A look at the day ahead in U.S. and global markets by Samuel

Indyk

The stellar year for U.S. stock markets took a bit of a breather

on Thursday, perhaps expected after a rally that has led the

Nasdaq to 20,000 for the first time this week and the S&P 500 to

another new record high.

Gains have been driven by optimism over artificial

intelligence and rate-cut expectations, with attention now

turning to the Federal Reserve's last policy meeting of the

year, beginning next Tuesday.

The central bank is likely to follow up November's 25 basis

point rate cut with another of the same magnitude, taking the

fed funds rate to 4.25%-4.5%.

But where the Fed plans to take rates in 2025 is what will

interest markets more.

Donald Trump's election victory last month has left

investors with a lot of questions about the economy in 2025.

Will Trump push ahead with blanket tariffs on U.S. imports?

Will these tariffs be inflationary? And how will the Fed react?

For now, markets are pricing in just two more quarter-point

cuts in 2025, assuming the Fed lowers rates on Wednesday.

Should the Fed lower interest rates next week, it will mean

a total 100 basis points of easing this year - the same amount

delivered by the European Central Bank (ECB) in 2024 after it

lowered borrowing costs on Thursday for the fourth time.

But while ECB president Christine Lagarde left the door open

for more rate cuts next year, the ECB president refused to

commit to a particular rate path, leaving some investors

scratching their heads.

Markets have been betting that the euro zone's central bank

would cut rates at every meeting through the first half of next

year, possibly even faster, with inflation back near target and

growth remaining sluggish.

Those expectations were little changed after Thursday's

decision, with the deposit rate seen falling to roughly 1.75% by

the end of next year.

The ECB has not been the only show in town this week, with

the Swiss and Canadian central banks each opting for jumbo 50

basis point rate cuts.

Next week, as well as the Fed, the central banks of Sweden,

Norway, Britain and Japan will also announce their policy

decisions.

The global interest rate picture has left the dollar index

on track for a 1% gain this week, its biggest weekly jump

in a month and ninth positive week in 11. The U.S. currency has

risen against all major peers this year.

The S&P 500 is within touching distance of recent peaks and

on track for annual gains of more than 20% for the second year

in a row, with futures on Friday pointing to a firmer open, led

once again by the tech-heavy Nasdaq.

This time it's Broadcom ( AVGO ) leading the way higher after the

semiconductor company forecast quarterly revenue above Wall St

estimates on Thursday after-hours, predicting booming demand for

its custom AI chips. Shares are up 14% pre-market.

Key developments that should provide more direction to U.S.

markets later on Friday:

* U.S. import and export prices