We see mixed markets at the start of December and after one of the strongest months for Wall Street and global equities in decades. While European stocks benefited from improved manufacturing data (which is still deep in contraction territory), we see Wall Street weaker before the open. The losses – similar to yesterday – are mainly in growth and technology stocks. The Nasdaq 100 is down -0.25% in pre-market trading.
The consecutive positive weeks have pushed back concerns as to whether the rally and the Fed's rate cut optimism have gone too far. However, with Fed Chairman Jerome Powell's comments on current monetary policy, the outlook, inflation and the state of the US economy, we are seeing these fears resurface – at least temporarily.
This week's inflation figures, including yesterday's US PCE data, suggest that disinflation is continuing – albeit at a faster pace in Europe than in the US. The inflation data, as well as dovish comments from Fed officials, have supported fears that rate cuts are imminent and that swap markets are anticipating rate cuts as early as March/April.
Trading volumes remain low and investors are largely on the sidelines. I believe that the markets will not react positively to Powell's comments and that we will also see some profit taking ahead of the speech. Overall, however, we do not expect heavy profit-taking next week – investors' hopes that the rally will continue are still too high.
Oil prices remain on the decline, further reducing the impact on inflation. The volatility in oil prices in recent sessions has also been caused by trading bots, which have increased their trading volumes enormously. But even apart from oil price volatility, we see further headwinds for oil prices. The OPEC+ alliance announced new production cuts of around 900,000 barrels per day for the coming year – but the cuts are voluntary and there is little reason for countries to reduce production if other OPEC+ members (such as Angola, which has already rejected its quota) or non-OPEC members such as the US continue to increase production.
Powell scaling back dovish expectations (or trying to) and the resilience of the US economy have helped the USD trim some of its recent losses, but in the medium term the USD remains bearish. Investors are still underestimating the strength of the JPY recovery in the coming months. As long as interest rate expectations remain intact, gold will continue to rise. Even though Powell has tried to push them back – the impact of Powell's words will probably be limited.
Nevertheless, we expect profit-taking – also due to fears that the situation between Israel and Hamas will escalate again and ahead of the weekend.
👁 ROB'S MARKET OVERVIEW:
December 01, 2023
🌐/🇺🇸 Global/US Markets ↕️/↘️ (mixed markets; slight profit taking)
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ↘️
Financial Stocks ↘️/➡️/↘️
Defensive Stocks ↗️/➡️ (rotation from growth to more defensive such as consumer staple / health)
Energy Stocks ↕️/↘️
Materials Stocks ↗️ (improving manufacturing data provides tailwinds to the materials sector)
💱 Forex
JPY ➡️/↗️
USD, AUD ↗️/➡️
GBP, CHF ➡️
CAD ↗️/↘️
EUR ↘️
⚒ Commodity Markets ↕️
Oil prices ↕️/↘️ (remains bearish – benefits from improving manufacturing data)
Natural Gas prices ↕️
Metal prices ↗️/➡️
Gold ➡️/↘️ (remains in demand but may see some profit taking on hawkish Powell comments)
⚡️Cryptos ↕️/↗️ (may receive some headwinds on hawkish Powell comments but remains bullish)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
