U.S. equity futures edged higher Monday, following on the from the best week for the S&P 500 benchmark since November of last year, as investors pulled rate cut bets forward into early spring following a muted jobs report dovish Fed signaling.
Last week’s rally, sparked by the Fed’s rate decision on November 1, has not only triggered a big pullback in Treasury bond yields, loping some 25 basis points from 2-year notes, but also a notable retreat for the U.S. dollar as investors pared bets on further Fed rate hikes and began looking for the central bank to ease its policy stance in the early spring.
That move was also tied to Friday’s employment report, which showed a fewer-than-expected 1500,00 new jobs were added to the economy last month, the the headline unemployment rate rising to 3.9%, the highest level of the year.
The combination of slowing jobs growth, solid third earnings prospects and an economy that is still showing resilient health, investors are betting on both a near-term soft landing with the prosect of policy easing over the mid-term.
The CME Group’s FedWatch, in fact, is pricing in a Fed rate cut as early as May, with the odds of a hike over the next four meetings given no better than a 16% chance.
The softer rate forecasts have pulled benchmark 2-year notes lower from last week’s levels, to 4.88%, while 10-year notes were last seen trading at 4.589% heading into the New York session.
Related: Jobs report shows marked slowdown; jobless rate highest since January
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, fell a further 0.1% overnight to trade at a mid-September low of 104.925.
On Wall Street, with stocks heading into a week relatively bereft of heading risks, futures contracts tied to the S&P 500 are indicating a modest 9 point gain to add to last week’s 5.8% advance while those linked to the Dow Jones Industrial Average are likely to rise around 37 points.
The tech-focused Nasdaq, which surged more than 6.6% last week thanks to the sharp pullback in Treasury yields, is expected to add around 42 points at the start of trading on Monday.
In overseas markets, European stocks were largely flat from Friday’s close following the best weekly gain since March, with discount carrier Ryan Air the standout performer following its record profit forecast and dividend return.
Overnight in Asia, South Korea’s decision to re-impose a ban short-selling ahead of the country’s national elections added fuel to the region’s follow-on rally from Wall Street, with the Kospi in Seoul rising the most since March of 2020.
The move helped the region-wide MSCI Asia-ex Japan index to a 2.2% gain heading into the close of trading, while the Nikkei 225 ended the session 2.37% higher in Tokyo following Friday’s Culture Day holiday closure.
Get exclusive access to portfolio managers and their proven investing strategies with Real Money Pro. Get started now.
