New York and Shanghai Markets, US Stock Market Santa Rally Hinges on Powell's 'Words'

This week, the direction of the New York stock market is expected to hinge on the interest rate decision at the Federal Open Market Committee (FOMC) meeting on the 9th–10th (local time). If Jerome Powell, chair of the U.S. central bank (Fed), signals the possibility of additional rate cuts, a year-end 'Santa rally' could be expected; if not, market volatility is likely to increase.

As signs of a cooling U.S. labor market have emerged, the market is pricing in a higher likelihood of the Fed cutting rates earlier. According to CME FedWatch at the Chicago Mercantile Exchange (CME), as of the 5th the federal funds rate (FFR) futures market sees an 87.2% chance that the Fed will cut rates by 0.25% point in December. Investors should watch how much agreement or disagreement there was in this rate decision. If the split between doves (favoring monetary easing) and hawks (favoring monetary tightening) is severe, further rate cuts cannot be guaranteed.

Employment indicators will also be released. The ADP weekly employment change, released on the 9th, has shown declines for three consecutive weeks since the first week of November, so attention is on whether it will rebound this time. The October Job Openings and Labor Turnover Survey (JOLTS), released the same day, is an indicator that can confirm companies' hiring and turnover flows. The market expects 72 million openings, down from September's 72.27 million openings (72.27 million).

Earnings reports from Oracle and Synopsys (on the 10th) and Broadcom (on the 11th) will allow judgment on whether AI companies' valuations (stock price level relative to performance) are justified.

Chinese indicators that could determine the Shanghai market's direction will also be released. On the 9th, November exports, imports, and the trade balance will be published. The market outlook for the November trade balance is around US$105 billion, up from US$90.07 billion in the previous month. The November consumer price index (CPI) is expected to be 0.7%, higher than the previous month's 0.2%, and the producer price index (PPI) is expected to be -2.1%, the same as the previous month.

Hye-in Lee reporter hey@hankyung.com