North American News
Thanksgiving Serenity: US Trading Desks Take a Pause as Traders Indulge in Holiday Feasts
Today sees a very light calendar with no US data to be published.
S&P 500 should provide positive returns in 2024 – SocGen
2024 should be a decisive year for the S&P 500. Economists at Société Générale analyze the index outlook for the next year.
S&P 500 Index seen at 4,750 by end-2024
The S&P 500 should be in ‘buy-the-dip’ territory, as leading indicators for profits continue to improve. Yet, the journey to the end of the year should be far from smooth, as we expect a mild recession in the middle of the year, a credit market sell-off in 2Q and ongoing quantitative tightening.
The S&P 500 should provide positive returns in 2024 and we keep our end-2024 target that we launched last quarter unchanged at 4,750.
UBS predicts earlier than expected rate cuts as traders ignore central bankers
- UBS says bond traders are discounting central bankers’ messages about high rates
UBS remarks on the Federal Open Market Committee (FOMC) minutes.UBS assess that rate cuts will have to come sooner than the Fed is telling us.
UBS also remarks on three-year-olds trading Treasuries:
- Central bankers keep stressing rates will stay high—the Federal Reserve minutes signalled much the same message.
- Markets are not paying attention. There is a sense that central bankers are trying to manipulate the bond market vigilantes—but bond traders are like three-year olds at a party who are high on sugar and will not be controlled.
- Investors are increasingly looking at the disinflationary details of advanced economy consumer prices and speculating on rate cuts having to come sooner.
SpaceX, Musk’s company, reportedly planning to sell shares at a $150bn valuation in December
- Planning to launch a tender offer in December
Media reports that SpaceX plans to sell shares next month at US$150bn valuation
- Elon Musk’s company SpaceX planning to sell shares next month
- planning to launch a tender offer in December
- the company’s satellite-launching Starlink unit has reportedly struggled to meet profit goals despite rampant growth — is
Info comes via the New York Post, which is not widely viewed as financial media
Commodities
Gold sees modest gains amid US holiday
- Gold price edges up 0.14%, as US markets close for Thanksgiving, creating thin trading conditions.
- Gold finds support from declining US Treasury yields, maintaining its position in the $1990-$2000 range.
- Upcoming S&P Global PMIs could provide further direction for Gold traders in a market assessing the Fed’s tightening stance.
Gold price advanced moderately on Thursday due to thin liquidity conditions spurred by US markets remaining closed during Thanksgiving. At the time of writing, the yellow metal is trading at $1992, gaining 0.14%, after hitting a daily low of $1989.56.
Crude Oil sees rough trading on Thursday, WTI grappling with $76
- Crude Oil barrels are consolidating as energies markets weigh OPEC angst.
- Disagreement over quotas led to a delay in a scheduled OPEC meeting.
- Mismatched production quota desires within OPEC is crimping energy risk sentiment.
OPEC disagreement on quotas causes meeting delay, Crude Oil traders get nervous
Saudi Arabia, one of the largest players on the OPEC board, has been aggressively pursuing production cuts across the oil cartel’s member states in order to bolster Crude Oil prices.The UAE was provided additional quota capacity in OPEC meetings last year to the detriment of several smaller OPEC states, mostly in Africa, who saw their production caps tightened even further in order to grant the UAE additional production capacity.
World’s biggest producer of newly mined gold will adhere to anti-money laundering laws
- Compliance issues were identified at Australia’s Perth Mint.
Australia’s Perth Mint is the world’s biggest producer of newly mined gold.
It confirmed this week that it had entered an enforceable undertaking with the Australian financial intelligence agency AUSTRAC to fully adhere to anti-money laundering laws.
This came after an external audit found compliance issues.
Info via Reuters
OPEC+ confirms the next meeting will be on November 30
- Virtual meeting scheduled
The OPEC+ will indeed take place on November 30 – postponed from November 26th.Despite the announced meeting, the sellers remain in control.
Oil prices are down by over 1% currently, continuing their losses from the previous session.The drop came after OPEC+ postponed their meeting, raising concerns that oil producers might implement smaller output cuts than previously expected. The delay was reportedly linked to smaller African producers within the group, easing some investor concerns. The uncertainty surrounding OPEC+ supply decisions coincided with data yesterday showing a significant increase in U.S. crude stocks by 8.7 million barrels yesterday much higher than the 1.16 million barrel expected.
