Fundamental updates by Solid ECN

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Wall Street Braces for Fed Meeting and CPI Data

On Monday, Wall Street's primary indexes displayed a muted demeanor as investors' focus turned to significant upcoming events: the Federal Reserve's interest rate meeting and the U.S. inflation report, both due later in the week. The general market sentiment suggests that a halt in rate hikes is already factored into current prices. However, investors are vigilantly looking for clues about when the Fed might adjust interest rates in the upcoming year.


Inflation Data and Its Impact

The Consumer Price Index (CPI) report, scheduled for release just before the Fed meeting, is crucial as it provides insights into inflation trends. For November, it is anticipated that the headline inflation figures will show no significant change. Such data is vital as it influences the Federal Reserve's decision-making regarding monetary policy, which in turn affects the economy's overall health.


Individual Stock Movements

In the realm of individual stocks, Macy's witnessed a 16% surge after an investor group proposed a $5.8 billion bid to privatize the department store chain. In parallel, health insurer Cigna's shares climbed 14%. This increase came after the company decided against acquiring its competitor Humana and instead announced a massive $10 billion share repurchase program.


Index Performance and Economic Outlook

As for the broader market indices, the S&P 500 slightly declined by 0.1%, settling at 4,600 points. Meanwhile, the Dow Jones Industrial Average and the Nasdaq Composite showed minimal changes. This subdued activity follows a recent surge that had driven these indices to their highest points since early 2022.


Assessment of the Market Scenario

This cautious approach in the stock market reflects investor sensitivity to macroeconomic indicators and policy decisions. While individual stock movements like Macy's and Cigna's provide short-term trading opportunities, the broader market's performance is more indicative of economic confidence. A stable or declining inflation rate can signal a healthier economic environment, potentially leading to more robust stock market performance in the long term.​

 

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Tuesday's Triumph: FTSE 100 Soars, Marking a New High

On Tuesday, UK's stock market witnessed a significant rebound. The FTSE 100 index, a key indicator, increased by 0.4%, reaching 7,570 points. This jump more than made up for the small loss experienced the day before, marking a near two-month high. The rise was largely driven by a recovery in stocks related to commodities. This shift in the market occurred as investors digested the latest UK labor report.

Interestingly, the unemployment rate has remained steady at 4.2% for five consecutive months. However, there's a twist in the tale of wage growth. While still strong, it has seen its most considerable slowdown in almost two years. This development has led money markets to anticipate the Bank of England's (BoE) first rate cut in June. However, there's a general agreement that the BoE will likely follow the Federal Reserve's lead in terms of timing.

On the corporate front, companies like Rio Tinto, Anglo American, and Antofagasta played a significant role. They each saw gains of over 1.5%, bouncing back from the previous day’s downturn. This recovery was supported by a resurgence in the prices of base and ferrous metals, following China's recent sharp decline in inflation.

However, not all news was positive. Hargreaves Landsdown, a notable firm, experienced a sharp 8% decline in stock value. This drop came after the Financial Conduct Authority (FCA) raised concerns about the firm’s practice of paying interest on cash balances to customers.​

 

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US Futures Gain Post-Inflation Data; Eyes on Fed's Next Move

Solid ECN – After the release of US inflation data, stock futures in the US saw a modest rise on Tuesday. The major averages each grew by approximately 0.2%. This increase came as the inflation figures aligned closely with predictions. Notably, headline inflation eased to 3.1%, while the core rate remained steady at 4%, as anticipated. Additionally, the monthly core rate climbed to 0.3%, and the headline rate saw a 0.1% increase, slightly above the expected flat rate.

The Consumer Price Index (CPI) report has bolstered expectations that the Federal Reserve will hold interest rates steady in its upcoming decision. However, the focus is now shifting to the Fed's plans for next year, particularly regarding when borrowing costs might start to decrease.

