MARKET WRAPS
Watch For:
ISM Report on Business Manufacturing PMI for November; Construction Spending for October; Canada Labour Force Survey for November; Fed speakers including Jerome Powell, Lisa Cook; earnings from Bank of Montreal
Today's Headlines/Must Reads
- Fed's Interest Rate Hikes Are Probably Over, But Officials Are Reluctant to Say So
- The Big Risk Causing Investors to Shun China
- Big Tech Wants to Control AI. EU Regulation Could Help
- The World's Key Canal Is Clogged Up. Winter Fuel Prices Could Get Wacky
Opening Call:
Stock futures paused on Friday after a final flourish to a fantastic month, as investors awaited comments from Jerome Powell.
The S&P 500 rose 8.9% in November--the best monthly gain since July 2022--as the 70 basis point peak-to-trough decline in the 10-year Treasury was the steepest since the 2008 global financial crisis, according to Goldman Sachs.
"Bond yields in the U.S. and Europe have tumbled during November as inflation falls and policy rates peak. This has proved a welcome respite for global equity markets, which were under pressure from rising bond yields over the summer," Edison Investment Research said.
The firm is neutral on global equities with U.S. valuations close to the top of their recent price-to-book range.
Powell will be at Spelman College in Atlanta, where at 11 a.m. Eastern he will have the chance to make opening remarks and then participate in a fireside chat with the school's president.
Before the Powell speech, the key Institute for Supply Management's manufacturing report is due, as automakers release their monthly sales statistics throughout the day.
Overseas
Mining stocks boosted the Stoxx Europe 600. In Hong Kong, the Hang Seng Index dropped more than 1.2% to close at its lowest in more than a year.
Stocks to Watch
U.S.-listed shares of Alibaba were down 1.3% after the company was downgraded to Equal Weight from Overweight by Morgan Stanley and the price target was reduced to $90 from $110.
Dell Technologies reported adjusted third-quarter earnings that beat forecasts but lower-than-expected revenue on weak demand. Shares fell 4.1%.
Elastic rose 20% after the company reported fiscal second-quarter adjusted earnings and sales that beat Wall Street estimates.
Third-quarter adjusted earnings at Marvell Technology topped expectations. Marvell said it expects revenue in the fourth quarter of $1.42 billion, plus or minus 5%, compared with $1.419 billion a year earlier. Analysts have been expecting revenue of $1.46 billion. Shares fell 5.3%.
Samsara posted better-than-expected revenue and profit for the fiscal third quarter, and issued guidance for the fourth quarter that beat expectations. Its shares rose 17%.
Tesla handed over the initial batch of Cybertrucks to buyers on Thursday. The base model of what Elon Musk called "potentially our best product ever" costs $60,990, pricier than expectations. Its shares declined 1.3%.
UiPath reported fiscal third-quarter adjusted profit and revenue that beat analysts' expectations. The stock was up 13%.
Ulta Beauty reported better-than-expected third-quarter earnings, sales, and same-store sales. Ulta also raised the lower end of its sales and profit outlook for the fiscal year. Its shares rose 11%.
Forex:
The dollar, which has already fallen substantially in November, has a historic tendency to weaken into the year-end, which could be a positive signal for EUR/USD, MUFG said.
"There is a seasonal bias that is quite compelling for EUR/USD in December."
In 14 Decembers in the last 20 years EUR/USD gained an average of an "impressive" 2.6%, MUFG said.
Even excluding December 2008, when EUR/USD gained 10.1%, the average gain over the other 13 occasions was still 2%.
Weaker-than-expected inflation data from both the eurozone and individual countries in the bloc this week have caused the euro to reverse a clear upward trend over the past month, DZ Bank Research said.
"To the detriment of the euro, this [the weaker inflation data] has reinforced the market's expectations of key interest rate cuts," it said.
Money market forwards are pricing a first eurozone interest-rate cut in April, according to Refinitiv data.
The U.S. ISM business manufacturing purchasing manager index due at 1500 GMT will be the next key data to watch, DZ Bank Research said.
Bonds:
Jefferies expects rates to consolidate and move higher in December.
"We have not changed our year-end targets for Bunds or Treasurys and are looking for a move back towards 4.40-4.50% for the 10-year Treasury [yield] and 2.50-2.60% for Bunds."
As for the short-end of the bond curves, Jefferies doesn't see scope for further rally in December.
