Risk rally hits reality check

The risk rally that has been raging since the Federal Reserve’s dovish tilt in December is pausing for breath as 2024 awakes markets to the prospect the central bank’s interest rate cuts may not be as aggressive as investors expected.

Markets had been pricing in as much as 160 basis points of cuts in 2024, double than what Fed projected, but the New Year has led traders to reassess their outlook, with markets now pricing in less than 150.

That reassessment might end up being temporary and traders may go back to expecting deep rate cuts. However, if risky assets’ early stumbles this year are anything to go by we could be in for some surprises.

The economic calendar is filling up. Minutes from the Fed’s last meeting are due later on Wednesday and will help traders gauge the central bank’s thinking around monetary easing as a slew of labor data this week.

Asian shares extended a global sell-off on Wednesday, with the MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.3% on the day after a near 1% drop on Tuesday, its steepest two-day percentage decline since October.

The dollar, on the other hand, remained buoyant, lifted by rising Treasury yields, keeping pressure on the Japanese yen and the euro. Bitcoin shrugged off the cautious mood and was 0.6% higher at USD 45,255, not far from a 21-month top of USD 45,922 hit on Tuesday.

Futures suggest the dark mood will carry on into Europe with a lower open expected.

In corporate news, the EV battle continues to heat up with China’s BYD claiming the spot as top EV maker, dislodging Tesla TSLA.O even though the US automaker delivered a record number of vehicles in the fourth quarter.

Tesla delivered 494,989 EVs in the October-to-December period, falling short of the 526,409 vehicles that Warren Buffett-backed BYD moved.

(Ankur Banerjee)

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