In corporate news, Oracle's stock fell about 9% in premarket trading due to disappointing revenue figures. Moreover, Alphabet's shares dipped roughly 0.9% after losing an antitrust lawsuit to Epic Games.​

 

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Understanding the Offshore Yuan's Recent Dip​

Recently, there has been a notable decrease in the value of the Chinese Yuan in international markets. Specifically, the offshore yuan's value has dropped, approaching 7.2 against the US dollar. This change marks a significant low point for the currency, as it hasn't been this low in over three weeks.

Details of the Policy Meeting

This decline occurred following a major policy meeting held by top Chinese officials. In this meeting, the officials discussed and set economic goals for the upcoming year. However, their announcements did not significantly encourage or uplift the market. One key point was the lack of a precise target for economic growth. Instead, the focus was on increasing domestic demand through a variety of fiscal and monetary policies.

The Economic Indicators

Investors are now keenly anticipating several important economic indicators from China. These include upcoming data on industrial production, retail sales, and unemployment figures. Additionally, there's a heightened interest in the decisions regarding the medium-term lending rates by the People’s Bank of China, scheduled for the following week.

Recent Economic Data

Compounding the situation, recent economic data from China has shown some concerning trends. Consumer prices in the country decreased by 0.5% year-on-year in November, a more significant drop than the previous month and worse than what was predicted. Moreover, producer prices also fell by 3% last month. This decline has been ongoing for 14 months and is the most rapid since August.

Economic Implications

The Yuan's depreciation could have mixed effects on the Chinese economy. On one hand, a weaker Yuan makes Chinese exports more competitive in global markets, potentially boosting export-driven sectors. However, it also indicates underlying concerns about the health of the domestic economy, particularly in terms of domestic demand and industrial productivity.​

 

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Italian Stocks React Cautiously as FED Rate Decision Nears

On Wednesday, the FTSE MIB, Italy's stock market index, experienced a slight uptick, reaching the 30,400 mark. This movement was in line with other European markets, as investors are keenly waiting for the Federal Reserve's decision on interest rates, expected later today. In the corporate arena, Amplifon took the lead, with its stock climbing 1.8%. This jump came after the company's successful expansion into Uruguay by acquiring the Audical group. Prysmian and Erg also showed strength, each rising over 1%.

However, not all shares fared well. Iveco Group and Banco BPM faced downturns, both dropping by 1.5%. Banco BPM's decline was particularly influenced by updated evaluations from various investment banks regarding its business plan for the next few years. Additionally, Ferrari's shares dipped slightly by 0.3% after HSBC downgraded its rating from 'buy' to 'hold', despite increasing the price target from 325 to 340 euros.

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Dollar Steady as Fed Decision Looms

On Wednesday, the dollar index stayed around 103.8, showing little change after the US producer prices for November remained constant, missing the forecasted increase of 0.1%. This development comes on the heels of Tuesday's CPI data, which indicated a small rise in consumer price inflation over the month. The focus now shifts to the Federal Reserve's final policy decision of the year, set to be announced today. While it's widely expected that the interest rates will remain unchanged, all eyes are on Fed Chair Jerome Powell's upcoming comments and the Federal Open Market Committee's (FOMC) latest economic forecasts. These will provide clues about possible interest rate reductions in 2024. Nonetheless, the strong job market may lead the policymakers to take a less accommodating approach than what the market is anticipating.​

 

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Sensex Shatters Records with New Peak

Solid ECN – The Indian stock market experienced a remarkable surge, with the Sensex, a major stock market index, reaching an unprecedented high. Early on Thursday, it soared by 910.0 points, a 1.3% increase, setting a new record at 70,548.4. The Nifty index also performed impressively, surpassing the 21,100 mark. This surge was primarily influenced by a positive trend in Wall Street, which followed the Federal Reserve's decision to maintain its interest rate for the third consecutive time. Moreover, the Fed hinted at the possibility of rate cuts in the coming year.

The BSE Sensex, which had a rather quiet performance on Wednesday, rebounded with significant gains. These gains were mostly seen in sectors like IT, real estate, banking, and financial services. Investors are now keenly anticipating data from China, expected on Friday. This data includes important metrics like retail sales and industrial output for November 2023.

