Paul Walton
Paul Walton
Financial Writer
Expertise: Investment banking, equities, derivatives, cryptocurrencies
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Strong payroll data doesn’t deter equity bulls with Nasdaq up and Russell 2000 down
Today’s payroll data reiterated the run of strong labor market data with wages growing at 4% a key concern for the Fed. Futures markets reduced the probability of early rate cuts, but traders made few changes to their bullish stance on equities, bonds, gold or the dollar.
Dow challenges peak, Bitcoin’s mainstream moment is expected
The Dow Jones has quickly shaken off yesterday’s late losses is challenging record highs despite the comedown of the Fed minutes yesterday. The market remains optimistic over the state of the US economy, supported by today’s various jobs sector data releases; the flip-side is that too much strength could slow the pace of interest rate cuts with the Fed “likely at or near its peak rates” according to December policy meeting minutes yesterday. The Bitcoin rally will be tested pretty soon, as the SEC is intended to approve (or not) Bitcoin ETFs.
Oil prices rallies above $70 support, Russell 2000 dips on profit-taking
Oil prices appear to have found support at $70 per barrel, with news of US stock building, further OPEC+ production cuts and Middle East tensions spurring buying action. The Fed’s December meeting minutes were cagey on the outlook for interest rates in 2024. JOLTS labor market data pointed to further weakness, good news for inflation.
Nasdaq tumbles as bonds sell off, Gold holds historic highs
Equity, bond, and gold investors are pricing in large rate cuts in 2024, starting in March, but this week’s jobs data could spoil the fun. A bullish December for stocks might have pulled forward the typical January rally, spurred by the belief that the Fed is about to pivot. US Treasuries sold off in morning trade, with worries about the appetite to digest the major volume of new issues. There is some risk of disappointment in the interest rate outlook, notably with commodity prices indicating persistent inflation so there is less chance of a rate-cutting bonanza.
Chinese stock markets rally on improving profit outlook as we enter the Year of the Dragon
Chinese industrial firms’ profits surged in the second half of 2023, but businesses still suffer from flat demand and profits well below peak levels. This low profitability curtails firms’ spending and hiring plans, hurting consumer confidence. Many Chinese tech and new energy stocks are looking cheap on global comparisons. The Chinese government encourages local governments to issue large bonds to finance infrastructure spending to support demand. Despite various local schemes to boost activity, the housing market continues to be mired in a cycle of low transaction volumes and no price increases. All of this makes the Chinese consumer cautious and unwilling to spend, which, in turn, curbs economic growth.
Russell 2000 leads US stocks, Gold hits another all-time high
The Russell 2000 was again the strongest US index, continuing a trend evident for two months. Gold prices touched $2,082.5 per ounce this morning, buoyed by a mixture of risk aversion and the anticipation of lower interest rates. This morning’s economic data showed strong durable goods demand and a modest decline in a key inflation gauge, the ‘PCE deflator’, generally supporting rate cuts early next year.
Chinese markets end dull year on a downbeat note, yuan rallies
China’s Shanghai and Shenzhen equity markets ended a dismal year between 7% and 11% down on the year, drifting lower in the second half of the year as the property sector decline hit consumer sentiment and the wider economy. The offshore yuan fell 6% versus the dollar by mid-year, as traders looked for much need interest rate cuts, but rallied to end the year down 3%. While China isn’t back to its previous strong economic growth rates, there are signs of recovery, with forecasts for 2024 anticipating 5%-plus GDP growth and an end to deflation as property sector debts are resolved.
Russell 2000 continues recent run, Oil prices dip despite output cuts
US equity markets bounced back in morning trade, again led by the Russell 2000, after yesterday’s worries about the pace of rate cuts, as traders ignored anything but a rosy rate cutting in 2024. Oil prices slipped, down 1.3%, despite various indications that oil output will be cut next year by Saudi Arabia and Russia, the world’s top two producers.
Consumer’s increasingly confident, but investors take a breath with major indexes and gold at all-time highs
Consumer confidence rose sharply in December, casting a shadow on early rate cuts and stalling the recent equity market rally aside from continued strength in the Russell 2000. Equity markets and gold still look set to end the year on all-time highs, Bitcoin has close to doubled, with interest rate optimism seemingly pulling forward the traditional January rally.
Russell 2000 leads markets towards eighth winning week, but is the Fed saying too much?
The rate-sensitive Russell 2000 index led markets higher this morning, pointing to an eighth week of successive market gains as Fed officials continued to quell hope of rate cuts as soon as next March, arguing that policy is not fixed and will be data-driven. We consider the real impact of Fed jawboning on the economy and financial markets. The Bank of Japan held interest rates below zero yesterday, giving no clues as to when it might exit negative levels.
USBRL should reflect inflation for the US, statements from Fed officials, COPOM minutes, RTI, and economic agenda in Congress
Bullish factors Statements from Federal Reserve officials may want to realign expectations of an interest rate cut by the American central bank after Powell's comments this week triggered a sharp global rally for risky assets, strengthening the American currency. Minutes of the COPOM and Quarterly Inflation Report (RTI, an acronym in Portuguese) should show a more benign external scenario for the Central Bank, maintaining expectations of cuts to the basic interest rate (SELIC), which in turn reduces the attractiveness of Brazilian assets and weakens the real. Bearish factors PCE index should maintain a trend of gradual price moderation in the US and suggest that the Fed has room for monetary easing, increasing bets on interest rate cuts by investors and weakening the American currency. The possibility of advancing important economic agendas for the government in the National Congress can ratchet down the perception of fiscal jeopardy for Brazilian assets and contribute to strengthening the BRL. Due to Christmas and the New Year, the Weekly Exchange Overview will not be published on December 22 and 29, returning on January 5, 2024. Happy Holidays!!!