Equities extend rally as markets bet on Fed pivot

US equities finished higher on Wednesday, ahead of the inflation report today as investors continued to gauge the monetary policy outlook following the latest economic data and the FOMC minutes. The Dow Jones ended 0.2% higher, while the S&P 500 and the Nasdaq gained 0.4% and 0.7%, respectively. The release of the most recent batch of Federal Reserve meeting minutes stirred hopes the central bank may be done raising interest rates.  Earlier data showed that both headline and core producer prices in the US rose more than expected, aligned with the Fed’s concerns about stubborn inflation. Elsewhere, European shares ended mixed yesterday, with the German DAX advancing by 0.2% while the Euro Stoxx 50 index eased by 0.1%.  The latter was dragged lower by the luxury sector due to disappointing results from LVMH. 

Summary for 12.10.2023 

• Asian equity markets rose on Thursday, extending a rally amid growing expectations that the US Federal Reserve is done raising interest rates. Those moves came even after the Fed’s last meeting minutes showed US policymakers expect rates to remain elevated for some time to bring inflation down, while US producer inflation came in hotter than anticipated in September. Shares in Australia, Japan, South Korea and Hong Kong all advanced. Mainland China shares also gained following news that a state fund increased stakes in the country’s biggest banks.  
• European and US equity futures edged higher in the lead up to the ECB minutes and the US’ CPI report. 
• Oil prices extended losses for a third session after industry data showed US crude inventories increased by a huge 12.94 million barrels last week, exceeding forecasts for a 1.3 million barrel build and reversing from a 4.21 million barrel decline in the preceding week. 
• China’s sovereign wealth fund increased its stake in the nation’s biggest banks for the first time since 2015, stoking speculation authorities will intensify efforts to prop up the sinking equity market. State-owned Central Huijin Investment bought about $65 million of shares in Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commerical Bank of China, according to filings Wednesday. While the equity purchases by Huijin are small, they mirror efforts made during the equity market crash eight year ago to put a floor under prices and minimise panic selling. 
• The minutes from the FOMC’s September meeting noted solid economic growth in Q3, tightness in the labour market, and still-elevated inflation. But bank officials also said the supply-demand imbalance for labour appeared to be easing. Additionally, a majority of members agreed that one more increase in the benchmark funds rate would be appropriate, and the committee reinforced the higher-for-longer narrative. Still, the minutes did little to alter expectations that the rate increase in July was the last for this tightening cycle. 
• On the inflation front, the US Labour Department said yesterday that the Producer Price Index rose 0.5% in September from the month before. That was slower than August’s 0.7% increase but still above the 0.3% increase analysts had expected. Core PPI rose 0.3%, slightly above the 0.2% analysts had forecast. 
• Dialysis provider DaVita dropped 17% in yesterday’s session, while fellow provider Fresenius Medical Care tumbled 18% on reports that Novo Nordisk’s diabetes drug Ozempic had showed signs of successfully treating kidney disease. Novo Nordisk shares rose 6.2% and are up nearly 45% this year. 
• Pioneer Natural Resources rose 1.4% after Exxon Mobil agreed to buy the energy producer for nearly $60 billion, or $253 per share in an all-equity merger. Exxon Mobil shares fell 3.6%. 
• Plug Power rose 5.3% on Wednesday after the battery company forecast a sharp rise in revenue by 2027 to roughly $6 billion. 
• Shares of German sandal company Birkenstock fell 12.6% below their offer price on their debut on the New York Stock Exchange on Wednesday. That is nearly double the valuation at which a private equity group backed by French billionaire Bernard Arnault and his luxury goods empire LVMH acquired a majority stake in the brand in 2021.