Dow Jones Rises on Slower Rate Hike Signals

Yesterday’s volatility level was lower due to the Thanksgiving bank holiday, and may also be reduced today for some assets. The main news in the market continues to be China’s “Zero COVID-19” policy. So far the government has not placed any cities in lockdowns as we have seen in the past. This is positive for the price of Oil and global supply chains. Nonetheless, mass testing and isolation have already significantly lowered demand and economic activity.

The price of the US Dollar continues to decline for a fourth consecutive day but has shown signs in the past 24 hours of finding resistance. US investors have mainly been focused on the signals given this week from the Federal Open Market Committee regarding a reduced rate hike for December. No news or data is scheduled for today or Monday related to the US Dollar. This morning, the US Dollar Index remains below the 106.00 psychological level.

The Euro

The price of the Euro this morning has gained across its main competitors after struggling over the past few days. Investors are mainly focused on the stalled negotiations between member states on Russian price caps. The price cap is aimed at imports of crude oil and natural gas coming from Russia. In addition to this, investors have also priced in the expected rate hikes for the coming months after indications from the European Central Bank. 

EUR/GBP 30-Minute Chart on November 25th

Members of the European Union officially could not come to an agreement on the price which imports should be capped at. Some countries such as France pushed for a lower price cap, while others such as Greece and Germany would not accept a significantly lower price, which would harm regional economic growth. The higher the price cap, the better for the European economy, and potentially may support the Euro, which has been pressured for months from the current energy crisis.

Additionally, the price of the Euro has been influenced by opposing factors regarding the economy and its performance. The IFO representatives advised markets that the Eurozone economy may see a weaker recession than previously expected, as companies seem to be overcoming issues related to the energy crisis and supply chain problems. Whereas, the Financial Stability Review advised the economy is likely to slow significantly if the inflation level does not decline.

Dow Jones

The Dow Jones has been the best performing US index over the month of November. The price has increased by over 5% throughout the month and has formed a full price correction against the decline seen in August–September 2022. Whereas, the NASDAQ and SNP500 remain significantly lower. The only concern for the market’s bulls is the resistance level from August and April.

Dow Jones Daily Chart on November 25th

The price of the Dow Jones has been able to take full advantage of the declining value of the US Dollar and also has fully priced in a reduced rate hike. Lower rate hikes are known to increase demand for stocks as it results in a higher risk appetite and consumer demand. Market participants are expecting a 50 basis point rate hike in December instead of another 75 basis points.

Economists advise the CPI figure would need to be above 0.6% for the FOMC to consider another 75 basis points. The US stock market has also been supported by the decline in bond yields, making them a less attractive investment option.

The best performing stocks within the Dow Jones during yesterday’s market were Disney (+2.78%), Salesforce (+2%) and Boeing (+1.36%).