Market participants are also looking forward to the release of India's wholesale price figures for November. There's a general expectation that India's wholesale prices might register a rise for the first time in eight months. Among the stocks that saw early gains were LTMindtree with a 3.0% increase, HCL Tech with a 2.8% rise, and Bajaj Finance also up by 2.8%. State Bank of India (SBI) also saw a 1.2% increase after its announcement of entering into a significant Line of Credit with the German Development Bank KfW, aimed at supporting solar projects in India.​

 

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Historic Rise in European Stocks After Fed Maintains Rates

Solid ECN – European stocks experienced a significant boost on Thursday, reaching new heights after the US Federal Reserve's decision to maintain current interest rates. This announcement also came with an unexpected revelation: plans for three interest rate reductions in 2024, more than previously anticipated in September. This news sent the STOXX 50 index soaring by 1%, reaching a remarkable 23-year high of 4,585 points. Meanwhile, the wider STOXX 600 index also reached its highest level since January 2022.

The Federal Reserve's future plans, detailed in its "dot plot", suggest an even more aggressive rate reduction strategy. They foresee four cuts in 2025 and another three in 2026, aiming to lower the federal funds rate to between 2% and 2.25%. This approach is part of the Fed's strategy to avoid the risk of maintaining excessively high rates for an extended period, as emphasized by Fed Chairman Jerome Powell.

Investors are now keenly awaiting further monetary policy updates, particularly from the European Central Bank and the Bank of England, expected later on Thursday. These announcements are highly anticipated, as they could further influence global market trends.​

 

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Interest Rate Cuts Boost FTSE MIB, But Banks Struggle​

The FTSE MIB experienced a modest increase of 0.5%, reaching the 30,500 mark on Thursday. This peak, last observed in June 2008, followed the Federal Reserve's announcement of a significant 75 basis points reduction in interest rates for the upcoming year, exceeding initial predictions. Despite this rise, the Italian index lagged behind its European counterparts. This underperformance is attributed to the impact of lower borrowing costs on the profit margins of banks. Major banking institutions faced declines, with notable drops in Unicredit (2.9%), Banco BPM (4.7%), Bper Banca (5.6%), and Banca Monte Paschi Siena (4%). In contrast, shares in companies like Amplifon, Telecom Italia, and Diasorin saw an increase of over 4%. Market focus is now shifting to the European Central Bank's upcoming decision, anticipated to maintain high interest rates. Investors are keenly awaiting any indications of potential rate cuts.​

 

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Dow Jones Hits New Heights Amid Fed's Dovish Stance​

On Wednesday, the Dow Jones was poised for a historic high following a positive response from US stock markets. This surge came after the Federal Reserve decided to keep its funds rate steady at 5.5%, aligning with expectations. Additionally, they signaled larger rate cuts for the coming year. This news boosted the three major stock indices, each rising about 1% after a stagnant morning.

The Federal Open Market Committee (FOMC) revealed its outlook, predicting the funds rate to drop to 4.75% by end of 2024. This is a decrease from their earlier 5.25% estimate. The reason behind this adjustment is the recent reports showing inflation to be lower than anticipated. However, their expectations for unemployment and economic growth remain mostly the same.

In the tech sector, major companies and semiconductor manufacturers saw notable gains. However, not all news was positive. Tesla experienced a 2% decrease in stock value after announcing a vehicle recall. Similarly, Pfizer's stocks fell by 8% due to lowered financial projections.​

 

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Dollar Plummets to Four-Month Low​

On Thursday, the dollar index fell below 102.4, hitting its lowest level in four months since early August. This drop came as investors digested the latest decisions on monetary policy and new economic data from the US. For the third time in a row, the Federal Reserve kept interest rates unchanged. They also signaled a more rapid reduction in rates for 2024, estimating 75 basis points in cuts, more than what was projected in September.