Energy:
Oil prices edged lower in the wake of OPEC+'s decision to deepen production cuts and ING said the market reaction indicates concerns that the announced cuts were voluntary, suggesting it's becoming increasingly difficult for member states to agree on group-wide action.
New additional cuts of around 900,000 barrels a day are expected in the first quarter of next year, but "these will be brought back gradually to the market after 1Q depending on market conditions," ING added.
Rystad Energy said the result of OPEC's meeting marked a "bittersweet victory" for group leader Saudi Arabia, and the subsequent drop in oil prices suggests the market was disappointed with the outcome, one because the cuts are short-term and also because the group had to rely on voluntary cuts.
WTI oil's two-month corrective decline has begun to ease, based on technical charts, Oanda said.
Over the past two weeks, WTI oil formed two consecutive weekly "long-legged doji" candlestick patterns, which suggest that bearish sentiment has started to show "hesitation and indecisiveness" regarding a potential further fall, Oanda said.
Also, the daily relative strength index momentum indicator has continued to edge higher recently. On the hourly chart, WTI oil has formed a possible minor "inverse head and shoulders" bullish reversal pattern, Oanda added, pegging support at $74.30/bbl and resistance at $79.80/bbl.
Metals:
Copper prices are set to end the week higher on supply concerns, while a weaker dollar is also providing support for gold.
Copper's strength has come from supply concerns, with the Panama government looking to shut First Quantum's copper mine in the country while strikes are affecting production in Peru, according to ANZ.
"The decision by Panama's government to shut the First Quantum's Cobre mine brings back into focus supply side issues that have plagued the sector over the past couple of years," ANZ said.
TODAY'S TOP HEADLINES
Montana Judge Says TikTok Ban Likely Violates First Amendment
TikTok won a reprieve in Montana after a judge ruled a state law banning the app can't go into effect in January, saying it "likely violates the First Amendment."
A federal judge on Thursday granted a preliminary injunction blocking the law, which was passed by the Montana legislature earlier this year, pending the outcome of a lawsuit filed by the social-media company. The legality of the ban itself will be decided later in a bench trial that has yet to be scheduled.
Elon Musk's F-Bombs Make Linda Yaccarino's Job at X Even Harder
Elon Musk's F-bomb-laden tirade at advertisers will make X Chief Executive Linda Yaccarino's job harder as she tries to rebuild the company's ad-sales business, industry executives said.
"It's a line in the sand that can't be undrawn," said Craig Atkinson, chief executive officer of Code3. "I have no idea what kind of salesmanship can counteract a sentiment like that."
VF Corp. Lays Off 500 Employees Amid Investor Pressure for Cost Cuts
U.S. sportswear and footwear company VF Corp.has laid off about 500 employees globally amid flagging consumer demand and activist investor pressure to trim costs.
VF, the owner of retail brands including Vans, The North Face and Timberland, said in a statement Thursday that the cuts were across all its brands, corporate functions and geographies.
Microsoft Stock Is Near Record Highs. AI Should Keep the Rally Going.
One year after the launch of ChatGPT, generative artificial intelligence is on the verge of generating impressive revenue for companies across the software spectrum.
S&P Global Market Intelligence estimates that the AI software market, which it put at $3.9 billion in 2023, will grow 58% on a compounded annual basis, hitting $39 billion in 2028. Some of that will go to companies like Amazon.com, Alphabet, Adobe, Salesforce, and Oracle. But one software company is breaking away from the AI pack: Microsoft.
Meta Is Struggling to Boot Pedophiles Off Facebook and Instagram
Meta Platforms has spent months trying to fix child-safety problems on Instagram and Facebook, but it is struggling to prevent its own systems from enabling and even promoting a vast network of pedophile accounts.
The social-media giant set up a child-safety task force in June after The Wall Street Journal and researchers at Stanford University and the University of Massachusetts Amherst revealed that Instagram's algorithms connected a web of accounts devoted to the creation, purchasing and trading of underage-sex content.
China's Manufacturing Activity Expanded in November, Caixin PMI Shows
A private gauge of China's factory activity unexpectedly swung to expansion in November, contrasting with the official index that signaled a contraction.
The Caixin manufacturing purchasing managers index rose to 50.7 in November from 49.5 in October, according to data released Friday by Caixin Media Co. and S&P Global.
Don't Mind the Geopolitics. The Case for International Investing Is Strong.
About the author: Alexander Torrens is the head of Walter Scott North America, a global equity portfolio manager and an investment firm of BNY Mellon Investment Management.
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12-01-23 0612ET
