Markets Slip as Powell Cools Rate Cut Hopes and Global Data Worsens

On Friday, Wall Street found itself slipping into the red, with major indices heading for weekly losses. Investors are digesting a series of mixed economic data points from both the US and abroad. At the center of the market's unease is Federal Reserve Chair Jerome Powell's cautious stance on future interest rate cuts, a fresh round of disappointing economic reports, and global uncertainties—particularly surrounding China’s sluggish recovery and the UK’s unexpected contraction in September.

Let’s take a deeper look at the factors impacting the markets and why Wall Street is facing challenges as we close the week.

1. Powell Signals Measured Approach to Rate Cuts

The Federal Reserve’s recent decision to reduce interest rates twice in a row had buoyed investor optimism earlier this month, but those hopes were tempered after Jerome Powell’s comments on Thursday. Speaking at a Dallas Federal Reserve event, Powell expressed caution about rushing into further rate cuts.

“I think it’s too early to reach judgments here,” Powell said, noting the uncertainty surrounding the new political landscape in the US, particularly with President-elect Donald Trump returning to the White House. With the Republican Party regaining control of both houses of Congress and the presidency, Powell pointed out that the upcoming administration’s policies, including potential tariffs and immigration crackdowns, could reignite inflationary pressures.

These comments rattled markets. While the US central bank lowered the federal funds rate to 4.50%-4.75% earlier this month, Powell’s remarks cooled expectations for a more aggressive easing cycle. As a result, traders adjusted their expectations, with futures pricing in only a 60% chance of another quarter-point cut next month, a steep decline from the 80% probability seen earlier in the week.

2. Futures Retreat as Post-Election Rally Loses Steam

US stock futures sank Friday morning, building on losses from the previous session as the post-election rally seemed to lose momentum. By mid-morning ET, Dow futures were down 174 points, or 0.40%, S&P 500 futures dropped by 0.54%, and Nasdaq futures slid 0.75%.

The selloff continued the trend from Thursday, when all three major indices closed in the red. The Dow Jones Industrial Average, which had enjoyed a strong post-election rally, fell more than 200 points after Powell’s remarks sent shockwaves through the market.

For the week, Wall Street looks set for a negative finish. The Dow is down by 0.5%, the S&P 500 has lost 0.8%, and the Nasdaq Composite has fallen 0.9%.

As Friday’s trading unfolds, a busy economic calendar includes key data on retail sales, import prices, and industrial production—figures that could either alleviate or exacerbate the current market concerns. Additionally, earnings reports from companies like Applied Materials and Domino’s Pizza will also draw attention.

3. Mixed Economic Data from China

Across the Pacific, economic data from China added to global uncertainty. October's numbers revealed a mixed picture of the world's second-largest economy. While industrial production rose 5.3% year-on-year, it missed expectations of 5.5% growth and slowed slightly from the previous month's 5.4%.

This slowdown was especially concerning given China's ongoing struggles with weak domestic demand and sluggish manufacturing activity. However, there was a glimmer of hope in the retail sales data, which surged 4.8% in October, well above the 3.8% forecast and up from 3.2% the previous month. The robust retail sales growth was fueled by China’s Golden Week holiday, as well as targeted stimulus measures from Beijing to boost spending.

Despite the positive retail sales numbers, concerns about China’s property sector remain. Property investment fell at an alarming rate, dropping 10.3% year-on-year in the first 10 months of 2024. New home prices also continued their downward spiral, falling 5.9% in October, marking the 16th consecutive month of declines.

4. UK Economy Contracts in September

Across the Atlantic, the UK’s economy took a surprising dip in September, further complicating the new Labour government’s efforts to reignite growth. Gross Domestic Product (GDP) contracted by 0.1% on a monthly basis, signaling weakness in the broader economy. Although the economy grew by a modest 0.1% in the third quarter, this marked a slowdown from the 0.5% growth seen in the second quarter.

Chancellor Rachel Reeves responded to the GDP figures by reaffirming her government’s commitment to boosting economic growth through a combination of big spending plans, tax hikes, and increased borrowing. However, with inflationary pressures still high and the global economy in flux, the task of revitalizing the UK economy may prove more challenging than expected.

The Bank of England also cut interest rates earlier this month and downgraded its growth forecast for 2024 to just 1%, down from 1.25% previously.

5. Crude Oil Faces Weekly Losses Amid Economic Worries

In the commodities market, crude oil prices were on track for significant weekly losses, with fears about China’s ongoing economic struggles weighing on demand expectations. US crude futures (WTI) dropped by 1.09% to $67.95 per barrel, while Brent crude fell by the same margin to $71.78 per barrel. Both benchmarks were set to lose around 3% for the week.

China, the world’s largest crude importer, has been grappling with a sluggish recovery, with its oil refiners processing 4.6% less crude in October compared to the previous year, marking a seventh consecutive month of declines.

Meanwhile, concerns about oversupply have intensified, as US oil inventories rose by nearly 2.1 million barrels in the week ending November 8. The International Energy Agency (IEA) warned that oil production is expected to exceed demand by 2025, even if OPEC and its allies continue with their production cuts.

Conclusion: A Week of Uncertainty

As Wall Street heads for a negative finish to the week, global economic data points to a period of heightened uncertainty. Jerome Powell’s cautious stance on rate cuts, mixed data from China, and concerns over the UK economy all suggest that markets could face a challenging road ahead. While some pockets of growth remain, particularly in US retail sales and Chinese consumer spending, the global economic picture remains fragile, and investors are keeping a wary eye on future developments.