Round up of today’s market news

North American News

Market Momentum Sustained as Major Indices Secure Fourth Consecutive Week of Gains; Closing Bell Rings with Mixed Performance Across the Board

• Nasdaq down marginally today and Dow is higher. S&P near unchanged on the day

The major US indices are closing mixed on the day with the Dow leading the way higher.The broader S&P is little changed, while the tech-heavy Nasdaq is down marginally.

The final numbers are showing:

• Dow Industrial Average is up 117.12 points or 0.33% at 35390.14
• S&P is up 2.70 points or 0.06% at 4559.33
• Nasdaq is down -15.01 points or -0.11% at 14250.84

The Russell 2000 closed the day up 11.95 points or 0.67% at 1807.50.

For the trading week, the major indices are closing higher for the 4th consecutive week:

• Dow industrial average rose 1.27%. The 4 week gain has taken the price up 9.2%
• S&P rose 1.0% this week. The 4-week gain has taken the price up 10.73%
• Nasdaq rose 0.89% this week. The 4 week gain has taken the price up 12.29%

S&P Global flash Manufacturing PMI for November 49.4 vs 49.8 estimate

• S&P Global PMI data for November 2023

• Prior PM Mfg 50.0
• Flash Manufacturing PMI 49.4 vs 49.8 estimate
• Flash services PMI 50.8 vs 50.4 estimate ant 50.6 last month
• Composite 50.7 unchanged from last month 50.7.

From S&P Global:

In November, US businesses experienced a marginal expansion in output, similar to the growth rate seen in October. Both manufacturers and service providers saw a slight increase in activity. Total new orders returned to growth after three months of contraction, but demand conditions for manufacturers remained unchanged.

As a result of subdued demand and decreasing backlogs, companies reduced their workforce for the first time since June 2020, affecting both service providers and goods producers. Cost pressures eased, with input prices rising at the slowest rate in over three years. However, higher service sector output charges contributed to an increase in overall selling price inflation, although manufacturers experienced a slower rise in factory gate charges in November.

Commenting on the data, Siân Jones, Principal Economist at S&P Global Market Intelligence said:
“The US private sector remained in expansionary territory in November, as firms signalled another marginal rise in business activity. Moreover, demand conditions – largely driven by the service sector – improved as new orders returned to growth for the first time in four months. The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates. Business uncertainty was also heightened among US firms, as expectations regarding the year-ahead outlook slipped to the weakest since July.

Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought.“On a more positive note, input price inflation softened again, with cost burdens rising at the slowest rate in over three years.The impact of hikes in oil prices appear to be dissipating in the manufacturing sector, where the rate of cost inflation slowed notably. Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”

ON EMPLOYMENT:

• In November, US companies saw a decline in employment, the first in nearly 3.5 years.
• The decrease affected both the service sector and manufacturers.
• Causes cited for layoffs included subdued demand, high cost pressures, and hiring freezes due to margin concerns.
• Diminishing levels of unfinished business also contributed to the workforce reduction.
• Backlogs of work had been declining for seven consecutive months in the final quarter of 2023.
• Both goods producers and service providers experienced faster contractions in incomplete business, mainly due to reduced operating capacity pressure.

ON INFLATION:

• Margin pressures eased in the private sector.
• Companies raised selling prices more quickly.
• Cost inflation rate slowed for the second consecutive month.
• Input prices continued to rise but at the slowest pace since October 2020.
• Some firms noted lower energy and raw material costs.
• Workforce reduction also contributed to easing cost pressures.
• Manufacturers saw a notable slowdown in input price inflation.
• Service sector firms led a faster rise in overall selling prices in November.
• Manufacturers had the slowest increase in factory gate charges since August.
• The aim was to drive new sales and maintain competitiveness.

RBC Capital Markets predicts a record high for the S&P 500 in 2024, bull case circa 5300

• Drivers will be optimistic sentiment, valuations, lower inflation, resilient labour market

RBC Capital Markets forecasts a record high for the S&P 500 in 2024, citing:

• sentiment is constructive for now
• valuations can stay higher than many investors realise
• declining inflation should act as a tailwind for price to earnings multiples
• labour market resilience indicates economy should avoid recession
• targets 5,000 level (and with a bull case of 5300) which is the median of five different models used by the analysts at RBC, taking into account sentiment, valuations, earnings, the economy, politics, and the cross-asset dynamic between stocks and fixed interest

Caveats noted:

• the US presidential election will be a source of uncertainty
• a slower economy expected in 2024 through 2025 is the biggest headwind to equity market performance

US news – Volkswagen announced an 11% salary hike for production workers

• In the wake of UAW wage wins and other automakers hikeing wages

ICYMI – Volkswagen will hike salaries for production workers at its US Tennessee-based Chattanooga assembly plant by 11%.

