Economic data disappoints, expectations of interest rate cuts rise, European and American bonds continue to "charge ahead"

Economic data continues to show weakness, and global central banks are accelerating their interest rate cuts.

Overnight, the "mini non-farm" ADP employment data showed an increase of 103,000 jobs in November, lower than the expected 130,000 jobs, marking the fourth consecutive month of falling short of expectations.

In November, the wages of retained employees increased by 5.6% compared to the same period last year, reaching a two-year low in growth rate, signaling further cooling of the US labor market.

After the data was released, the yield on US long-term bonds turned downward, with the 30-year Treasury yield falling to 4.1% at one point, a decrease of about 6 basis points during the day, reaching the lowest level since September.

The yield on 2-year US Treasury bonds, which is more sensitive to interest rate prospects, quickly fell below 4.6% in the short term, giving up its intraday gains and rising more than 1 basis point by the close.

Overall, as of the close of the overnight US bond market, short-term bond yields remained high, while the yields on other long-term bonds were revised downward.

The yield curve of 2-year and 30-year US Treasury bonds has steepened, exacerbating the inversion of the yield curve.

Chris Larkin of Morgan Stanley said that although the ADP report is not a reliable predictor of government employment data, lower-than-expected data may lead to predictions that the US employment report for November, which will be released this Friday, will be "weak".

Are tech stocks and growth stocks starting to panic?

The growth of technology and growth-oriented companies is highly sensitive to changes in interest rate prospects in the future. According to media compilation data, growth stocks remain at high levels due to the lack of significant growth in the macroeconomy and commodities.

The "Big Seven" technology stocks retraced their gains from yesterday, with most of them falling during the trading session. Among them, Amazon, Microsoft, and Google all retreated to their lowest levels in at least half a month.

The decline in stock prices of large companies such as Nvidia and Microsoft has caused the S&P 500 index to lose momentum. After opening high, it continued to fall and hit a daily low at the end of the trading session.

Solita Marcelli, from UBS Global Wealth Management, said:

"The upside potential for the S&P 500 index is currently relatively limited."

"With the slowdown in growth, we believe investors should consider focusing on high return on investment, high operating profit margin, and low debt-to-equity ratio companies' quality stocks."

Weak European and American economic data strengthens dovish expectations

On the other hand, German factory orders unexpectedly fell in October, with a year-on-year decline of 3.7%, far below the expected growth of 0.2%. Among them, machinery and equipment orders fell by 13.5%. The media said that this data highlights the difficulty of achieving a recovery in German industry and will further drag down the economy.

Overall, European bond yields have also declined further. The 10-year UK bond yield dropped 8 basis points intraday, reaching a six-month low; the 2-year UK bond yield dropped 1 basis point intraday; the 10-year German bond yield dropped 5 basis points intraday, breaking below 2.20% for the first time since May 11; the 2-year German bond yield remained unchanged at the same level as Tuesday.

Previously, as the largest economy in the eurozone, Germany's GDP data for the third quarter was disappointing, further supporting the expectation that the European Central Bank will be the first to shift.

Markets have begun to bet heavily on global central banks starting a loose cycle next year.

As of December 5th, market pricing has already reflected the expectation that the Federal Reserve will cut interest rates by a total of at least 125 basis points next year. The expectation for the level of US interest rates at the end of next year is concentrated between 4% and 4.35%, which means that at least more than half of the eight Federal Reserve interest rate meetings to be held next year are expected to announce rate cuts.

The "hawkish" European Central Bank suddenly turned "dovish," stating that it is "unlikely" to raise borrowing costs again. After the speech, the market expects the possibility of the European Central Bank starting a loose cycle in the first quarter of next year to be almost 90%. Expectations for further interest rate cuts by other major central banks are deepening: the market expects the Bank of England to begin three rate cuts in June next year, with a 75% chance of the Reserve Bank of Australia starting rate cuts in mid-2024.

On December 12th (next Tuesday), the FOMC of the Federal Reserve will hold a two-day interest rate meeting and release the Summary of Economic Projections.

When will the rate cuts come?

For the market, there may be "surprises" at every interest rate meeting next year.

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