Dow Futures Edge Up 0.13% Ahead of Central Bank Week

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The financial landscape is undergoing significant changes as the U.Sstock futures showed a slight uptick on Monday, with Bitcoin reaching unprecedented heightsInvestors are closely watching the surging bond yields that pose challenges to stock market valuationsAs the week progresses, multiple central banks are scheduled to convene, and a plethora of crucial economic data is set to be unveiled.

At the time of writing, futures for the Dow Jones Industrial Average were up by 0.13%, S&P 500 futures rose by 0.17%, and Nasdaq futures climbed by 0.29%.

Across the Atlantic, European markets faced downward pressure; the DAX in Germany fell by 0.12%, while the UK’s FTSE 100 and France’s CAC40 indexes dropped by 0.31% and 0.77%, respectivelyThe Euro Stoxx 50 index also recorded a decrease of 0.44%.

In the commodities market, WTI crude oil declined by 1.70%, trading at $70.08 per barrel, while Brent crude oil saw a decrease of 0.97%, settling at $73.77 per barrel.

France’s government bonds lagged behind their European counterparts, influenced by continuing contractions in private sector activity that persisted for the fourth consecutive month

The government's failure to resolve budget disagreements further eroded market confidenceNotably, Moody’s unexpectedly downgraded France’s credit rating last Friday, heightening the climate of uncertainty surrounding the French economyOn the same day, President Emmanuel Macron appointed centrist politician Édouard Philippe as the country’s fourth Prime Minister within a year.

Germany was not in a much better position, with its business activities contracting for the sixth month in successionLatest data indicated a slight easing in the contraction for December, largely thanks to a rebound in the service sector, although manufacturing woes continued to deepen.

Overall, the contraction in the Eurozone’s private sector was less severe than expected, a respite attributed to an unexpected rebound in services.

Analyst Win Thin from Brown Brothers Harriman articulated, "Given that financial support for the German economy may take some time to materialize, the formation of a new government could take several weeks or even months

This means the European Central Bank (ECB) will need to shoulder greater responsibilities in the interim."

Central banks are entering a pivotal periodThe stock market opened with muted performance as investors brace for the final full trading week before year-endA host of important central bank meetings are on the horizon this week, including policy discussions from the Federal Reserve, the Bank of Japan, and the Bank of EnglandThe remarkable 20% rise in global equities this year may prompt some investors to lock in profits.

Market expectations suggest that policymakers in the United States and Sweden will likely opt for rate cuts, while the central banks in Japan, the UK, and Norway are anticipated to maintain their current interest rates.

The Federal Reserve is set to meet shortly, with predictions indicating a 96% likelihood of a 25 basis point reduction, bringing rates down to a range of 4.25%-4.50%. More critically, the Fed might provide guidance on future easing policies, including insights from the “dot plot” forecasting rates for the coming years.

Economist Michael Feroli from JPMorgan remarked, “We expect the updated dot plot to reflect a median expectation for three rate cuts next year, as opposed to four as predicted in September.”

Tax cuts and trade initiatives may drive government borrowing higher, exacerbating inflationary pressures, while market forecasts for the ultimate lowest interest rates have continually been adjusted downward.

Currently, swap traders anticipate approximately three rate cuts of 25 basis points each from the Federal Reserve over the next 12 months, a noteworthy shift from just a week ago when the market was pricing in a greater than 50% possibility of four cuts.

Marija Veitmane, a senior multi-asset strategist at State Street Global Equities, expressed optimism for the year ahead, stating, “The expected rate cuts in 2024 will provide support even as the economy remains robust.” She emphasized that the focus should be on corporate earnings and sectors experiencing the fastest growth, citing the U.S.'s persistent solid growth.

Meanwhile, Bitcoin's exuberant rally continued

The U.Sdollar index ended a six-day streak of gains, and U.STreasury prices edged slightly higher.

Last week saw long-term U.STreasury yields rise sharply, with the yield on 10-year Treasuries hitting 4.38%, nearing the critical resistance level of 4.50%.

Bitcoin experienced a remarkable surge of up to 3.6%, buoyed by optimism surrounding MicroStrategy’s upcoming inclusion in a primary U.Sstock indexThis momentum injected a wave of positivity across the broader cryptocurrency market.

As the leading digital currency, Bitcoin has now increased for seven consecutive weeks, marking its longest such streak since 2021, having surged over 50%. Year-to-date, Bitcoin has risen approximately 150%, with inflows into Bitcoin ETFs accumulating to $9.3 billion according to FactSet.

Market watchers pinpoint $110,000 as the next significant price targetOptimistic cryptocurrency investors hope Bitcoin can comfortably secure a position above $100,000 before year-end, laying a solid foundation for market confidence heading into 2025.

Strategists from major banks, including Bank of America, JPMorgan, and Banco Santander have forecasted that ongoing options selling will generally dampen volatility.

JPMorgan analysts anticipate that the CBOE Volatility Index will average around 16 in 2025, a slight increase from approximately 15.5 projected for 2024. However, Banco Santander warns that a multitude of factors - including heightened uncertainty surrounding U.S

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trade policies, geopolitical tensions, market concentration, overvaluation, signs of pressure in the funding markets, and a weakening job market - could trigger increased volatility.

On the other side, Bank of America expressed the belief that the market could see a “fat tail,” signifying sudden and extreme volatility following prolonged periods of calmBank of America predicted that the frequency of market shocks impacting the S&P 500 will increase five-fold compared to the past 80 yearsThey cautioned that a significant shock event across the index may be overdue.

Bearish sentiments are emerging as discussions swirl around the potential moderation of the strong dollar in the upcoming year.

With anticipated pressure from policy decisions and the Federal Reserve’s interest rate cuts possibly affecting the dollar in the latter half of 2025, Wall Street analysts are beginning to adopt a more pessimistic outlook on the dollar’s future.

From Morgan Stanley to JPMorgan, around six sell-side strategists now predict that the dollar may peak as early as mid-next year before commencing a decline

Among them, Société Générale forecasts a 6% drop in the ICE Dollar Index by year-end 2025.

Kit Juckes, head of currency strategy at Société Générale remarked, “The dollar's strength is disconcertingWe are pushing an asset's price to levels that are unsustainable over the long term.”

Macroeconomic and currency strategists at Morgan Stanley, including Matthew Hornbach and James Lord, further elaborated that trade and tax reduction policies could elevate the dollar temporarilyHowever, they affirm that the dollar is likely to dip below its current levels by this time next year.

They noted that a decrease in U.Sreal interest rates and an improvement in risk appetite present the most downside risk for the dollar.

A prevailing consensus emerges on Wall Street, with notable voices like Savita Subramanian from Bank of America, Brian Belski from Bank of Montreal, and Chris Harvey from Wells Fargo expressing strong bullish sentiments toward financial stocks as a top pick for 2025.

Moreover, Jake Manoukian, head of U.S

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