Stocks Erase November Losses as Fed Rate Cut Bets Surge to 80%
- Fed Optimism Fuels Rally: Global stocks have nearly erased November losses as traders price in an 80% chance of a December Fed rate cut, driven by softening US labor data and political speculation about a pro-growth Fed Chair.
Global equity markets are staging a significant comeback, poised to erase nearly all losses incurred earlier in November. The driving force behind this recovery is a renewed conviction among investors that the Federal Reserve will cut interest rates in December. This shift in sentiment has successfully counteracted the anxiety regarding "frothy" AI valuations that triggered a selloff earlier in the month. The MSCI All Country World Index has climbed for five consecutive sessions, narrowing its monthly decline to just 0.5%, following a robust seven-month winning streak.
The optimism is palpable across asset classes. Money markets are now pricing in an roughly 80% probability of a quarter-point rate cut next month, with expectations of three additional cuts by the end of 2026. This is a marked change from just a week ago, when traders were far more skeptical about the central bank's easing path. The "Fed pivot" narrative was further strengthened by the release of the Fed’s Beige Book, which highlighted slight declines in employment and spending—indicators that typically give policymakers the green light to lower borrowing costs without fearing immediate inflation spikes.
Adding to the dovish momentum is political speculation regarding the leadership of the Federal Reserve. Kevin Hassett, Director of the White House National Economic Council, has emerged as a leading contender to become the next Fed Chair. Investors view Hassett as aligned with President Donald Trump’s preference for lower rates, suggesting a potentially more accommodating monetary policy regime ahead. Consequently, the US dollar has retreated for three consecutive days, providing breathing room for Asian currencies and risk assets like Bitcoin, which surged past $91,000.
However, the picture in Asia remains mixed due to ongoing distress in China’s real estate sector. While broad Asian stock indices rose 0.5%, attention was heavily focused on China Vanke Co., a developer previously considered one of the industry's healthier players. Vanke proposed delaying repayment on a local bond, a surprise move that sent its notes plunging to record lows and signaled that the housing crisis—marked by the defaults of Evergrande and Country Garden—is far from over. This spread unease to other yet-to-default builders, with Longfor Group’s bonds also taking a hit.
Corporate news provided further texture to the market movements. The Pentagon reportedly concluded that Chinese tech giants Alibaba, Baidu, and BYD aid the Chinese military, a development that could complicate trade relations just weeks before a scheduled truce. Meanwhile, M&A rumors swirled with reports that Chinese sportswear giant Anta Sports is exploring a takeover of Puma SE. In the tech debt space, concerns are mounting over Oracle’s massive AI spending spree and SoftBank’s debt-fueled growth, pushing risk gauges for both companies to multi-year highs.
In commodities, oil prices edged lower as traders monitored US-led diplomatic efforts to end the war in Ukraine, which could theoretically bring more supply back online. With US markets closed for Thanksgiving, trading volumes were thinner, but the overall trajectory was clear: the fear of an AI bubble has, for the moment, been eclipsed by the comforting prospect of cheaper money. As Charu Chanana of Saxo Markets noted, "Fed rate-cut optimism has offset AI bubble concerns for now," with a weaker dollar providing an additional safety net for global risk assets.