OPEC technical panel heard a concerning bearish outlook for the oil market
An OPEC technical panel (Economic Commission Board (ECB)) was given a presentation by an invited financial market group. The Onyx Capital Group owns trading arm, Onyx Commodities, which, so it says, is the world’s biggest market maker by volume across oil swaps.
Reuters reports that the presentation painted a bearish outlook for the oil market:
- “Market sentiment had been fragmented for much of this year, but the evidence is that there has been a recent shift in collective sentiment to bearish as we head towards the end of the calendar year,” one of the presentation slides by Onyx Capital Group showed.
Onyx says it owns a dataset that analyses market positions to predict how the market behaves. On the sell-off in November:
- moved the oil market to a collective neutral-to-bearish sentiment
- commercial participants like oil producers and airlines joining financial speculators in seeing a weak outlook
- “aggressive moves were correlated with a weakening forward outlook for underlying crude and refined products market,”
- added that the oil market forward curve signalled the market expects supply of heavy crude, which several OPEC members produce, will likely come back next year, and inventories will start to rebuild
UK household energy bills set to rise as Ofgem raises price cap for next year
- On average, households will pay an extra £94 per year on energy bills
Ofgem just announced that they will be raising the price cap on what gas and electricity suppliers can charge customers, up from £1,834 to £1,928 starting from 1 January 2024. That is an equivalent of a 5% increase in price. And with the government not making mention of any further support to households on energy bills, this will put more pressure on the UK consumer in general.
EU News
European major indices close higher on the day
- Modest gains for each of the major indices
The major European indices are ending the day higher. The gains were modest.
A snapshot of the closing levels shows:
- German Dax, +0.23%
- France CAC, +0.24%
- UK FTSE 100, +0.19%
- Spain’s Ibex +0.18%
- Italy’s FTSE MIB, +0.28%
For the trading week, most of the indices are on pace for gains with Friday to go. The gains are led by Spain’s Ibex which is higher by 1.48%. The one exception is the UK FTSE which is down marginally:
- German Dax, +0.47%
- France CAC, +0.61%
- UK FTSE 100, -0.28%
- Spain’s Ibex +1.48%
Eurozone November flash services PMI 48.2 vs 48.1 expected
- Latest data released by HCOB – 23 November 2023
- Prior 47.8
- Manufacturing PMI 43.8 vs 43.4 expected
- Prior 43.1
- Composite PMI 47.1 vs 46.9 expected
- Prior 46.5
There are improvements across all sectors but the euro area economy continues to contract in November, albeit at a slower pace. That being said, employment conditions declined for the first time in almost three years and that is a concerning detail that the economic slowdown is starting to hit the labour market. Besides that, services inflation continue to be an issue as prices tick higher while manufacturing inflation remains in decline at least. HCOB notes that:
“The Eurozone economy is stuck in the mud. Over the last four to five months, the manufacturing and services sectors have both been experiencing a relatively constant contraction pace. Considering the flash PMI numbers for November in our nowcast model indicates the potential for a second consecutive quarter of shrinking GDP. This would align with the commonly accepted criterion for a technical recession.
“This is certainly not what the ECB likes to see. Despite the prevailing economic weakness, service providers continue to forge ahead with faster price increases in November, propelled by the astonishingly rapid and even accelerating increase in input costs. The latter can be mostly attributed to above average increases in wages, which play a major role in the services sector.
“The economic weakness, initially impacting industrial workers’ jobs by mid-2023, is now poised to reach the services sector jobs market. Employment growth in this domain has nearly come to a standstill. Anticipating a continued downward trend for the next few months, there is a possibility of an uptick in the unemployment rate, which has shown resilience thus far.
“Looking for positive news, the spotlight falls on new orders. While they continue to contract at a brisk pace, the latest decline was the softest in four months. Coupled with a modestly improved outlook for manufacturing activity in the next 12 months, one might find rays of hope gleaming on the horizon for the coming year.
“The top two economies of the Eurozone find themselves in the grip of considerable weakness, with a slight advantage favouring Germany in November. Signs of improvement emerge as the composite index in Germany increased, contrasting with a weakening trend in France. However, challenges loom for Germany as it struggles to deliver on public investments, following the constitutional court’s insistence on complying with the debt brake, potentially relegating Germany to the back seat in 2024.”
