• Are interest rate expectations too optimistic?
• PMI revisions positive but the outlook is broadly unchanged
• NAS100 nears all-time highs

Equity markets in Europe and the US continued to edge higher on Tuesday despite many now questioning whether investors are getting too carried away.

The rally appears to be based on the view that central banks from the Fed to the ECB and BoC will start cutting interest rates in March and then do so another three times over the rest of 2024. That’s quite the difference from what policymakers have insisted on for many months but there has undoubtedly been a change in tone recently.

Whether that’s been enough to warrant such optimism is what many are now questioning and what, I’m guessing policymakers will address at the December meeting. Regardless of whether they push back against the scale of cuts next year, it’s clear now that there’ll be quite a shift from central banks at their meetings this month, based on recent commentary.

Whether that will be enough to constitute the pivot that’s been so talked about this year may well determine whether markets continue to price in a March cut as a u-turn of that magnitude will have to be clear from the meeting. The Fed in September indicated it expected to raise rates again, after all.

Services PMIs revised higher but outlook remains relatively unchanged

There were a lot of upward revisions to the PMI surveys from Europe and the US today and in the all-important services sector. While the revisions don’t really change the outlook in any considerable way – euro area still facing a mild recession, UK flat growth, US resilient – it is encouraging that a soft landing is still attainable.

Nasdaq nears all-time highs

The NAS100 appears to have stalled around 16,000 over the last couple of weeks which may be what’s making investors a little nervous.

NAS100 Daily

Source – OANDA on Trading View

The momentum indicators don’t look particularly healthy either, with both the stochastic and MACD making lower highs during the recent new peak in the price. A negative divergence doesn’t necessarily mean the price has peaked but it may suggest the rally is running on fumes.

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