In the current morning markets, December E-Mini S&P 500 futures (ESZ23) have declined by -0.07%, and Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.02%.
Stock index futures are experiencing a slight downturn, attributed to the upward movement of T-note yields, despite some positive corporate developments. T-note yields are on the rise in anticipation of a $16 billion auction of 20-year T-bonds scheduled for today. Notably, Microsoft has seen a pre-market surge of more than +2% after appointing OpenAI cofounders Sam Altman and Greg Brockman to lead its artificial intelligence (AI) team.
Despite this, a positive outlook for holiday spending indicates confidence in the economy, providing support for stocks. Deloitte’s survey reveals that consumers plan to spend an average of $567 during Black Friday and Cyber Monday, marking a +13% increase from last year. Additionally, the National Retail Federation projects that 182 million people intend to shop from Thanksgiving Day through Cyber Monday, the highest number since 2017.
Market projections currently discount the possibility of a +25 basis points rate hike at the upcoming FOMC meeting on Dec 12-13, with a 0% chance. The subsequent FOMC meeting on Jan 30-31, 2024, is assigned a 2% chance for the same rate hike. Looking ahead, the markets are factoring in a +27% chance for a -25 basis points rate cut at the March 19-20, 2024, FOMC meeting, and a substantial 74% chance for the same rate cut at the Apr 30-May 1, 2024, FOMC meeting.
Government bond yields in the U.S. and Europe are trending upward today. The 10-year T-note yield has increased by +4.1 basis points to 4.476%, the 10-year German bund yield is up +3.5 basis points at 2.623%, and the 10-year UK gilt yield has risen by +4.6 basis points to 4.150%.
Overseas, stock markets present a mixed picture, with the Euro Stoxx 50 down -0.10%, China’s Shanghai Composite Index up +0.46%, and Japan’s Nikkei Stock Index down -0.59%. The Euro Stoxx 50 has retraced from a 3-1/4 month high, influenced by negative corporate news. Bayer AG has experienced a significant drop of more than -17% following the halt of a Phase III trial, and Julius Baer Group Ltd has tumbled -12% due to a profit warning. On a positive note, Moody’s Investors Service upgrading its rating outlook on Italy’s debt to stable has led to a rally in Italian bank stocks.
ECB Governing Council member Wunsch has indicated that the ECB might need to raise interest rates again if investor expectations of monetary easing persist. Investors are currently taking an “optimistic” view, anticipating a rate cut by the ECB as early as April.
In China, the Shanghai Composite has closed moderately higher, driven by gains in tech heavyweights Tencent Holdings and Alibaba Group Holdings. Chinese real estate developers have also seen a rise after authorities pledged to meet the sector’s “reasonable” funding needs. Furthermore, Chinese airline stocks have gained traction following JPMorgan Chase’s positive outlook for 2024, citing tight supply and an expected boost in flight activity.
The yuan has strengthened to a 3-1/2 month high against the dollar today after China’s commercial banks kept their benchmark lending rates unchanged. This upward momentum was further fueled by the PBOC’s decision to boost its daily reference rate to the strongest level since August.
Japan’s Nikkei Stock Index has retreated from a 33-year high, closing moderately lower. Initially buoyed by an extended period of yen weakness benefiting exporters and supported by solid corporate earnings and corporate governance reforms, Japanese stocks turned lower as the yen rallied to a 1-1/4 month high against the dollar. Panasonic, however, stood out with a rally of more than +5% after agreeing to sell part of its automotive systems unit.
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