The move comes in the wake of the United Auto Workers union hammering out deals for significant pay and benefit hikes from the Detroit Three automakers.

Other non-union automakers in the US have since come under increased pressure to improve pay and benefits.

Honda and Toyota have raised wages for non-union U.S. factory workers, as has Hyundai. The news hit just prior to the Thanksgiving holiday. and points to inflation in the US may taking longer to come to target.

Canada retail sales for September 0.6% vs 0.0% estimate

• Canadian September retail sales data and October advance report

• Prior month -0.1% (they were expecting -0.3%)
• The September advance estimate was 0.0%
• Retail sales for September 0.6% vs 0.0% est.
• Ex auto 0.2% vs -0.2% est.
• Prior month ex auto, +0.1%
• Ex auto and gas -0.3%% vs -0.3% last month
• October advanced estimate 0.8%
• Retail sales were up in 4 of 9 sectors led by increases in motor vehicle and parts dealers (+1.5%)
• Also contributing to the increase in retail sales in September were higher sales at gasoline stations and fuel vendors (+3.2%).In volume terms, sales at gasoline stations and fuel vendors increased 2.3%.

Statistics Canada has released an advance estimate of retail sales for October, indicating a 0.8% increase. However, this figure is subject to revision as it is based on early data from only 48.7% of the surveyed companies.The average final response rate for this survey over the past year was 88.6%.

Commodities

Silver sees late jump on Friday, touches 12-week high at $24.30

• Spot Silver is surging late on Friday, tests 12-week high.
• Silver pings $24.30 as Silver rebounds, following broad-market risk sentiment higher.
• Metals are pushing higher with the NY market set for an early close.

Silver tapped $24.30 in the back half of Friday’s trading, testing Silver’s highest bids in almost 12 weeks. Market sentiment is testing higher heading into the trading week’s close, and markets are set to see an early drop in trading volumes.

Gold find’s demand after mixed S&P PMIs,US Dollar weakness

• Gold sees a boost, ascending to the $2000 level.   
• The US Dollar weakened after mixed S&P PMIs.
• Higher US yields may limit the upside of the metal.

The yellow metal is finding traction in Friday’s session, capitalising on mixed S&P PMIs and a weakening US Dollar. The pair, commonly recognised as the price of gold in US dollars, is exchanging hands, trading towards $2,000 and seeing 0.30% gains. 

In early November, economic activity within the US private sector displayed slight growth, as indicated by the S&P Global Composite PMI, which maintained its position at 50.7.However, the Manufacturing PMI experienced a decline, falling to 49.4 from 50.0 in the same period, placing it in contraction territory.On the other hand, the Services PMI saw a modest improvement, rising to 50.8 from 50.6.Notably, employment in the US service and manufacturing sectors decreased in November for the first time since mid-2020, influenced by sluggish demand and elevated costs. 

Brent Oil: Failure to cross $84 could mean one more leg of decline – SocGen

Oil prices have recovered from the lows. Economists at Société Générale analyze Brent’s outlook.

Overcoming recent pivot high near $84 essential for confirming an extended rebound

Brent decline has stalled near the lower limit of a multi month channel at $76.60 which is also the 76.4% retracement from March. A short-term bounce has led it towards the 200-DMA. Flattish slope of the MA denotes lack of clear direction. 

Overcoming recent pivot high near $84 would be essential for confirming an extended rebound. Failure to cross could mean one more leg of decline towards $76.60 and perhaps even towards next projections at $74.10/$73.30.

