North American News
Nasdaq surges. Dow trades to a new all time high
- Stocks are sharply higher
The Nasdaq index moved up to a high of up 210.16 points.There has been some profit-taking coming in and it currently is up 177 points or 1.21% at 14710.31.The Nasdaq index traded at the highest level since January 2022 but is still 9.72% away from its November 2021 high
Meanwhile, the Dow Industrial Average moved to a high of 37057.81. That took the price above the all-time high level of 36952.65. The current price is around 37000 up 420 points or 1.16%. The S&P index meanwhile is trading up 54.54 points or 1.19% at 4698.86. The high-price extended above the 4700 level to 4709.69.At the high-priced, the S&P got within 2.31% of its all-time high level reached in January 2022
FOMC dot plot & central tendencies from December 2023 meeting. EOY 2024 rate 4.6%, -50bps.
- The dot plot for 2024 shows end of year rate of 4.6% vs 5.1% in September
The FOMC dot plot from September 2023 showed the median rate at the end of 2024 at 5.1%. In the December report:The FOMC dot plot from September 2023 showed the median rate at the end of 2024 at 5.1% versus 4.6% in June 2023
- For 2024, the median fed funds target rate is now 4.6% vs 5.1% in June – down -0.50%fed funds target rate is now 4.6% vs 5.1% in June
- For 2025, the median fed funds target rate is now 3.6% vs 3.9% in June – down -0.30%fed funds target rate is now 3.6% vs 3.9% in June
- For 2026, the median fed funds target rate is now 2.9% vs 2.9% in June – unchanged. fed funds target rate is now 2.9% vs 2.9% in June
Below is the new dot plot from December:
For comparison, the dot plot from September 2023 showed the following:
Regarding the central tendencies for GDP, Unemployment and PCE inflation (headline and core) below is the table with comparisons from September:
Highlights from the central tendencies:
- PCE inflation for 2024 moved from 2.5% down to 2.4%
- Core PCE inflation for 2024 moved from 2.6% to 2.4%
- Unemployment for 2024 remained unchanged at 4.1%
- GDP for 2024 moved from 1.5% to 1.4%
- The Fed does not see inflation to reach 2.0% until 2026 although they do see inflation at 2.1% at the end of 2025
- Unemployment rate peaks at 4.1%.
- GDP growth is modest at below 2%.
Powell opening statement: Path forward is uncertain. Full effects of tightening to come
- Comments from the Fed chairman
- Growth in economic activity has slowed substantially
- Given how far we’ve come, and given uncertainties, we are proceeding carefully
- Inflation has eased with a significant rise in unemployment
- Labor demand still exceeds supply, but gap has narrowed
- Wage growth appears to be easing
- Activity in housing sector has flattened out
- Higher interest rates also weighing on business fixed investment
- Lower inflation readings are welcome but we will need to see further evidence
- We anticipate that the process of getting inflation all the way to 2% will take time
- We’re highly attentive to the risks that high inflation poses to both sides of our mandate
- We believe that we’re at or near peak rates in this cycle
- We are prepared to tighten further if appropriate
- Will keep policy restrictive until confident on path to 2% inflation
- Officials don’t want to keep possibility of hikes off the table
Powell Q&A: Noted that officials talked about path for cuts today
- …and there was a general acknowledgement that more of that talk will be coming
- Far too early to declare a soft landing
- I have always felt there was a possibility economy would avoid recession
- There’s always a possibility of recession next year
- Little basis for thinking there’s a recession now
- There was a general expectation that rate cuts will be a topic of conversation going forward
- We’re very focused on “not making that mistake” of holding high rates too long
Here’s the Fed’s inflation target:
The full statement from the December 2023 FOMC rate decision
- The FOMC keeps the target rate at 5.5%. End-of-year fed funds rate projection 4.6%
Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter.Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low.Inflation has eased over the past year but remains elevated.
