Now what?

Global market indices
Currencies
Cryptocurrencies
Fixed Income
Commodity sector news
Key data to move markets this week
Global macro updates

US Stock Indices

Nasdaq 100 +3.80% MTD and +51.32% YTD
Dow Jones Industrial Average +4.47% MTD and +13.31% YTD
NYSE +2.77% MTD and +8.89% YTD
S&P 500 +3.78% MTD and +23.47% YTD

The S&P 500 registered its biggest one-day drop in three months and the Nasdaq Composite ended a nine-day winning streak on Wednesday as investors pulled back due to the market being perceived as overbought and potentially overvalued.

 

Mega caps: A mixed week for the “magnificent seven” mega caps with Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia are all up, while Apple and Tesla are down. Apple suffered this week from concerns over a patent infringement case over the technology that enables the blood oxygen feature on some of its devices. It was forced to stop selling its Series 9 and Ultra 2 smartwatches in the United States while it awaits the outcome of a presidential review by 25 December. The President has the power to veto the International Trade Commission (ITC) “limited exclusion order” that threatened a ban on the import of these devices. If the ban is not vetoed, the ban on the sale of these watches would go into effect on 26 December.

Energy stocks had a mixed week as the energy sector performance was up, but continuing concerns about over supply in 2024, rising tensions in the Red Sea and the potential cost associated with re-routing, and slowing economic growth in China appeared to have weighed on markets. Occidental Petroleum, Chevron, Shell, Marathon Petroleum, Baker Hughes, Phillips 66, ConocoPhillips, and Halliburton are all up, while ExxonMobil, Apa Corp (US) and Energy Fuels are down. ExxonMobil was granted the right to develop the Hebron oil field by the Canadian province of Newfoundland and Labrador and the national petroleum development regulator. As noted by Rigzone, the inclusion of the new sands to the development plan adds 165 million barrels of proven and probable reserves, according to an estimate by the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB).

Materials and Mining stocks had a mixed week as copper and aluminium edged up. The materials sector is slightly up overall this week. Yara International, Mosaic, Albemarle Corporation, and Freeport-McMoRan are down, CF Industries Holdings, Nucor Corporation, and Sibanye Stillwater are up and Newmont Mining is relatively flat on the week.

European Stock Indices

Stoxx 600 +3.54% MTD and +12.49% YTD
DAX +3.19% MTD and +20.18% YTD
CAC 40 +3.73% MTD and +17.14% YTD
IBEX 35 +0.43% MTD and +22.75% YTD
FTSE MIB +2.10% MTD and +28.07% YTD
FTSE 100 +3.51% MTD and +3.54% YTD

Other Global Stock Indices 

MSCI World Index +3.96% MTD and +19.24% YTD
Hang Seng -2.52% MTD and -16.01% YTD

Currencies

The US dollar fell about 0.1% this week as traders focused on the perceived dovish pivot by the Fed last week before rising on Wednesday as its appeal as a safe-haven rose following the continued attacks in the Red Sea by Yemen’s Iranian-backed Houthi Rebels. The GBP is +0.09% MTD and +4.43% YTD against the USD.  The dollar strengthened against the pound on Wednesday after UK inflation fell to 3.9%, below market expectations of 4.4%. This led to increased speculation of interest rate cuts by the Bank of England by May with some investors giving a nearly 50% chance of a cut by March.

The EUR is +0.48% MTD and +2.21% YTD against the USD. Bundesbank President and ECB policymaker Joachim Nagel said in an interview published on Wednesday that eurozone interest rates must remain high and traders betting on upcoming cuts in borrowing costs should be careful.

Cryptocurrencies

Bitcoin +15.06% MTD and +161.94% YTD
Ethereum +6.47% MTD and +81.74% YTD

Bitcoin has risen over 160% this year on growing expectations that a spot ETF will be approved by the 10 January deadline by the US Securities and Exchange Commission (SEC) and on the prospect of lower interest rates. According to Etf.com, firms such as BlackRock and ARK are updating their filings to specify that their ETF redemption models will use cash redemptions, as the SEC seems to be requiring cash redemption models for the funds, which would be the first to track physically backed bitcoin as opposed to bitcoin futures contracts.

Fixed Income

US 10-year yield to 3.86%.
German 10-year yield to 1.97%.
UK 10-year yield to 3.53%.

Yields continued to fall this week with US 10-year Treasury yields falling to an almost five-month month low on Wednesday. Although Fed officials remain cautious about the possible timing of cuts in 2024, with a number of Fed policymakers, including San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin, Chicago Fed President Austan Goolsbee, Cleveland Fed President Loretta Mester, and Fed New York President John Williams, suggesting it was premature to speculate about rate cuts, it is clear that the market anticipates rate cuts. According to the CME FedWatch tool, the market expects an 80% chance of Fed rate cut by March.

