Dovish policy signals send Dow Jones and Nasdaq 100 to new highs

On Tuesday, US equities extended their upward trend, with the Dow Jones hitting a record high for the fifth consecutive day. Positive economic indicators included a 14% month-over-month increase in U.S. housing starts. The Russell 2000 rose by 2%, continuing its strong performance. Despite optimism fueled by the Federal Reserve’s apparent policy shift, some analysts warn of potential overbought conditions and anticipate a consolidative pullback. Major benchmarks closed with the S&P 500 just 0.6% below its all-time high. Energy shares and retail sectors performed well. European equity markets rebounded on Tuesday, with the Euro Stoxx 50 gaining around 0.5%, driven by a 1.7% increase in the travel and leisure sector; optimism about 2024 interest rate cuts persisted, and final Eurozone inflation figures confirmed a decrease to 2.4%. 

Summary for 20.12.2023 

• Asian equity markets mostly rose on Wednesday, fuelled by expectations of future interest rate cuts by the US Federal Reserve. Japanese shares led the gains after the Bank of Japan maintained its ultra-loose monetary policy, with Governor Kazuo Ueda expressing a more dovish stance. Australian, South Korean, and Hong Kong stocks advanced, while Chinese shares declined as the People’s Bank of China kept benchmark lending rates unchanged amid concerns about the economic recovery. 
• WTI crude futures hovered around $74 per barrel this morning as investors closely watched the Red Sea situation, marked by Houthi attacks disrupting global trade and raising geopolitical concerns. The US initiated a task force to protect Red Sea commerce, while Houthi pledged to continue targeting shipping. Despite efforts to replenish the Strategic Petroleum Reserve, industry data revealed a nearly 1-million-barrel increase in US crude inventories, underscoring the ongoing growth in US oil production, comparable to Saudi Arabia or Russia’s total output. 
• European shares are expected to see modest gains as investors assess the sustainability of the recent global rally, while US stock futures indicate a relatively flat open. 
• The Colorado Supreme Court has ruled that Donald Trump is ineligible to run for president in the state’s primary election due to his actions in inciting the January 6, 2021, attack on the Capitol. This unprecedented decision is expected to be appealed and could ultimately reach the US Supreme Court. 
• US housing starts surged over 14% in November, surpassing expectations and reaching the highest level since May. Despite a modest decline in building permits, construction activity remained resilient. The recent decrease in bond yields contributed to lower mortgage rates, potentially supporting the housing market, although expectations for yields to return to 2020-2021 lows are not anticipated.  
• S&P Global Ratings upgraded Brazil’s long-term ratings to “BB” from “BB-” following the approval of a significant tax reform, reinforcing the country’s pragmatic track record. The move, just two steps from an investment-grade rating, reflects confidence in President Lula’s administration. S&P cites Brazil’s potential slow progress in addressing fiscal imbalances but notes a strong external position and monetary policy. 
• FedEx’s disappointing quarterly profit and lowered full-year revenue forecast led to a 9.8% drop in shares in extended hours yesterday. The company reported a 23% jump in adjusted earnings, falling short of analysts’ estimates, with a 60% drop in operating income at its Express unit due to declining volume from the U.S. Postal Service. FedEx plans to repurchase an additional $1 billion of common stock in fiscal 2024, expressing confidence in improving profitability through restructuring. 
• Airbus is set to break aerospace order records in 2023, with almost 200 jets ordered by easyJet and Lufthansa, potentially surpassing the 2014 peak of around 1,800 gross orders. Industry sources suggest Airbus may exceed the previous record of 1,500 net orders. The surge is driven by airlines renewing fleets amid fears of a jet shortage. Airbus Chief Commercial Officer Christian Scherer’s imminent promotion to CEO coincides with this sales peak. Despite delivery challenges, Airbus aims to meet its 720-aircraft target for 2023, with around 680 planes delivered by December. 
• AIG received an upgrade to Outperform from Market Perform at BMO Capital, with the price target raised to $83 per share from $72. The bullish call emphasizes AIG’s attractive valuation and potential for strong near-term gains, with the revised price target implying approximately 26% upside over the next 12 months. 
• JPMorgan downgraded PepsiCo from Overweight to Neutral, lowering the price target to $176 from $185 per share. Despite acknowledging PepsiCo’s well-positioned state and confidence in its 2024 outlook, analysts see limited potential for further earnings forecast upward revisions and believe more attractive investment opportunities exist elsewhere within the beverage sector, highlighting Coca-Cola and Keurig Dr Pepper. 
• Bank of America raised Boeing’s price target to $275 from $250, maintaining a Buy rating, citing progress towards the company’s full-year delivery targets for the 737 and 787. BofA noted Boeing’s potential return to a production rate of 31 aircraft per month for the 737 and highlighted the 787 program’s on-track status.