The U.S. banking system is sound and resilient.Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.The extent of these effects remains uncertain.The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.The Committee will continue to assess additional information and its implications for monetary policy.In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
US November PPI 0.9% y/y vs 1.0% expected
- November producer price index data for the US
- Prior was +1.3% y/y
- PPI final demand YoY 0.9% versus 1.0% expected
- PPI final demand MoM 0.0% versus +0.1% expected
- PPI ex food and energy YoY 2.0% versus 2.2% expected. Prior month 2.4%
- PPI ex food and energy MoM 0.0% versus 0.2% expected. Prior month 0.0%
- PPI Ex food and energy/trade 2.5% versus 2.8% last month (revised from 2.9%)
- PPI Ex food and energy/trade 0.1% versus 0.1% last month
US MBA mortgage applications w.e. 8 December +7.4% vs +2.8% prior
- Latest data from the Mortgage Bankers Association for the week ending 8 December 2023
- Prior +2.8%
- Market index 194.5 vs 181.1 prior
- Purchase index 149.6 vs 144.5 prior
- Refinance index 445.8 vs 373.3 prior
- 30-year mortgage rate 7.07% vs 7.17% prior
Yellen sees inflation coming down
- Yellen says inflation will start with the number 2 by the end of 2024
- There’s no reason for investors to feel nervous about issuance of Treasuries
- Says she’s very happy with outcomes we’ve seen with the economy
- There are risks on the horizon, but doesn’t see risk of recession as particularly high
- Rental costs have stopped going up
- Turbulence in job market has really settled own, no significant uptick in layoffs
Fed could struggle in convincing markets at today’s meeting – TD
- TD Securities say that the Fed faces a tough balancing act at the final FOMC meeting for the year
The firm argues that the Fed will want to at least try and maintain a more hawkish hold but “may struggle to send a sufficiently hawkish message” to markets. TD says that a softer guidance in acknowledging a slowdown in the economy while conveying a lesser bias towards tightening further will not help the Fed’s case.
Adding that downward revisions to the Fed’s inflation forecasts and potentially the dot plots will also do little to convince markets that rate cuts are not yet on the horizon. On the presser, TD notes that:
“Powell will have to walk a fine line by recognising the ground gained towards the normalisation of the economy while at the same time pushing back on the idea that mission has been accomplished.”
BofA sees Fed taking the first steps in conveying a dovish hold today
- The firm expects the Fed to begin the shift from a hawkish hold to a more dovish one to wrap up the year
BofA says that the time is right for the Fed to “take the initial steps in changing its communication from a hawkish hold to dovish one”. In that lieu, they expect the central bank to keep rates unchanged until at least June 2024 before committing to rate cuts. As a whole for next year, BofA is anticipating 75 bps worth of rate cuts by the Fed.
For today, they note that the forward guidance could be changed in order to focus on the Fed’s commitment to maintain its current policy stance i.e. sufficiently restrictive in guiding inflation back towards the 2% target.Adding that such a communication would be “flexible enough to keep both cuts and hikes on the table, while opening the door more concretely to cuts as a first step in the direction of a dovish hold”.
Fed should not offer strong push back against recent market pricing – Citi
- Citi says that Powell will reiterate that it is too early to discuss rate cuts but “do little more to stop the market from pricing them in”
As the FOMC meeting statement today will be accompanied by the Summary of Economic Projections, Citi anticipates that the Fed should move more dovishly in adjusting its dot plots and inflation forecasts lower today. As for the statement itself, they see a change in this particular passage. In October:
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, theCommittee will take into account the cumulative tightening of monetary policy, the lags withwhich monetary policy affects economic activity and inflation, and economic and financial developments.”
They see that being changed to:
“In determining the extent to which additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Fed won’t stir the pot but rate cut timeline may be faster than ECB – Commerzbank
- Commerzbank says to keep an eye on the dot plots projection later today
The firm argues that the Fed will not want to fuel interest rate cut speculations any further in today’s communication with Powell “likely to emphasise how important it is to leave interest rates at a high levelfor long enough”.
That being said, the economic projections will be a crucial point for markets to focus on. Commerzbank expects the Fed to signal “more significant cuts” via the dot plots and that could be one that triggers a notable market reaction in the aftermath.In that lieu, the firm says that the Fed even looks likely to cut faster than the ECB as the US disinflationary process seems further advanced than in the euro area.
Trillions of US stock options set to expire on friday: What it means for the market?
