Fed Flags Rising Financial Stability Risks as December Decision Looms  

GLOBAL MOOD: Risk-off
Drivers: Fed Stability Warnings, Hawkish Fed Signals, Data Delays

Asian markets opened risk-off, extending a global sell-off as the long-awaited US jobs data failed to offer rate-cut clarity. Despite Nvidia’s strong earnings, investors continued to dump riskier assets amid heightened uncertainty.

TODAY’S WATCHLIST

• US flash PMI
• ECB President Lagarde Speech
• Fed Williams Speech

THE BIG STORY

Concerns over financial stability have moved to the forefront of Federal Reserve discussions, adding a new layer of complexity to the debate over whether to cut interest rates further at next month’s FOMC meeting. Speaking at Georgetown University on Thursday, Fed Governor Lisa Cook warned of a growing list of vulnerabilities ranging from the rapid expansion of private credit markets and heightened hedge fund activity in Treasuries to the increasing use of generative AI in algorithmic trading. Cook said she “would not be surprised” by a sharp correction in elevated asset prices, though she noted such a decline alone would not necessarily indicate systemic instability. Separately, Cleveland Fed President Beth Hammack reiterated her opposition to additional rate cuts, arguing that inflation remains too high and that financial conditions are already “too easy.” Cutting rates now, she said, could amount to taking out “insurance” for the labour market at the expense of greater financial stability risks.

Their comments echo concerns outlined in Wednesday’s FOMC minutes, in which several policymakers highlighted “stretched asset valuations” and warned of the potential for a disorderly downturn particularly if optimism around AI-driven growth is abruptly reassessed.

Complicating the Fed’s calculus further is the government shutdown, which has delayed critical economic data releases, leaving policymakers without a clear picture of the economy heading into the 9–10 December meeting.

Data Spotlight

US employment growth picked up in September, but the labour market remained sluggish as firms adjusted to tariff pressures and continued integrating AI into workflows. Nonfarm payrolls rose 119,000, well above expectations of 50,000 after August was revised to show a 4,000-job loss, underscoring lingering softness. The jobless rate climbed to 4.4%, a four-year high, as labour force growth outpaced hiring.

Healthcare led gains with 43,000 jobs, followed by 37,000 in restaurants and bars, and 13,900 in retail. Transportation and warehousing shed 25,000 roles, while manufacturing lost 6,000, highlighting uneven momentum across industries.

Existing home sales rose 1.2% in October to an annualised 4.10 million units, slightly above expectations, as buyers benefited from lower mortgage rates. Year-on-year sales increased 1.7%, though rising unemployment and high prices remain limiting factors.

Takeaway:

Labour conditions are stabilising but remain fragile, with job creation uneven across sectors. Housing activity is improving at the margins, but underlying consumer strain persists.

WHAT HAPPENED OVERNIGHT

• US stocks early rally reverses as tech selloff deepens
  • US stocks slumped on Thursday after an early surge faded, with tech gains evaporating despite Nvidia’s strong earnings beat.
  • The Nasdaq closed at its lowest level since 11 September, while the S&P 500 hit its weakest finish since 10 September.
  • Nvidia swung sharply, ending down 3.2% after rising as much as 5% earlier; semiconductor stocks broadly sold off, with the Philadelphia chip index falling 4.8%.
  • Mixed US jobs data clouded the labour-market outlook, adding to volatility and pressuring high-growth names.
  • Walmart bucked the trend, jumping 6.5% after raising its annual forecast again and announcing plans to shift its stock listing to Nasdaq in December.

• US Treasury yields steady as labour data shows mixed signals
  • The 10-year US Treasury yield dipped early but stabilised around 4.1% on Thursday as markets absorbed the long-delayed September jobs report.
  • The US added jobs more than double expectations, while the unemployment rate ticked up to 4.4%.
  • Wage growth slowed to 0.2%, the weakest pace in three months, easing immediate inflation concerns.
  • Traders still anticipate that the Fed will keep rates steady in December, though expectations for a 25-basis point cut have diminished.

• US Dollar firms as strong jobs data reduces Fed cut odds
  • The dollar index strengthened against most major currencies as stronger-than-expected September job growth reduced the likelihood of a Fed rate cut in December.
  • The dollar index rose 0.1% to 100.18, retesting its six-month high from early November.
  • The dollar climbed to 157.89 yen, its strongest level since January, putting the yen on track for a fourth straight daily decline.

• Crude oil prices slip as US pushes Ukraine peace plan
  • Brent crude prices ended lower on Thursday as the US pressed Ukraine to consider a peace agreement with Russia, signalling potential progress in the three-year war.
  • President Zelenskiy said he would review the proposal and discuss it further with Washington.
  • Brent crude settled at $63.38 a barrel, down 0.2%, while WTI finished at $59.14, down 0.5%.

Day’s Ledger

Economic Data

• Fed Balance Sheet 
• Japan Inflation Rate
• Japan Balance of Trade
• India November flash PMI
• India FX Reserves 
• US flash PMI

 Corporate Actions

• Bhakti Gems to consider fund raising
• Kotak Bank to consider stock split
• Paisalo Digital to consider fund raising

 Policy Events

• ECB President Lagarde Speech
• ECB Guindos Speech
• Fed Williams Speech
• Fed Barr Speech

 Tickers to Watch

• TCS, TPG form alliance as $1 bn investment accelerates AI data centre plan
• Court proceedings won't affect IHC's proposed investment in Sammaan: Banga
• CUMMINS INDIA on track for strong FY26 show despite near-term concerns
• Kyndryl renews pact with VODAFONE IDEA to upgrade IT and cybersecurity
• Higher demand to help INDIAN HOTELS COMPANY post recovery in H2FY26
• PAYTM nears pre-restriction UPI volumes, but market share remains lower
• IRB INFRA to transfer road asset worth ₹1,702 cr to its public InvIT

 

Must Read

• Skilled immigrants needed in US: Trump's stance triggers MAGA backlash
• Nvidia CEO on biggest fear surrounding AI bubble
• Leaders press on with G20 summit in South Africa without US and Trump
• Equity mutual fund assets top ₹50 trillion for the first time in October
• IBBI proposes uniform, detailed formats for valuation of assets under IBC
• Resilient domestic economy gives govt space to negotiate US trade deal
• RBI's inflation model under fire as persistent overestimates draw scrutiny
• India to surpass 1 billion 5G subscribers by 2031 as global coverage widens
• Home Sales in October Rose to Highest Level Since February
• Canada Makes Trade Between Its Provinces Easier to Reduce Reliance on US

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See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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