ECB accounts: All members agreed to maintain interest rates at current levels
- ECB releases the accounts of its October 2023 monetary policy meeting
- Members argued in favour of keeping the door open for a possible further rate hike
- The view was held that all three elements of the reaction function were moving in the right direction
- ECB should be ready for further rate hikes if necessary
- It could be expected that, based on the current outlook, inflation return to 2% target by 2025
- Members agreed to continue applying flexibility in reinvesting redemptions falling due via PEPP
- Discussion of an early termination of PEPP reinvestments currently seen as premature
- Most of the impact of past rate hikes had yet to materialise
- It was generally assumed that the “last mile” of bringing inflation back to target was the most difficult
Germany November flash manufacturing PMI 42.3 vs 41.2 expected
- Latest data released by HCOB – 23 November 2023
- Prior 40.8
- Services PMI 48.7 vs 48.5 expected
- Prior 48.2
- Composite PMI 47.1 vs 46.5 expected
- Prior 45.9
The euro is nudging higher as the German economy shows signs of improving prospects in November. The manufacturing recession is not worsening much more and there are recovery signals, which is much welcome for the ECB too. Overall, the economy is seen contracting at a slower pace this month, putting off any heavy recession calls. HCOB notes that:
“Christmas is nearing and so is some hope for the German economy. Despite remaining in recession territory, the rate of slowdown has eased noticeably. Particularly heartening is the robust increase across nearly all subindices. This collective upswing fuels our growing confidence that a return to growth territory is a plausible prospect, potentially materialising by the first half of the upcoming year.
“The November PMI numbers validate our assessment that Germany is currently in a recession, starting from the thirdquarter. But the recession may be shallower than expected. Feeding the current PMI figures into our Nowcast model reveals a 0.7% decline in GDP from October to December compared to the third quarter. This is an improvement from the previously projected -0.9%.
“In manufacturing there is a silver lining as the decline in new orders is tapering off. This is supported by both domestic and external orders. In addition, there’s a noteworthy slowdown in the reduction of stock of purchases, coupled with smaller cuts to new purchases.
“The service sector’s slowdown appears to be taking a milder trajectory. In November, the decrease in activity has shown signs of softening, and the decline in new business is notably less severe than in the previous month. Furthermore, a positive shift is observed as service providers have ceased reducing employment, marking a departure from the downward trend witnessed in the previous two months.
“Inflation remains alive and kicking, contrasting with wide held expectations.Input prices in the service sector surged rapidlyin November, surpassing the previous month’s rate. This has been mainly fueled by upward pressure on wages. Part of this increase is passed on to consumers, as service sector output prices are still increasing at an unusual high rate. With a rise in strike activities and some of the recent wage agreements hitting double digits, the outlook suggests that inflation is unlikely to experience a significant decrease in the coming months.”
France November flash services PMI 45.3 vs 45.6 expected
- Latest data released by HCOB – 23 November 2023
- Prior 45.2
- Manufacturing PMI 42.6 vs 43.1 expected
- Prior 42.8
- Composite PMI 44.5 vs 45.0 expected
- Prior 44.6
The French economy continues to stutter in November, with overall business activity contracting at a rather similar pace to the month before. The manufacturing index slumped further with output in the sector falling to its weakest in 42 months. Overall, softer demand conditions continue to take a toll on the French economy. HCOB notes that:
“The French economy is kind of in a dead-end. Output has declined for the sixth month in a row, especially precipitated by lower demand overall and from abroad. Both sectors’ activity levels – manufacturing and services – declined significantly in November. It looks as if geopolitical and economic uncertainty played a major role here, as this was mentioned by some companies as reason for the lack of new orders. Our nowcast model, which incorporates the latest PMI data, is pointing to a marginal decline in GDP growth.
“Services companies are struggling to get out of the mud. Lower activity levels, tighter financing conditions and lower demand are dragging on companies’ optimism. Although the corresponding PMI remained above 50, it is well below its longterm average. However, services companies were able to pass through higher input prices to their clients.
“Unemployment will likely rise in the coming months. Employment has dropped for the first time since late 2020 after a clear downward trend in recent months. Manufacturers are laying off workers while services companies are hiring at a slower pace. The downward trend in the PMI surveys was confirmed by official employment data by INSEE, which shows that the unemployment rate has risen for the past two quarters.
