Global Stocks Rise Amid Increasing Bets on U.S. Interest Rate Cuts

SadaNews - The wave of rising global stocks has extended for the fourth consecutive day, driven by increasing bets on the Federal Reserve cutting interest rates, fueled by weak U.S. consumer data and the emergence of a pro-rate cut official as a potential candidate for the central bank's presidency.

Asian stocks rose, pushing the "MSCI World Stocks Index" up by 0.2%, reducing its losses from this month's sell-off to 1.2%.

U.S. Treasury bonds maintained their gains from the previous session when news about Kevin Hassett, director of the White House Council of Economic Advisers, emerging as the front-runner for the Federal Reserve chair position, helped lift bond prices. The dollar weakened against most of the G10 currencies, while the New Zealand dollar rose by more than 1%.

With improved sentiment, Bitcoin surged by more than 1% to trade near $88,000, and gold, which benefits from interest rate cuts, rose by 0.9% to $4,166 per ounce.

Risk Appetite Improves Amid Weakness in the U.S. Economy

The return of momentum to global stock markets comes after previous declines fueled by concerns over high valuations in the AI sector, which prompted investors to shy away from high-risk assets in early November.

Sentiment has improved now with the release of old economic data indicating some weakness in the U.S. economy, coinciding with signals from more Federal Reserve officials supporting an interest rate cut.

Tim Waterer, chief analyst at KCM Trade, wrote: "Over the past week, market sentiment has completely reversed regarding the likelihood of a rate cut in December and the profitability outlook for the tech sector."

Investors before the Fed meeting in October viewed a rate cut in December as a certainty, before probabilities dropped to below 30% due to a surprise hawkish tone. Now, markets are pricing in a probability exceeding 90% for a rate cut.

As rate cut bets have increased, the yield on 10-year U.S. Treasury bonds fell below 4% for the first time in nearly a month.

Consumer Confidence Declines and Data Limited Before December Meeting

U.S. consumer confidence in November recorded its largest drop since April, and retail sales in September rose slightly, indicating moderated spending after months of strong demand.

Late U.S. data reinforced bets on a rate cut in December, even after Fed Chair Jerome Powell warned last month that a cut is not guaranteed.

Recent U.S. data gained greater importance before the December meeting amid a lack of new releases due to the U.S. government shutdown. Federal Reserve member Stephen Merritt reiterated that the U.S. economy needs significant interest rate cuts.

Although the Fed usually changes rates by 25 basis points, it has occasionally made moves of 50 basis points or more.

Dylan Wu, a strategist at Pepperstone, wrote that "the market is flying now amid a lack of complete visibility," adding that the sustainability of the rebound "ultimately depends on whether upcoming data confirms the soft landing scenario."

Garfield Reynolds from Bloomberg's Markets Live team says, "The U.S. dollar is heading towards a new wave of weakness as we enter the next year, while investors expect 2026 to bring a rate cut from the Fed, at a time when other central banks may maintain their rates."

He added that "Hassett, known for his support of rate cuts, aligns with Donald Trump's push for lower borrowing costs."

The increase in traders' bets on lower interest rates next year reflects the view that the Fed under Hassett will deliver the steep cuts sought by President Trump.

For his part, Jordan Rochester, head of macroeconomic strategy at Mizuho, said, "The argument will be for a weaker dollar and a decline in short-term interest rates starting from the May meeting, alongside a steeper yield curve."

He added that Hassett is "a credible economist, having previously worked at the Fed as a senior economist, but some may see his proximity to Trump as making him a tool in his hands."

Investors' Focus in Europe and Asia

Investors will also focus on comments from British Finance Minister Rachel Reeves with the budget announcement.

In Asia, "China Vanke" dollar bonds and yuan fell sharply amid investors' concerns over the troubled real estate developer's ability to service its debts.

The Reserve Bank of New Zealand also cut interest rates to a three-year low to support an emerging economic recovery, while the currency rose as traders bet on the approach of the end of the easing cycle.

In South Korea, the finance minister stated that authorities are closely monitoring "one-way speculative movements" in the currency, indicating readiness to intervene as the won trades near its lowest level in seven months.

In commodity markets, oil stabilized after closing at a one-month low amid signs of progress toward a peace agreement in Ukraine.