Equities, Bitcoin & Gold likely to rally as bets skyrocket the Fed can cut rates

Markets are rejoicing the Fed is done with hikes, now bets skyrocket that the Fed can move to a cutting cycle. The 'bullish tone' seems validated for now, but before we 'pass go', with the December effect beckoning the best month for equity returns, markets need to pass through a few hoops this week. We cover the speed bumps to watch, but importantly why US equites, Bitcoin and Gold will likely continue to rally this and next year, with the unloved Aussie share market to likely make a comeback.

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Bets skyrocket that the Fed can cut rates, setting up a narrative risk-on rally

What the bets are for rate cuts, which set out a red carpet for the risk-on rally to continue.

The rally will likely continue this year and in 2024 simply because inflation is coming down, unemployment is expected to pick up and central banks want to avoid a recession. The Taylor rule is forecasting core US inflation to fall to 3% in March (the Fed’s target for CPI), and for US unemployment to rise, as such the Futures are indicating the Fed could cut rates in March (a 59% chance), with a greater possibility of cuts June, July and September (with a 80% probability). The heavy hitting Fed signalled rates will probably stay at 5.5% at this month's Dec 12-13 meeting as US borrowing costs are at a 22-year high and rates are in 'restrictive territory' ($Powell Industries(POWL.US)$ ). A former Fed hawk Christopher Waller also said the Fed could cut rates if inflation continues to move lower.

Meanwhile, the RBA is expected to hold rates at 4.35% at the Dec 5 meeting, before hiking again in February (with a 27% chance of a hike). That said, Australian inflation is expected to fall towards the RBA target in Q4 2024, and unemployment is expected to rise to 4.35%, which is why futures traders expect the RBA to cut rates in September 2024 (with a 33% chance) and in December 2024 (with a 26% chance)

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Before the rubber stamp is sealed for the risk-rally to continue, watch these catalysts that could cause speed bumps

The equity rally will likely continue this year and in 2024 simply because inflation is coming down, unemployment is expected to pick up and central banks want to avoid a recession. Plus China’s slow economic recovery is gaining green shoots. Here are the catalysts to watch this week that could cause speed bumps.

Keep an eye on US employment data out Dec 7 and Dec 9, if its in line with expectations or weaker, then the rally could likely to continue as the Fed's "done with rate hike rubber stamp could be hit down hard".

Separately for the China claw back story to gain ammunition that has been supporting commodities and commodity stocks watch key Chinese data this week, such as trade data on Dec 7 as well as Chinese consumer and producer price inflation data being released on Dec 9.

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Equites, Bitcoin, Gold likely to rally as bets increase of a Fed cut

The US equity ETFs, Bitcoin linked listed stocks and Gold ETFs likely to continue to rally this and next year, with the unloved Aussie share market ETFs to make a comeback on Fed rate cut bets

US Equities to rally on up. Aussie equities to finally start to recover:

Consider the Nasdaq 100 ($NASDAQ 100 Index(.NDX.US)$ ) is up 46% this year along with NDX ETFs QQQ $Invesco QQQ Trust(QQQ.US)$ and NDQ $BetaShares NASDAQ 100 ETF(NDQ.AU)$. The S&P500 ($S&P 500 Index(.SPX.US)$ ) is up 20% along with SPX ETFs SPY$SPDR S&P 500 ETF(SPY.US)$, VOO $Vanguard S&P 500 ETF(VOO.US)$, IVV $iShares Core S&P 500 ETF(IVV.US)$. Their rallies are largely likely to continue, but there is risk of a short term pull back, as the indices and ETFs are in technical overbought territory. Meanwhile, the lagging ASX200 ($S&P/ASX 200 OPIC(OXJO.AU)$ ) benchmark, along with  $S&P/ASX 200 OPIC(OXJO.AU)$ ETFs $Vanguard Australian Shares ETF(VAS.AU)$ and $iShares S&P 500 ETF(IVV.AU)$ will likely finally start to claw back and will likely rally into 2024.

Bitcoin to head to higher ground:

Consider Bitcoin is now over $40,000 for the first time since May 2022, extending the year's rebound to 147% this year on bets of lower interest rates and greater demand from exchange-traded funds. Standard Chartered reckons Bitcoin will get to $100,000 in 2024, while crypto financial services firm Matrixportprojects BTC will get to $63,140 by April. The price is could reach is debatable but its rally is likely to continue this and next year given this narrative. It will benefit listed companies that profit / gain greater revenues as Bitcoin's price lifts. These companies include Block ($Block(SQ.US)$ , $Block Inc(SQ2.AU)$ ) and Coinbase ($Coinbase(COIN.US)$ ). Also consider Bitcoin infrastructure plays such as Nvidia ($NVIDIA(NVDA.US)$ ) that sells graphic cards that people use to mine crypto and consider crypto mining company Marathon Digital Holdings ($Marathon Digital(MARA.US)$ ). And watch juggernauts companies that accept Bitcoin as payment, such a Tesla ($Tesla(TSLA.US)$ ), and Paypal ($PayPal(PYPL.US)$ ).

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Commodities to rally on up with gold to hit new record highs

As calls getting louder of potential Fed's rate cuts, the US dollar continues to slide, which is to the benefit of commodities, as they appear cheaper (as they're denominated in US dollars). This scenario will likely continue to play out for the rest of the year and next, and it will gain more feathers in its cap when Chinese data shows its economy is growing stronger than expected. Gold climbed to a record $2,085 and it will likely continue to rally if the Fed moves to cutting rates and if unemployment rises. Basically if bad news is bad, the gold price is supported, and if the Fed cuts, gold is supported higher. The last three times the Fed cut rates, gold rallied. In fact, in 2019, when the Fed cut rates, gold rallied from 61% to a new high. Watch the world's biggest gold companies, Newmont ($Newmont Corp(NEM.AU)$ ) and well as Barrick（$Barrick Gold(GOLD.US)$ ) and the world's largest gold ETFs VanEck Gold Miners ($VanEck Gold Miners ETF(GDX.AU)$ ) and Junior Gold Miners ($VanEck Junior Gold Miners ETF(GDXJ.US)$ )

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