- As dealers hedge their positions, stock gyrations have been muted
Around $5 trillion in US stock options are set to expire on Friday, the largest such expiration in at least 20 years
- 80% are in S&P 500-linked contracts
- market participants’ behavior ahead of the upcoming expiration has been muting stock gyrations and may be one reason equities have traded in a tight range over the last few weeks
- The S&P 500 has not logged a greater than 1% move in
- either direction for 19 straight sessions, the longest such streak since early August.
- Cboe Volatility
- Index (VIX) is around a nearly 4-year low circa 12.07
Bank of America looking out past today’s FOMC – 2024 soft landing
- FOMC at 2 pm US Eastern time, Federal Reserve Chair Powell presser follows at 2.30
While we await the Federal Open Market Committee (FOMC) Statement due today and Federal Reserve Chair Powell’s press conference after, some snippets from Bank of America on what they expect from the Bank in 2024.
In brief:
- “2023 defied almost everyone’s expectations: recessions that never came, rate cuts that didn’t materialize, bond markets that didn’t bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight,”
- “We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones.”
- recent wage growth trends seem “very sustainable and consistent with low inflation”, and Fed officials will “be heartened by this and it’s probably going to allow them to take stock of what’s happening with inflation”
- BoA add that if wage growth trends like this sustain then the likelihood of a soft landing will rise
Commodities
Gold rallies above $2000 as the Fed hints rate cuts
- Gold’s rallied more than 1.30% as traders brace for Powell’s press conference.
- Federal Reserve officials voted unanimously and expect at least three rate cuts for 2024.
- Gold hits a three-day high, eyeing more gains above $2000.
Gold price advanced sharply late in the New York session after the Federal Reserve decided to keep rates unchanged, opening the door for monetary policy easing next year. Buyers saw that as a green light to open fresh positions, as the yellow metal has climbed more than 1.80%, trading at around the $2000-$2020 range at the time of writing.
EIA weekly US crude oil inventories -4259K vs -650K expected
- Weekly US oil inventory data for the week ending Dec 8
- Prior was -4632K
- Crude -4259K vs -650K exp
- Gasoline +408K vs +1933K exp
- Distillates +1494K vs +623K exp
- Refinery utilization -0.3% vs +0.3% expected
- Production 13.1 mbpd vs 13.1mbpd prior
- Implied mogas demand: 8.86Mbpd
OPEC says recent drop in oil prices caused by “exaggerated concerns” about demand growth
- The bloc leaves its 2024 world oil demand forecast unchanged in its latest monthly report
- 2024 world oil demand growth maintained at 2.25 mil bpd
- Remains cautiously optimistic about fundamental factors affecting oil market dynamics next year
- Prices saw a significant downturn, marked by heavy selloffs amid highly volatile futures market
- That is fueled by exaggerated concerns about oil demand growth
EU News
European equity close: The waiting game
- Closing changes in Europe
- Stoxx 600 flat
- German DAX -0.2%
- UK FTSE 100 +0.2%
- French CAC -0.2%
- Italy MIB -0.1%
- Spain IBEX -0.1%
Eurozone October industrial production -0.7% vs -0.3% m/m expected
- Latest data released by Eurostat – 13 December 2023
- Prior -1.1%; revised to -1.0%
Euro area industrial output slumps by more than expected to start Q4, reaffirming the ongoing recession in the manufacturing sector. Here’s the breakdown:
UK October monthly GDP -0.3% vs 0.0% m/m expected
- Latest data released by ONS – 13 December 2023
- Prior +0.2%
- GDP +0.3% vs +0.6% y/y expected
- Prior +1.3%
- Services output -0.2% vs 0.0% m/m expected
- Prior +0.2%
- Industrial output -0.8% vs -0.1% m/m expected
- Prior 0.0%
- Manufacturing output -1.1% vs 0.0% m/m expected
- Prior +0.1%
- Construction output -0.5% vs -0.2% m/m expected
- Prior +0.4%
Germany’s Scholz says to stick with debt brake for 2024 budget
- After weeks of debate, it looks like German politicians have finally reached an end point
As a reminder, the debt brake serves to cap spending by the government and limits the country’s structural budget deficit.Scholz says that should the Ukraine conflict become worse, the government will have to respond by looking to declare an emergency exception for the budget – which will see the debt brake suspended as it has been since the Covid pandemic.