“The inflation threat remains at large. The latest PMI data indicate that prices are still rising sharply, suggesting that official inflation statistics could remain at higher-than-anticipated levels for longer than previously thought. Input prices rose again at basically the same sharp pace as last month, while output prices notch up again. The upwards move of the output prices index was driven by services companies. Overall, input price pressures remain strong, and considering the pass-through dynamics of input price inflation to customers, it implies that the upward trajectory of output prices may not have concluded.”
France November business confidence 97 vs 98 prior
- Latest data released by INSEE – 23 November 2023
- Prior 98
- Manufacturing confidence 99
- Prior 99
- Services confidence 100
- Prior 100
UK November flash services PMI 50.5 vs 49.5 expected
- Latest data released by S&P Global – 23 November 2023
- Prior 49.5
- Manufacturing PMI 46.7 vs 45.0 expected
- Prior 44.8
- Composite PMI 50.1 vs 48.7 expected
- Prior 48.7
UK business activity shows a marginal growth in November, the first in three months, as both services and manufacturing sector activity picked up on the month. That’s a welcome development for the economy in general, although there were renewed signs of inflation being more stubborn. S&P Global notes that:
“The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules. Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023.
“Prominently cited areas of strength were corporate budgets for technology investment and general spending on essential business services. Discretionary household spending remained a weak link, as many private sectorbusinesses noted low consumer confidence and cost-of-living pressures.Meanwhile, a number of firms reported falling demand due to construction sector cutbacks and post-pandemic customer destocking was still a headwind for the manufacturing sector.
“The survey’s forward-looking indicators suggested thatrecession risks will likely remain elevated into the NewYear, as new orders decreased for the fifth month running amid ongoing reports of subdued sales opportunities. At the same time, business activity expectations held close to October’s recent low and remained notably soft in comparison to the first half of 2023.
“Finally, overall input cost pressures picked up for the first time in four months. Service sector inflation was a key area of concern as businesses once again reported the need to pass on higher staff costs to customers. Measured overall,prices charged by UK private sector firms increased at thefastest pace since July, led by a robust and accelerated rise among service providers.”
Germany to suspend borrowing limits for 2023 after budget ruling
- Germany bund yields rise
- Germany will suspend its borrowing limit for the year 2023.
- This decision comes in the wake of a budget ruling that created financial challenges.
- German Finance Minister Lindner is expected to officially announce the suspension of the debt brake on Thursday.
- Suspending the borrowing limit will provide flexibility in managing the country’s finances and budget in light of the recent court ruling
On Tuesday, the Constitutional Court of Germany deemed the government’s actions improper when they shifted borrowed money meant for pandemic relief to finance environmental projects and green technology, totaling 60 billion euros ($64.6 billion). Consequently, the court ruling disrupted environmental initiatives, investment plans, and the overall budget, leading to tensions within the governing coalition. The spending freeze affects all government ministries, including a special fund of around €200 billion established to aid companies in the aftermath of the pandemic and the energy crisis.
Germany halts Inflation-linked bond sales. Does this mean inflation is under control now?
- Germany plans to stop issuing inflation-linked bonds from 2024.
Germany will cease sales of inflation-linked bonds starting next year according to a statement from its Federal Finance Agency.
- “From 2024, no further inflation-linked federal securities will be issued, nor will already outstanding securities be reopened”
Germany has four outstanding inflation-lined bonds totalling €66.25 billion. The remaining maturities are between 2.5 and 22.5 years. These will, of course, continue to be tradable on the open market.
Goldman Sachs raises UK real GDP growth forecast for 2024 to 0.7% from 0.6% previously
- Brighter prospects for the UK going into next year?
That’s what Goldman Sachs is saying and they join JP Morgan, who also revised higher their 2024 GDP growth forecast for the UK to 0.4% from 0.2% previously.
Rebounding UK debt market defies expectations, says DMO CEO
- Bank of England’s quantitative tightening program has not impacted gilt issuance strategy
UK Debt Management Office (DMO) CEO
- Says rebound in UK debt market since mini-budget is “notable”
- UK DMO’s CEO says Bank of England quantitative tightening programme has not affected gilt issuance strategy
- UK DMO’s CEO says slow decline in demand for long-term gilts likely to continue
Info via Reuters
Citi pushes back first BOE rate cut to August next year
- The firm previously saw the BOE performing the first rate cut in May
On the change, Citi says that national insurance rate cuts, as well as personal tax cuts, are adding to risks to inflation and that could see the BOE hold rates higher for longer. This follows the plans announced by UK finance minister, Jeremy Hunt, on Wednesday to cut the amount that workers pay as contributions to the National Insurance system by 2% starting from January next year.