EU News

European indices close marginally higher on the day/week

• Small gains for the week

The major European indices are closing the day marginally higher:

• German Dax, +0.22%
• France CAC, +0.20%
• UK FTSE 100, +0.06%
• Spain’s Ibex, +0.34%
• Italy’s FTSE MIB, +0.68%
• Euro Stoxx, +0.30%

For the trading week, Spain’s Ibex led the upside, while the UK FTSE 100 and Italy’s FTSE MIB closed lower for the week:

• German Dax, +0.69%
• France CAC, 0.81%
• UK FTSE 100, -0.21%
• Spain’s Ibex, 1.82%
• Italy FTSE MIB -0.24%

UK GfK Consumer Confidence data for November comes in at -24, beating even worse estimates

• Improving but still very net negative

UK GfK Consumer Confidence data for November comes in at -24

• expected was -28, prior -30
• six-point increase was the biggest month-on-month improvement since March to April

Joe Staton, GfK’s client strategy director:

“Recent ups and downs in confidence have underlined the nation’s topsy-turvy economic mood as encouraging news about falling inflation and wage growth is offset by high personal taxation, alongside costly fuel and energy bills”

Germany November Ifo business climate index 87.3 vs 87.5 expected

• Latest data released by Ifo – 24 November 2023
• Prior 86.9
• Current conditions 89.4 vs 89.5 expected
• Prior 89.2
• Expectations 85.2 vs 85.7 expected
• Prior 84.7; revised to 84.8

Germany Q3 final GDP -0.1% vs -0.1% q/q prelim

• Latest data released by Destatis – 24 November 2023

No changes to the initial estimate and this confirms that the German economy is bound for a recession as Q4 growth is also set to contract, albeit perhaps less worse than anticipated in the months before this.

ECB’s Lagarde: We have already done a lot on rates, can now observe

• Lagarde preaches wait-and-see mode in her latest remarks today

• The battle against inflation is not over
• We are not declaring victory yet
• We are seeing progress on inflation

BOE’s Pill: We cannot afford to ease off tight monetary policy

• Remarks by BOE chief economist, Huw Pill, to the FT

• UK monetary policy was in a difficult phase amid “stubbornly high” price pressures
• Had to resist temptation to declare victory on inflation battle as October print remains high
• There’s slower growth in activity and employment
• Key indicators that BOE are focusing on i.e. services inflation, pay growth remain at “very elevated levels”
• The challenge is to ensure that there is enough persistence in restrictive monetary policy to bring inflation down

ECB’s Holzmann: The chances of another rate hike is no smaller than that of rate cuts

• Remarks by ECB policymaker, Robert Holzmann

• We still have high inflation pressures
• There are differing expectations within the ECB in terms of what can yet happen
• That is influenced to a point by how high inflation is in each country
• My suggestion on PEPP would be to reduce reinvestments step by step starting from March

Other News

China confirms appointment of Zhu Hexin as forex regulator chief

• An announcement made by the State Administration of Foreign Exchange (SAFE)

This was already expected from the news earlier this week. And Zhu will also be appointed to the Chinese central bank committee as such, as he takes up the above post. He will be replacing Pan Gongsheng in the new role, with Pan still heading the PBOC.

Wall Street Journal on new, more hawkish, Reserve Bank of Australia Governor Bullock

• As the RBA emphasizes its intolerance for persistent inflation

A piece in the Wall Street Journal argues that new Reserve Bank of Australia Governor Bullock is more hawkish than previous Governor Lowe.

Says the article (in very brief):

• a new era of hawkishness that could fuel a series of rate hikes next year
• RBA Governor Michele Bullock … has moved to signal quite forcefully that the risks around inflation going forward are still considerable
• The RBA is now indicating … increasingly it feels as if its tolerance for any persistence in the inflation data will see it hike further

National Australia Bank expecting a rate hike at the February 5-6 meeting in 2024, right after the update to official quarterly inflation on January 31 from the Australian Bureau of Statistics.The Journal piece on this:

• There’s growing attention on the first policy meeting for next year in February, when the RBA will have seen fourth-quarter inflation data. Any hint of disappointment in the CPI will likely spur further tightening

Australia news ICYMI – Workers on BHP’s iron ore railway drop plans for industrial action

• The rail system carries about 300 million tonnes of iron ore from mine to port annually

Iron ore is a key (the #1) Australian export.Earlier this week news crossed of planned industrial action that would have impacted exports:

• Australia – iron ore transport – train drivers to take industrial action
• The drivers operate trains taking iron ore from BHP’s Pilbara mines near Newman to Port Hedland
• The rail system carries about 300 million tonnes of iron ore from mine to port annually

Media reports in Australia overnight now indicate that plans for action have been paused.

New Zealand Q3 retail sales 0.0% change q/q (expected -0.8%)

• The better than expected result is lifting NZD/USD just a few tics

Retail sales data from New Zealand for Q3 of 2023

• 0.0% q/q
• expected -0.8%, prior -1.8%

For the y/y -3.4%

• prior -3.5%

excl autos +1% q/q

• expected -1.5%, prior -1.6%

RBNZ meet next week, expected to hold the cash rate steady despite high & sticky inflation

• At 5.6% y/y the CPI is way above the Bank’s 1-3% target range.