Scholz notes that the government will be saving €17 billion in its core budget and will also cut spending from its climate and transformation fund. For some context, Scholz was actually supporting the idea for another suspension of the debt brake whereas finance minister Lindner was against it. And that resulted in intense discussions and debate over the matter in recent weeks.
UK’s Hunt: Economic slowdown is inevitable as interest rates work to bring inflation down
- Remarks by UK finance minster, Jeremy Hunt
- It is inevitable GDP will be subdued while interest rates are doing their job to bring down inflation
- The big reductions in business taxation mean the economy is now well placed to start growing again
Asia-Pacific-World News
Asian Development Bank has raised its China’s 2023 growth forecast to 5.2% (prior 4.9%)
The Asian Development Bank has raised its China’s 2023 growth forecast to 5.2% from previous projection of 4.9%
- maintains its 2024 growth forecast at 4.5%
From the ADB’s December outlook released today.
On China, citing:
- continued postpandemic recovery
- strength in services helping counter the slump in property
- policy makers rolling out measures to bolster the economy
China November M2 money supply +10.0% vs +10.1% y/y expected
- Latest Chinese credit data for November 2023 has been released
- Prior +10.3%
- New yuan loans ¥1.09 trillion vs ¥1.30 trillion expected
- Prior ¥0.74 billion
China’s Central Economic Work Conference – plans for growth, innovation, and stability
- Key takeaways from China’s annual Central Economic Work Conference
News out of China’s annual Central Economic Work Conference hit State Media outlets late on Tuesday. ICYMI.
Via those state media reports later, in brief:
- “We must introduce more policies that are conducive to stabilising expectations, stabilising growth, and stabilising employment,”
- “It is necessary to strengthen counter-cyclical and cross-cyclical adjustments of macro policies, continue to implement a proactive fiscal policy and a prudent monetary policy, and strengthen innovation and coordination of policy tools.”
- plans include tax and fee cuts, new of fiscal and tax reforms, improved the structure of fiscal spending to support strategic tasks
- will maintain reasonable and sufficient liquidity
- will guide financial institutions to increase support for technological innovation, green transformation, inclusive small and micro businesses, and the digital economy
The info from state media sources comes via Reuters, here is the link for more.
Australian Treasury forecast CPI inflation only hitting 2.5% target in 2025/26
- It’s a long, and high, road ahead for monetary policy in Australia.
Australian Government (Department of Treasury) Mid-year Economic and Fiscal Outlook (MYEFO), main points:
- 2023/24 budget deficit at a$1.1 bln vs a$13.9 bln projected in May
- Budget deficitprojected at a$18.8 bln in 2024/25, deficit a$35.1 bln 25/26
- Sees GDP growth in2023/24 1.75%, 2024/25 2.25%, 2025/26 2.5%
- Sees unemploymentrate at 4.25% in 2023/24 and 4.5% to 2025/26
- Sees CPI inflation at 3.75% in 2023/24, 2.75% in 2024/25, 2.5% in 2025/26
- To ensure fiscal and monetary policy settings are aligned, help ease inflationary pressures
- Sees net migration slowing to 375,000 in 2023/24, 250,000 in 2024/25
- Sees iron ore declining to $60 tonne, metallurgical coal $140 tonne, thermal coal $70 tonne
New Zealand data: Food Price Index (November) -0.2% m/m (prior -0.9%)
Westpac cuts its New Zealand Q4 CPI forecast to 0.3% (from 0.6%)
Westpac has slashed its expectation for New Zealand Q4 CPI inflation to 0.3% from its previous 0.6% forecast.
WPAC cite weaker November data.
Japan at a critical stage on whether it can emerge from deflationary mindset, says Kishida
- Remarks by Japan prime minister, Fumio Kishida
- Government will take policy steps to help achieve wage growth that exceeds rate of inflation next year
- Still making preparations for Cabinet changes, will finalise decision and announce it tomorrow
Japanese firms expect CPI to rise 2.4% in the coming year
- 2.4% is lower than the firms previously projected but still above the BOJ’s 2% target
As part of the Bank of Japan Tankan report is the corporate price expectations survey:
- Japan firms expect consumer prices to rise 2.4% a year from now vs +2.5% in previous survey.
- Expect consumer prices to rise an annual 2.2% 3 years from now vs +2.2% in previous survey.