As for their overall BOE outlook, Citi expects 100 bps worth of rate cuts to come through in 2024 itself.
ECBs Wunsch: My base case is no more rate hikes needed
- ECBS Wunsch speaking
- My base case is that no more rate hikes are needed, but we can wait until the spring to make that call
- Marking pricing of rate cuts “very optimistic” and increases the likelihood that more tightening is needed
- Legitimate to discuss the tolerance range around the inflation target
Other News
China’s state planner says it will step up regulation of iron ore futures, spot trading
The National Development and Reform Commission of the People’s Republic of China (NDRC) is the state planner:
- urges iron ore firms not to hoard, hype up prices
- urges iron ore firms not to manipulate futures market
Severe pneumonia outbreak in China overwhelms hospitals in two cities
- WHO requests detailed information
The World Health Organization (WHO) has officially requested that China provide detailed information.
- The WHO said Chinese authorities attributed the increase to the lifting of COVID-19 restrictions and the circulation of known pathogens such as influenza, mycoplasma pneumoniae (a common bacterial infection which typically affects younger children), respiratory syncytial virus, and the virus that causes COVID-19.
Australian preliminary PMI for November: Manufacturing 47.7 (prior 48.2)
- Services also into deeper contraction
Judo Bank Australia flash or preliminary purchasing managers’ indexes for November 2023:
- Manufacturing lowest since May 202
- Services lowest since September 2021
All three are under 50, a contraction in activity.
National Australia Bank expects another RBA rate hike, at the February 2024 meeting
- NAB assess Bullock’s remarks yesterday:
- The Governor explained that “the remaining inflation challenge we are dealing with is increasingly homegrown and demand driven” and “a more substantial monetary policy tightening is the right response to inflation that results from aggregate demand exceeding the economy’s potential to meet that demand”.
- In the Q&A, Bullock said she expects a new Statement on the Conduct of Monetary Policy (SCMP) may be by the end of the year. Adding that the new SCMP will give confidence that “we are not just aiming for the cap, we are aiming to get to the midpoint” of the 2-3% target.
Australia has announced plans for even more fiscal spending
- More government spending will mean more aggregate demand and more inflation pressure
Australia has announced plans for more fiscal spending. Energy Minister Chris Bowen says will step up spending to underwrite new wind, solar and battery projects.
- did not specify how much the government expects to spend
New Zealand incoming PM Luxon says agreement reached to form government
- Christopher Luxon successfully forges coalition with ACT and New Zealand First to form government
New Zealand’s voting system can make forming a government a drawn out affair. The election was back on October 14 with Luxon winning most votes. He has finally cobbled together a coalition.
Luxon statement:
- Negotiations have concluded with ACT and New Zealand First to form a government that will deliver for all New Zealanders. The parties are now going through their respective party processes for final sign-off and we expect that process to be completed this evening. Subject to agreement by all parties, a signing ceremony will take place tomorrow at Parliament.
Heads up for Japanese inflation data due Friday. Will be way above target, again.
- Economists predict a possible end to the Bank of Japan’s negative rates policy in 2024.
Japanese national inflation data for October will be published on Friday, 24 November at 2330 GMT, which is Thursday, 23 November at 1830 US Eastern time.
Cryptocurrency News
Chainlink price decline to extend further following profit booking; $500 million LINK close to break-even
- Chainlink price has reduced by nearly 20% in the past ten days falling below the $15 mark.
- The crash, which is expected to continue going forward, would likely threaten the profitability of 34.97 million LINK.
- The MVRV ratio suggests that profit booking is highly likely, which would, in turn, result in a decline in price.
Chainlink price has wiped a sizeable chunk of the rally noted by the altcoin since the beginning of the month. The next leg of the price action is likely going to continue this decline as investors are more prone to booking profits now than ever, which could lead to further drawdown.
Chainlink price extends decline
Chainlink price, trading at $14.32 at the time of writing, has declined by about 19% in the last ten days. Consequently, it lost the $15.00 support line and is close to losing the $14.00 support as well.
Crypto industry has spent US$20mn on lobbying so far in 2023: Report
- 2022 was a $22mn spend. This doesn’t sound like a lot in comparison to other industries.
Reports that the crypto industry has spent US$20 million on crypto lobbying in 2023 so far. Compared with US$22 million last year and a total of just over $56.3 million since 2019.
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