The Reserve Bank of New Zealand meet next week, Wednesday November 29 with the announcement due at 2pm local time

• 0100 GMT
• 2000 US Eastern time on Tuesday

The market consensus is that the Bank will hold its cash rate at 5.50% for the fourth consecutive meeting.Despite inflation remaining well above the Bank’s 1-3% target range at 5.6% y/y for the latest reading.

ANZ:

• “We expect the Reserve Bank to carefully leave all its options open and stress the next move in rates could be up or down and they’re in data-dependent mode
• Given the most recent data, they’re probably a little less worried than they were. But there is still a long way to go, and the Reserve Bank will be very aware that the job is far from done.”

New Zealand government formed, Foreign and Finance Ministers announced

• The new finance minister has promised changes at the Reserve Bank of New Zealand

New Zealand National, NZ First and ACT parties sign a coalition agreement to form government

• Winston Peters appointed as New Zealand Deputy Prime Minister for half of the three-year parliamentary term; David Seymour will be Dep PM for the second half
• Winston Peters appointed as New Zealand Foreign Minister
• Nicola Willis to be appointed NZ Finance Minister

Japan October inflation data remains well above the BOJ’s 2% target

• The upcoming Spring 2024 wage negotiations will play a vital role in determining the future policy direction

• Japan headline CPI: 3.3% y/y
• Expected 3.4%, prior 3.0%

CPI excluding fresh food 2.9% y/y, higher than the previous for the first time in 4 months

• expected 3.0%, prior 2.8%
• above the 2% target for 19 months now

CPI excluding fresh food & energy 4.0% y/y

• expected 4.1%, prior 4.2%

Japan preliminary November PMIs: Manufacturing 48.1 (expected 48.8)

Preliminary Jibun / S&P Global PMIs from Japan for November 2023.

Manufacturing 48.1, its 6th consecutive month in contraction

• expected 48.8, prior 48.7
• output and new orders fell further
• employment in the sector fell after falling also in October
• muted demand cited
• input price inflation hit a 27 month low but remains elevated – rising raw material, fuel and labour costs as well as a weak yen all cited

Services 51.7

• prior 51.6
• 51.7 is the second lowest for this for 2023

Composite 50.0

• prior 50.5

Japanese inflation remains above the BOJ’s target, sparking speculation of a policy change

• But the Bank keeps telling us its awaiting Spring wage negotiations before any rate pivot.

• core consumer price growth (CPI which excludes volatile fresh food costs) picked up slightly in October, after easing the previousmonth
• core consumer price growth is above the BOJ’s 2% target for 19 consecutive months
• the narrower measure of inflation (the core-core index that excludes fresh food and fuel costs) rose 4.0% in the year to October, staying above 4.0% for its seventh straight month)

SMBC Nikko Securities are looking for a BOJ pivot in April next year:

• “expect the central bank to end negative interest rates and remove yield control as early as in April when they see the results of labour-management wages talks and the ongoing move among companies towards passing on costs”

Cryptocurrency News

Bitcoin trades to the highest level since May 2022

• Trades to a high of $38500

The price of bitcoin has extended to the highest level since May 2022. The high reached $38408 before correcting back below $38000.

Examining the daily chart, the digital currency’s price demonstrated a noteworthy development by surpassing the 38.2% retracement level from its peak of $69,000 in 2021, reaching $35.924 three weeks ago and maintaining this position for the majority of the current week. The fact that the price has not only breached but sustained itself above this level indicates a pivotal shift in market dynamics. It establishes a crucial support level, now serving as a close risk level with the recent extension.

The significance lies in the interpretation that trading above the 38.2% retracement on either a short or long-term chart signifies an increased influence of buyers in the market.

ECB’s Lagarde says her son lost almost all of his investments in cryptocurrencies

• An interesting admission by Lagarde but it fits with her long-standing stance against the crypto market

Lagarde said that her son “ignored me royally, which is his privilege”. And that he “lost almost all the money that he had invested”.

“It wasn’t a lot but he lost it all, about 60% of it. So when I then had another talk with him about it, he reluctantly accepted that I was right.I have, as you can tell, a very low opinion of cryptos.People are free to invest their money where they want, people are free to speculate as much as they want, (but) people should not be free to participate in criminally sanctioned trade and business.”

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