Stocks can edge higher in Europe and in pre-market US trading with also bonds continuing their November rally as expectations grew that the Federal Reserve is done tightening monetary policy and could begin cutting interest rates next year. We see similar expectations also from European traders especially after Spanish and German inflation data came in well below expectations.
Bonds are rising at the fastest pace since 2008 driven by the rapid disinflation and was in particular pushed by surprisingly dovish comments from Fed Governor Christopher Waller who also said high rates should not be maintained if inflation goes back to target rate. Some other analysts, such as Bill Ackmann, further increase rate cut hopes. Ackmann expects rate cut in the upcoming quarter (I think that's unlikely). Gains have been strong and went far – globally – the MSCI All Country World Index has gained more than 8.7% in November – the best monthly performance since November 2020. I see limited upside from here.
The USD saw a sharp decline in recent days but has interrupted the four-day slide in early US trading. The USD normalization will continue. I see near-term rebound potential of the EUR increasingly limited. Investors are still underestimating the recovery of the JPY in 2024 (but also in all other time-frames).
US stock futures pointed to a 0.4% rise in the S&P 500 at the open and the European Stoxx 600 index rose by the same amount – gains in Europe, however, are limited as the falling inflation is also a product of weak consumer & industry demand.
General Motors rose nearly 6% in pre-market US trading after the company announced it would increase its dividend by 33% and implement a $10 billion share buyback program. Cloud software giant Salesforce will report earnings after the bell today – I expect signs of weakness in corporate spending.
The market overreacts on everything that Fed speakers say – especially when considered dovish. There is much room for disappointment. I expect other Fed officials to be less dovish than Waller.
German bonds rallied for a third day, the longest in a month boosted by cooling inflation (expectations). The hopes for rate cuts and the falling yields are the current main driver for stock market strength – not the actual strength of the economy.
Elsewhere, oil prices climbed for a second day as traders awaited a key OPEC+ meeting on supply. I expect slight further gains but shaky tailwinds that any production curb would be a sign that the OPEC+ expects oil demand to remain weak for longer. Gold is near a 6-month high, boosted by falling yields which are driven by hopes of a change in Fed policy.
Given the overall positive fundamentals today and potentially also hopes of cooling US inflation data tomorrow – we will likely see slight gains in New York. If S&P 500 and the Nasdaq 100 reach 2023 highs – we may see additional gains due to a short squeeze. Overall, however, I see near-term upside limited unless more Fed officials give dovish statements.
👁 ROB'S MARKET OVERVIEW:
November 29, 2023
🌐/🇺🇸 Global/US Markets ↗️/➡️ (gains – with sideways movement in second half of US trading)
Cyclical Stocks ↗️/➡️
Tech/Growth Stocks ↗️/➡️
Financial Stocks ➡️
Defensive Stocks ➡️
Energy Stocks ↗️ (likely with positive performance today)
Materials Stocks ↗️/➡️ (as Asian markets remained weak – limited upside potential)
GBP, JPY, CHF, CAD ➡️/↗️
USD ↗️/➡️ (USD with rebound attempt after overselling; remains bearish)
EUR ↗️/↘️ (EUR face headwinds on rising ECB rate cut expectations)
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️ (benefiting from OPEC+ production curb expectations; oil remains bearish)
Natural Gas prices ↘️
Metal prices ↘️/↕️ (weak Chinese economy continue to weigh on metal prices)
Gold ➡️ (faces resistance short-term towards $2,050 – but gold remains bullish)
⚡️Cryptos ↗️ (I see cryptos benefiting more than almost all other asset classes from rate cut hopes)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)