- Expect consumer prices to rise an annual 2.1% 5 years from now vs +2.1% in previous survey.
- December big manufacturers index +12 (Reuters poll: 10).
- March big manufacturers index seen at +8 (Reuters poll: 9).
- December big non-manufacturers index +30 (Reuters poll: 27).
- March big non-manufacturers index seen at +24 (Reuters poll: 25).
- December small manufacturers index +1 (Reuters poll: -4).
- March small manufacturers index seen at -1 (Reuters poll: -5).
- December small non-manufacturers index +14 (Reuters poll: 12).
- March small non-manufacturers index seen at +7 (Reuters poll: 8).
- Japan all firms see dollar averaging 139.35 yen for FY2023/24.
- Japan all firms see euro averaging 148.80 yen for FY2023/24.
- Japan big manufacturers see FY2023/24 recurring profits +2.4%.
- Japan big manufacturers see dollar averaging 138.30 yen for FY2023/24.
- December all firms employment index -35.
- December all firms financial condition index +11 vs Sept +11.
- December big manufacturers’ production capacity index +2 vs Sept +1.
- Japan big firms see FY2023/24 capex +13.5% (Reuters poll: 12.4%).
- Japan small firms see FY2023/24 capex +10.3% (Reuters poll: 9.2%).
Positive sentiment in Japanese automakers and hotels boosts economic outlook
- A Bank of Japan official highlights the latest Tankan report showing a surge in sentiment
A Bank of Japan official is hitting the news with his take on some good news from the Tankan report:
- Big automakers’ sentiment DI, at +28, was the highest since March 2014
- Big hotel, restaurants sentiment DI, at +51, hits its highest level since comparable data became available in March 2004
Cryptocurrency News
Bitcoin nears $43,000 as FOMC keeps interest rates unchanged
- The Federal Reserve kepts interest rates unchanged for the third meeting in a row as expected on Wednesday.
- Officials left the fed funds rate unchanged at 5.25% – 5.50% with openness to adjust based on market conditions.
- Powell admits that the US economy could fall into recession in 2024, an event that would trigger largescale rate cuts.
- Bitcoin price has reacted with a quick jump to $42,800 amid rising volatility as the minutes met expectations.
MATIC price displays technical bearish signals despite developments in Polygon
- MATIC price risks drop to $0.68 before a rebound in Polygon’s native asset.
- Polygon Chain Development Kit recently integrated Celestia to aid development of applications in the ecosystem.
- Polygon’s Proof-of-Stake chain is processing over 10 million transactions a day, fueling a bullish thesis for MATIC adoption.
MATIC, an Ethereum scaling token, is likely to observe further decline in its price. Polygon recently announced its integration with Celestia Org, a project that boosts the development capabilities of the chain.
New crypto accounting rules require companies in US to report Bitcoin holdings at “Fair Value”
- The Financial Accounting Standards Board (FASB) issued standards that will require companies to report their crypto holdings at fair value.
- Bitcoin price per the fair value model is set at $36,000, 14% below the market price.
- Grayscale Bitcoin Trust (GBTC), on the other hand, is seeing considerable growth ahead of potential ETF approval.
When Bitcoin price rallied this past month, it brought significant profits to its investors. This included not just retail but also institutional investors and companies such as MicroStrategy, Tesla and others that hold crypto assets.
There is the expectation of a further increase in January 2024 if the Securities & Exchange Commission (SEC) approves spot Bitcoin ETF applications.However, before it happens, the FASB made a change that might affect their overall profits and losses.
Seychelles-based KuCoin cryptocurrency “exchange” banned in New York, fined $22m
KuCoin has been forced to block customers in New York and pay a $22 million fine.
The NY Attorney General took action against the firm for failing to register with the state before letting investors buy and sell cryptocurrencies on its platform.
- “Crypto companies should understand that they must play by the same rules as other financial institutions”
The NY AG has previously taken action against crypto firms such as:
- Genesis Global, its parent company Digitial Currency Group and Gemini
- Hong Kong-based cryptocurrency exchange CoinEx
Follow our recently launched pages. Join our community and never miss a beat in the dynamic world of trading.
https://www.facebook.com/BilalsTechLtd
https://www.linkedin.com/company/bilals-tech/
