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North American Morning Briefing: November Rally Pauses Ahead of This Week’s PCE Report

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Latest News
November 28 2023 04:04AM

Market Wraps

Watch For:

S&P CoreLogic Case-Shiller Home Px Index for September; Conference Board — Consumer Confidence for November

Today’s Top Headlines/Must Reads:

– The Stocks That AI Mania Left Behind

– Advertising Is Dead. Long Live Advertising.

– Microsoft Needs a Better Seat at OpenAI’s Table

Opening Call:

Stock futures wavered on Tuesday as the November rally took another pause for breath.

With prospects for Federal Reserve policy still foremost in investors’ minds, the looming PCE inflation report for October may be encouraging trader reticence, Hargreaves Lansdown said.

“Subdued sentiment is hanging around with investors keeping their powder dry ahead of a key inflation report in the U.S., while the impact of elevated interest rates on economies is still being assessed,” it said.

Overseas Markets

Europe’s Stoxx 600 was lower as healthcare and food and drink stocks weighed, and Japan’s Nikkei 225 closed down 0.1%, while mainland Chinese markets were higher.

Premarket Movers

Carlyle Group is set to join the S&P MidCap 400 index, S&P Dow Jones Indices said late Monday. The change will force funds that track the index to buy Carlyle shares. The stock rose about 6%.

iRobot rose 1.5% in premarket trading after tumbling 17% on Monday following a “statement of objections” from the European Commission to the company’s pending deal to be acquired by Amazon.com.

Zscaler fell nearly 6% in premarket trading. It reported a quarterly loss late Monday. Competitor CrowdStrike Holdings was down 1.4%.

Monday’s Post-Close Movers

Acelyrin said there was a programming error in its drug trial of a treatment for psoriatic arthritis. Shares dropped 9%.

iBio announced a 20-to-1 reverse stock split. Shares declined 8.6%.

Forex:

The dollar should fall further if consumer confidence data is weaker than expected, potentially lifting EUR/USD to 1.10, Commerzbank said.

“Anything that suggests that a recession is looming and that Fed Funds might soon fall again, seems to be taken as an opportunity to trade the dollar weaker.”

There is little chance of the dollar recovering even in the event of surprising strong data as “the risks are asymmetrical – to the dollar’s disadvantage,” Commerzbank said.

Lombard Odier said the dollar is expected to remain supported against other major developed market currencies in the coming months.

This would see the euro moving toward the bottom of a 1.00-1.10 range versus the USD in 1H 2024. However, lower U.S. yields and a global growth recovery could eventually shift the dollar lower in 2H 2024, it added.

Among other currencies Lombard Odier continues to favor the Swiss franc, is more neutral on the euro, and remains cautious on sterling.

Bonds:

The higher interest-rate base gives bonds with good credit ratings a new justification in a mixed portfolio, as they now offer an adequate return and also act as a portfolio stabilizer, Eyb & Wallwitz said.

“Interest rate cuts from the middle of next year will lead to a further decline in yields on government and investment grade bonds, which is why we are sticking to the duration build-up that has already taken place,” it said.

A renewed rise in core inflation is a key risk for bonds in 2024, however.

Energy:

Oil prices edged higher on a weaker dollar and growing expectations of deeper output cuts at the upcoming OPEC+ meeting on Thursday.

“If OPEC+ want to provide more solid support to the market and ensure that we do not see stocks building early next year, they will need to agree on deeper and broader cuts,” ING said.

Yet, “with aggressive cuts already in place, it does leave one wondering the degree to which the group could surprise the market with deeper-than-expected cuts.”

Metals:

Base metals and gold prices were little changed, with the macroeconomic sentiment neither pushing prices one way or the other.

“Stock markets and the dollar still believe in the dovish Fed, but Crude Oil and forward-looking inflation expectations are bracing for softer demand and lower global growth,” Peak Trading Research said.

Peak added that commodity markets will be looking ahead to Thursday, with OPEC+ due to meet to discuss oil output, while the U.S. PCE inflation reading is also due.

Today’s Top Headlines

Fast-Fashion Giant Shein Files to Go Public

Shein, the China-founded online fashion company that won over hundreds of millions of shoppers around the world, has confidentially filed to go public in the U.S. in what could be one of the biggest IPOs in years.

Goldman Sachs, JPMorgan Chase and Morgan Stanley have been hired as lead underwriters on the offering, which could happen in 2024, people familiar with the matter said.

5 Oil & Gas Companies on the Brink of Big Earnings Growth

Energy stocks have been the worst performers in the market over the past three months as oil prices have fallen.

Crude dropped on Monday for the fourth day in a row, but earnings could be the key to the stocks’ rebound.

PBOC Governor Calls for More Efforts to Transform China’s Economy

China’s central bank governor warned against continuing to rely on infrastructure and real-estate sectors, and pointed to the need to nurture new growth drivers as Beijing looks to chart a new path for the world’s second-largest economy.

Though “the traditional model of relying heavily on infrastructure and real estate might generate higher growth,” it delays structural adjustment and undermines the sustainability of economic expansion, People’s Bank of China Gov. Pan Gongsheng said in a keynote speech Tuesday at a financial conference in Hong Kong.

Black Friday online spending reaches record levels, but Wall Street is not impressed

Online spending on Black Friday reached record levels, and Cyber Monday is expected to be the biggest online shopping day ever, as inflation-fatigued shoppers zero on in the biggest holiday discounts.

But even amid signs of better demand after two years of holiday-season disruptions, Wall Street’s reservations, particularly around physical stores, remain intact, and one analyst said it was wise to keep “muted expectations” for the period.

S&P 500 may rise 10% by end of 2024 amid worries that small-cap stocks ‘can’t hack’ higher rates, says BofA

U.S. stocks will probably keep climbing next year, with S&P 500 companies in a stronger position to adapt to higher interest rates than smaller ones, according to BofA Global Research.

BofA is forecasting that the S&P 500 will end 2024 at 5,000, which is up about 10% from the index’s closing level Monday at 4,550.43. The S&P 500 SPX, which tracks U.S. large-cap stocks, has far stronger gains in 2023 than the small-cap-focused Russell 2000 index.

Bitcoin Prices Slip but ‘Momentum Is Mounting.’ Where Cryptos Can Go Next.

Bitcoin and other cryptocurrencies slipped Tuesday, retreating from recent highs, but crypto traders remain bullish on the latest rally in digital assets with fundamentals and technicals alike fueling bullish sentiment.

The price of Bitcoin has fallen 1% over the past 24 hours to $37,100, with the largest digital asset falling further from an 18-month high notched last week above $38,000, the zenith of a rally that has carried prices more than 30% higher since early October. Bitcoin’s gains largely have come amid optimism that U.S. regulators will soon approve the first spot Bitcoin exchange-traded fund (ETF), a move that is widely expected to usher in a fresh wave of investor interest in cryptos.

Russian Court Extends Detention of WSJ Reporter

A Russian court ruled to extend the detention of Wall Street Journal reporter Evan Gershkovich for a third time since he was taken into custody in March on an allegation of espionage that he, the Journal and the U.S. government vehemently deny.

The decision followed a judge’s ruling in August to grant the request of investigators from the Federal Security Service, or FSB, that Gershkovich remains behind bars awaiting trial until Nov. 30. Tuesday’s ruling lengthens his detention through at least Jan. 30, by which time he will have been held for 10 months.

Source: Dow Jones Newswires