Yields across the eurozone have also continued to fall as inflation in Europe has fallen sharply with the yield on German 10-years, the eurozone benchmark, falling to its lowest level in 9 months and the Italian 10-year falling to its lowest since August 2022. Investors expect more than 150 bps worth of interest rate cuts from the ECB next year. UK gilts also saw a dramatic drop on Wednesday following the news that inflation fell to 3.9% y/o/y in November, down from October’s 4.6% and the lowest since November 2022.

Commodities

Spot Gold to $2,031.39 per ounce.
Spot Silver to $24.15 per ounce.
West Texas Intermediate crude to $74.22 a barrel.
Brent crude to $79.20 a barrel.

Gold was slightly up on the week due to a softer dollar and lower Treasury yields. If US GDP and PCE data due this week reinforces the view that the Fed will begin to cut rates by the end of Q1 2024, then gold will gain as that will likely lead to dollar softening. However, if the data is stronger than expected, then the Fed is likely to keep rates higher for longer, having a negative impact on gold prices.

Oil rose this week as investors worried about potential disruptions as shipping lines seek to stay clear of the Red Sea due to attacks by Yemen’s Iranian-backed Houthi rebels. However, price rises were tempered by concerns over low demand as US crude inventories continue to rise. The US Energy Information Administration (EIA) said on Wednesday that US crude inventories rose by 2.9 million barrels in the week to 15 December. The EIA also said crude output rose to a record 13.3 million barrels per day (bpd) last week, up from the prior all-time high of 13.2 million bpd.

Note: As of 5 pm EST 20 December 2023

Key data to move markets this week

EUROPE
Friday: Spanish GDP.

UK
Friday: Retail Sales and GDP.
Tuesday: Markets Closed for Boxing Day.

US
Thursday: GDP, Initial Jobless Claims, Personal Consumption Expenditure Prices, and Philadelphia Fed Manufacturing Index.
Friday: Core Personal Consumption Expenditures Price Index, Personal Spending, Durable Goods Orders, Nondefense Capital Goods Orders, Personal Income, UoM 5-year Consumer Inflation Expectations, Michigan Consumer Sentiment Index, and New Home Sales Change.
Tuesday: Housing Price Index
Thursday: Initial Jobless Claims and Pending Home Sales.

Global Macro Updates

Optimism rises across the board for US consumers. US consumer confidence rose in December for the third consecutive month and recession fears diminished. The Conference Board’s Consumer confidence index rose to 110.7 in December from a revised 101 reading in November. Additionally, consumers’ “perceived likelihood of a US recession” during the next 12 months fell to its lowest level all year. Consumers saw better business conditions, incomes and labour-market prospects ahead. Expected inflation a year ahead fell to the lowest level since late 2020.“ Dana Peterson, chief economist at the Conference Board, said in a statement, “December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labour market, and personal income prospects over the next six months.”

EU strikes budget deal. After two years of negotiations the EU finally reached a deal that will allow for greater flexibility for fiscal adjustments, while introducing safeguards to ensure common debt reduction and the building up of buffers to absorb future shocks. Previously EU members were expected to keep their maximum debt to 60% of GDP and public deficits to 3%. This rule was temporarily loosened during the Covid pandemic to allow greater state spending. However, it resulted in a two year debate between countries led by Germany that wanted a return to stringent controls, and others, led by France, that wanted more flexibility. According to Reuters, the new rules would allow interest payments to be excluded from how much a country must reduce its deficit each year, which in effect frees up funds for investment. The new fiscal rules will, as noted by Bloomberg news, also grant member states some leeway on military spending as Russia’s invasion of Ukraine has brought defence to the top of the priority list. By investing in common EU priorities, including the green transition and digital and defence industries, a country now has seven years, up from the previous four years, to balance its public accounts.

The UK’s inflation surprise. UK headline inflation came in well below expectations on Wednesday, falling to 3.9% on a year-on-year basis in November from October’s 4.6%. The Office for National Statistics (ONS) said that falling petrol prices were largely behind the drop in inflation. Despite the fall, UK inflation is still higher than in the US or eurozone, where it stood at 3.1% and 2.4% respectively in November. Investors moved to price in two quarter-point rate cuts by the Bank of England for the first half of next year, with the first potentially coming as soon as March. However, the labour market may continue to be a problem for the BoE. Although the labour market is cooling, the BoE will likely continue to worry that labour shortages will keep wage growth high and make it hard to get inflation back to its 2% target. BoE Governor Andrew Bailey has warned markets that they were underestimating the persistence of UK inflation and that it is too early to discuss rate cuts. 

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