During the press conference, Fed Chair Powell maintained a dovish stance, hinting at possible reductions in borrowing costs due to a faster-than-expected drop in inflation. On the other hand, the European Central Bank (ECB) and the Bank of England decided to keep their rates steady. They committed to maintaining higher rates to tackle inflation. Despite robust US retail sales and a fall in weekly jobless claims, these developments didn't significantly alter investors' outlook.​

 

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China's Stock Market Dips Amid Economic Uncertainties​

Solid ECN – On Monday, a sense of economic unease led to a downturn in China's stock market, with the Shanghai Composite index decreasing by 0.4% to 2,931 and the Shenzhen Component index falling 1.13% to 9,279. These indices hit their lowest points in over a year, reflecting the growing concerns about China's economic stability. Recent mixed economic data from November has highlighted weak demand in the country, a major point of discussion in a high-level policy meeting held last week. Despite setting economic goals and formulating policy strategies, Chinese officials were unable to boost investor confidence.

Attention is now shifting to the upcoming decision on the loan prime rate by the People’s Bank of China, set to be announced on Wednesday. The global market sentiment also suffered, influenced by comments from John Williams, President of the New York Fed, who expressed skepticism about the likelihood of rate cuts. Major losses were recorded by leading companies, with Contemporary Amperex, COL Group, and iSoftStone seeing declines of 5.2%, 11.3%, and 5.8%, respectively.​

 

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Canada's New Home Prices Dip in November 2023​

In November 2023, Canada witnessed a 0.2% month-over-month decrease in new home prices, slightly exceeding the market's forecast of a 0.1% reduction. This decline follows a steady reading in October. A notable change was seen across 25 of the 27 census metropolitan areas, where costs either decreased or remained stable. Sherbrooke experienced the most substantial drop in prices, falling by 1.2%, with St. John's and Hamilton closely following, each recording a 1.0% decrease. These significant reductions are primarily linked to less robust market conditions.

Conversely, new home prices in Trois-Rivières and St. Catharines-Niagara bucked the trend, rising by 0.5% and 0.3% respectively. These increases can be attributed to the escalating costs of construction in these areas. On an annual basis, the cost of new homes in Canada in November 2023 marked a decrease of 0.9%, continuing a downward trajectory that has persisted since November 2019.​

 

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Dollar Climbs Back, Awaits Inflation Data

The value of the dollar has seen an uptick, currently hovering around 102.5 this Tuesday. This rise comes after a dip below 102 just last week. The shift in momentum is partly due to comments from officials at the US Federal Reserve, who have been hinting that expectations for a decrease in interest rates might be a bit hasty.

Among the voices urging caution were Chicago's Austan Goolsbee and Cleveland's Loretta Mester, adding to similar sentiments previously expressed by John Williams from New York. Across the Atlantic, the European Central Bank and the Bank of England have held their rates steady, committing to higher rates in the fight against inflation. Market participants are now keenly awaiting the US PCE inflation figures, hoping for a clearer picture of inflation trends.​

 

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BoJ Holds Rates Steady in Year-End Meeting

The Bank of Japan (BoJ) concluded its final meeting of the year with a unanimous decision to keep its key short-term interest rate at -0.1% and the 10-year bond yields close to 0%, as anticipated. The central bank also decided to maintain the flexible upper limit for long-term government bond yields at 1.0%.

Amidst significant uncertainties both domestically and internationally, the BoJ committed to persist with its monetary easing policy. The board emphasized its readiness to adjust to changes in economic conditions, prices, and financial stability. The ultimate goal of the BoJ is to sustainably reach a 2% price stability target, ideally alongside rising wages. The committee also expressed its willingness to implement additional easing measures if necessary. Recently, the central bank governor, Kazuo Ueda, acknowledged that wage growth is trailing behind the increase in prices, casting doubt on the sustainability of the inflation target level.​

 

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Hungary's Central Bank Cuts Rates Amid Slowing Inflation

During its December 2023 meeting, Hungary's central bank lowered its key base rate by 75 basis points to 10.75%, aligning with what analysts had predicted. This decision was made as inflation shows signs of slowing down. Similarly, rates for collateralized loans and overnight deposits were decreased to 11.75% and 9.75%, respectively. However, the central bank is standing firm against government calls for deeper rate cuts aimed at stimulating the economy.

