, yields have eased sharply, and November is on track to be the best month for the S&P 500 in a year. It all means financial conditions have unwound a bit over half of the tightening seen in October, according to economists at Deutsche Bank.
Still, recent reports on inflation and the economy have been so encouraging that “the Fed can afford to be less concerned with this easing,” according to Justin Weidner and the other economists.
In stock markets abroad, Hong Kong’s Hang Seng tumbled 2.1 per cent. Shares of Chinese e-commerce giant Alibaba plunged following its cancellation of a plan to spin off its cloud computing unit. The company cited uncertainties due to U.S. chip restrictions.
Stock indexes were mixed elsewhere in Asia while rising more strongly in Europe.
AP
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