Fed to Keep Rates Steady in December?

The economic landscape in the United States is evolving, reflecting both opportunistic growth and cautious concerns. Recent reports indicate that the latest employment numbers for November, known as the "small non-farm payrolls," revealed an increase of 146,000 jobs. This figure fell slightly short of market expectations which had predicted a gain of 150,000 jobs. Simultaneously, indicators such as the S&P Global Services PMI and the ISM Non-Manufacturing PMI came in below forecasts, suggesting that while the economy is expanding—as indicated by values above 50 on these indices—it is not accelerating as rapidly as many market participants had hoped.

In light of these developments, Federal Reserve officials issued comments that leaned towards a more hawkish stance. Jerome Powell, the Chair of the Federal Reserve, pointed out that the recent economic growth has substantially exceeded expectations set back in September, when the Fed first lowered interest rates. He noted that the economy has shown robust momentum, but there is also a noticeable uptick in inflation data. Given these complexities, Powell emphasized that the Fed must approach interest rate cuts with increased caution as it navigates toward a neutral interest rate—an essential target for monetary policy.

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Further elaborating on this cautious approach, St. Louis Fed President James Bullard also articulated that, with inflation rates remaining above the set target and the previously troubling labor market conditions easing somewhat, it is crucial for policymakers to think carefully about monetary policy. Bullard suggested that maintaining economic stability may require a deliberate slowing of the pace of interest rate cuts.

Overall, while Fed officials display a hawkish outlook, the disappointing non-farm employment figures have led to an increased market pricing probability for a rate cut in December, soaring to 78%. Nevertheless, the focus remains on the upcoming non-farm payrolls report scheduled for Friday, which could significantly influence future Fed decisions.

In parallel to these economic indicators, the performance of AI hardware and applications in the stock market has also garnered attention. For instance, MRVL (Marvell Technology Group), reported an impressive third-quarter earnings report that surpassed expectations. The company provided a strong guidance for the fourth quarter, fueled by the growing custom chip business with corporations like Amazon. Their AI segment has driven up the revenue share from data centers to 72%, and custom AI chips have commenced mass production, leading to their stock price jumping over 20% after the earnings release.

Other companies, such as CRDO (Celera), a leader in high-speed data transmission solutions, also showcased strong performance. The firm’s second quarter revenue exceeded market forecasts at $72 million and projected a strong third-quarter outlook of $115 to $125 million, much higher than the expected $86 million. Following their earnings announcement, CRDO's stock surged nearly 50% as investors responded positively to the strong demand for their products among major cloud vendors like Microsoft and Amazon.

Salesforce, with its AI Agentforce, demonstrated remarkable results in the third quarter as well, leading to an upward revision of the company's annual revenue guidance. The booming demand for their AI-driven system is anticipated to significantly impact the customer service sector, with optimistic expectations suggesting a market potential of about $20 billion in the U.S. Following the news, Salesforce shares rose over 7%, topping last year's highest points.

In a similar vein, Okta has also exceeded expectations in its latest quarterly earnings and forward guidance. This company, known for its cloud-based identity management solutions, witnessed a significant uptick in its stock, surpassing 10% following its positive earnings results.

The momentum in the AI sector continues, with OpenAI announcing an impressive series of product launches—12 events in 12 days—which has further ignited excitement in AI hardware and applications. Stocks like NVDA (NVIDIA) have reacted positively, even sparking a bull run in application-related stocks across the board.

This surge follows a period of suppressed valuations due to previous trading conditions, where stocks linked to the "self-controllable" narrative were undervalued. Many analysts noted that if trading improves, NV stocks could see significant recovery. Recently, A-share performances have shown disparity, particularly with domestic companies like Zhongke Shuguang lagging in comparison to NVIDIA-linked stocks. Often, in the stock market, disparities in expectations play a vital role in pricing, creating opportunities for investors to capitalize when shifts occur.

Policy adjustments have also been announced recently, including an increase in the maximum financing ratio from 70% to 90% for share buybacks and public offerings. Additionally, the recent nomination of cryptocurrency supporter Paul Atkins as the new SEC Chairman has propelled a surge in cryptocurrency prices. Bitcoin, for instance, soared from $94,600 to above $100,000, marking an unprecedented milestone as it breached the $100,000 threshold for the first time, achieving a remarkable rise of over 7% within a 24-hour span and bringing the total market valuation to an astonishing $2.1 trillion.

Furthermore, the Chinese firm Meitu Inc. announced on December 4 its decision to liquidate all its cryptocurrency holdings, resulting in total cash proceeds of approximately $180 million and an unrealized profit of around $79.63 million. The company's board indicated that approximately 80% of the profits will be allocated for a special dividend, reiterating their commitment to focusing more on its imaging and design product line in the future.