In November, the country saw a 7.9% year-on-year rise in consumer prices, the smallest since January 2022, yet still well above the central bank's target midpoint of 3%. The bank predicts a steady reduction in inflation, expecting it to fall to about 7% by the end of 2023, and to re-enter the target range by 2025. Looking forward, policymakers are likely to continue their current approach to rate cuts, mindful of the potential risks of an economic slump in Hungary.​

 

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Rising Consumer Confidence in the Netherlands​

In the Netherlands, December 2023 marked a noticeable uptick in consumer confidence, reaching its peak since January 2022. The confidence indicator improved to -29, up from -33 the previous month. This positive change reflects an enhanced outlook on the overall economic situation.

Specifically, people felt more optimistic when considering the past year (-62 compared to -66) and the year ahead (-19 compared to -28). Moreover, there's a growing readiness among consumers to spend, evident from the rise in their willingness to buy (-21 compared to -24). Importantly, perceptions about financial prospects for the coming year turned positive, moving to 2 from -1. Finally, households viewed the current period as slightly more favorable for major purchases, with the sentiment improving to -40 from -42.​

 

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UK Gilt Yield Hits 8-Month Low Amid Rate Cut Hopes​

Solid ECN – In the UK, the 10-year Gilt yield has dropped to 3.5%, marking an eight-month low, driven by expectations of interest rate cuts in 2024. UK inflation has also decreased to 3.8%, the lowest since September 2021, beating the expected 4.4%. The core inflation rate fell to 5.1%, a low not seen since January 2022, and significantly under the 5.6% forecast.

This has led traders to heavily speculate on the Bank of England reducing interest rates, with predictions of a total cut of 143 basis points. The initial rate cut is expected in March, followed by potentially five more quarter-point reductions, and a 70% likelihood of a sixth cut. In the meantime, the markets are also anticipating a 75 basis point rate cut from the Federal Reserve in 2024.​

 

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US 10-Year Treasury Yield Hits New Low​

The US 10-year Treasury note yield has dropped below 3.9%, reaching its lowest point since July 26th. This decrease reflects traders' expectations that the Federal Reserve might begin reducing interest rates next year. However, some Fed policymakers have expressed reservations about these expectations.

Last week, the Fed unexpectedly hinted at a potential 75 basis points reduction in interest rates next year. Currently, most investors believe there is a 68% chance of the first rate cut happening in March. Despite this, New York Fed President Williams stated last Friday that the Fed is not actively considering rate cuts at the moment. In contrast, Atlanta Fed President Raphael Bostic, in a discussion with Reuters, mentioned he anticipates two rate cuts in 2024, likely starting in the third quarter.

Today, the market's attention is on the auction of $56 billion in 17-week Treasury bills and $13 billion in 20-year bonds. Additionally, traders are looking forward to the release of the PCE inflation data this Friday.​

 

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ASX 200 Dips Slightly, Reflecting Wall Street Sell-Off

Solid ECN – The S&P/ASX 200 Index experienced a slight drop of 0.45%, ending the day at 7,504 on Thursday. This downturn came after the index reached its highest point in over ten months, mirroring a sudden decline in Wall Street due to profit-taking after a significant surge that took US markets to new highs. Caution prevailed among investors as they awaited important economic reports from the US, including GDP and inflation figures, which might affect the Federal Reserve's financial strategy.

In Australia, the Reserve Bank's recent meeting notes revealed a debate over raising interest rates for another month in December. However, the decision was to wait for more information, as there were some positive signs regarding inflation. The drop in the index was mainly due to the downward movement in sectors like mining, finance, and consumer goods. Significant losses were seen in companies like Allkem (down 5.6%), Pilbara Minerals (down 3.4%), Commonwealth Bank (down 0.4%), Macquarie Group (down 0.9%), Aristocrat Leisure (down 2.3%), and Woolworths Group (down 0.4%).​