Bonds & Stocks
Wall Street kicked off the week with losses, with both stocks and bonds down in signal that traders’ aggressive pricing of Federal Reserve rate cuts may have gone too far. All major groups in the S&P 500 retreated, while the Nasdaq 100 dropped 1% on Monday. Treasury two-year yields, which are more sensitive to imminent Fed moves, rose nine basis points to 4.63%. The dollar gained. Bitcoin rose to as high as $42,000 as frenzied speculation in cryptocurrencies gathered pace.
Economy
A torrid bond-market rally shows traders are convinced the Federal Reserve’s rate-rising cycle is over. The debate now turns to when central bankers start cutting, and by how much. At issue is whether the economy settles in for a soft landing or spirals into something worse. Both scenarios suggest rate cuts are coming, possibly as soon as March. Current market expectations call for at least 1.25 percentage points of easing next year, a trend that would seem to clear a path for lower yields and an extended rally.
World
Israel is expanding military operations into southern Gaza, putting at risk hundreds of thousands of Palestinians escaping the north as US officials grow increasingly uneasy about the war’s toll on civilians. Southern Gaza was hit by air strikes overnight, when the Israeli military struck around 200 targets, including weapons depots used by militant group Hamas, designated a terrorist organization by the US and European Union. The attacks came hours after Israel Defense Forces urged those who fled south to evacuate again.