Market Movers: Fed Rate Cuts, Bitcoin Trends, and Japanese Manufacturing

As the year draws to a close, Wall Street is starting the final week on a slightly negative note, with investors taking profits after a generally positive quarter. Investors are closely watching the Federal Reserve's next moves while Bitcoin continues to slide away from its recent peak.

1. Anticipating the Fed's Next Rate Cut in March

The Federal Reserve recently reduced interest rates by a quarter point, marking a total decrease of one percentage point since September. However, new forecasts indicate a more cautious approach to future rate cuts, particularly in 2025. Now, most officials expect only two cuts next year instead of the previously projected four, noting that 15 out of 19 officials see inflation risks exceeding their estimates.

Core PCE inflation, which is vital for the Fed's assessments, could reach 2.5% by early 2025, surpassing the central bank's 2% target. Goldman Sachs has predicted the next interest rate cut to occur in March 2025, with two additional cuts likely in June and September.

Geopolitical tensions remain a concern, particularly involving changes in US tariffs on China, immigration policies, and tax adjustments tied to the incoming administrative changes. Market focus this week will be on key data releases and comments from Fed officials.

2. US Futures Dip Due to Profit-Taking

On Monday, US stock futures saw a slight decline as investors engaged in profit-taking ahead of year-end. By 03:45 ET, the Dow futures were down 85 points, the S&P 500 down 11 points, and the Nasdaq down 40 points.

Despite this dip, the major averages had a promising year, with the Dow Jones up over 25% and the S&P 500 rising by 14%, marking one of the best performances since 2021. The Nasdaq index has increased more than 31% throughout the year, resulting in a strong fourth quarter driven by positive market sentiment following recent elections.

Monday's economic reports include November's data, although actual market activity is expected to be subdued due to the upcoming holiday break.

3. Improvement in Japanese Manufacturing PMI

Japan's manufacturing sector showed signs of recovery in December, as the private-sector survey indicated a slower contraction in factory activity. The final au Jibun Bank Manufacturing PMI rose to 49.6, narrowly missing the growth mark of 50.0 for the sixth consecutive month.

This figure is a slight improvement over the flash estimate of 49.5 and the November reading of 49.0. Following the last policy meeting, the Bank of Japan maintained its interest rates at 0.25% as Governor Kazuo Ueda sought more data to inform potential policy changes, especially in light of upcoming US economic policies. Some policymakers believe that conditions are aligning for a possible rate increase as signs of recovery emerge.

4. Bitcoin Faces Challenges Despite Long-Term Optimism

Bitcoin prices faced downward pressure on Monday with lower trading volumes as year-end trading takes hold. This setback is exacerbated by rising US Treasury yields, with the benchmark 10-year note reaching a seven-month high of 4.625%.

At 03:45 ET, Bitcoin's price fell by 1.6%, settling at $93,817, dropping approximately 4% for the month after hitting an all-time high of $108,379.28 earlier this month. Despite these fluctuations, Dan Morehead, from Pantera Capital, maintains that Bitcoin's story is only beginning, expecting significant growth in users and market capitalization over the next few years.

Morehead expresses confidence in Bitcoin's continued value increase, projecting its market cap could soar to $15 billion by 2028. He anticipates that the user base could grow from 300 million to as many as 5 billion, reflecting its increasing role in the economic landscape.

5. Oil Prices Decline in Holiday Trading

Crude oil prices experienced a slight decrease as the holiday trading period began. By 03:45 ET, WTI crude futures fell 0.4% to $70.34 per barrel, while Brent crude dropped to $73.50, also down 0.4%.

Both oil benchmarks are heading toward notable declines in 2024, largely due to concerns over decreasing demand in China, the world’s largest oil importer. Forecasts from OPEC and the IEA have indicated slower demand growth for 2025, particularly because of expectations surrounding China's economy.

Market participants are awaiting China's PMI factory surveys due on Tuesday for further insights into the economic recovery. Notably, there are reports that Chinese authorities plan to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2025 to stimulate economic growth.

Fed, Bitcoin, Manufacturing