Major indices post consecutive weeks of gains

US equities closed mixed on Friday, with the S&P 500 and Nasdaq extending seven-week winning streaks. The Dow Jones hit a record high for the third consecutive day. The market rallied earlier in the week on the Federal Reserve’s indication of three potential rate cuts in 2024. New York Fed President John Williams tempered enthusiasm by stating the Fed isn’t currently discussing rate cuts. The week concluded with a somewhat sideways market, suggesting a potential consolidation phase, influenced by declining Treasury bond yields.  Meantime, European shares inched up on the final day of the week, with the Stoxx 50 index posting its fifth straight weekly advance.  For the week, rate-sensitive real estate shares were the top gainers, while the telecommunication sector took the worst hit. 

Summary for 18.12.2023 

• Asian shares opened the week with a decline, influenced by concerns about the potential tightening of Japan’s monetary policy.  The Bank of Japan is speculated to move away from negative interest rates, with analysts predicting a possible shift in April.  Shares in Australia, Japan, Hong Kong and mainland China all declined. 
• European shares are set to inch lower as traders reassessed their expectations for Fed policy next year while US are anticipating a steady open steadily, with investors awaiting key economic indicators for guidance. 
• Oil prices climbed this morning as WTI crude futures neared $72 per barrel.  Lower exports from Russia and Houthi attacks on ships in the Red Sea, raising supply disruption concerns, contributed to the gains.  The weakened dollar and larger-than-expected US inventory data also supported crude oil prices. 
• In November, US manufacturing output increased by 0.3%, driven by a motor vehicle production rebound post-labour strikes. However, excluding vehicles, manufacturing output declined by 0.2%, indicating broader challenges. The sector faces hurdles such as high borrowing costs and weak demand, with uncertainties despite the Federal Reserve’s dovish stance and prospects of 2024 rate cuts. The services sector contrasts with manufacturing, showing growth. The S&P Global PMI reached a five-month high, but caution prevails due to manufacturing’s ongoing struggles and the potential shift in the U.S. economy’s growth engine. 
• China’s economy is expected to face favourable conditions in 2024, with macroeconomic policies supporting recovery. Officials aim to shift from post-pandemic recovery to sustained consumption growth, focusing on areas like smart homes and tourism. Ongoing policies, including treasury bond issuance and interest rate cuts, will continue, and efforts to stabilize the real estate market persist. 
• Fitch Ratings affirmed Brazil’s long-term foreign-currency issuer rating at “BB” with a stable outlook, citing President Lula’s pragmatic policies in the first year of his third term. The government’s aim to eliminate the primary budget deficit next year is viewed as increasingly doubtful, given uncertainties and required congressional approvals. Brazil’s ratings are supported by its large and diverse economy but constrained by weak growth potential, low governance scores, high government debt/GDP, and budgetary rigidities. 
• Pemex’s growing debt, exceeding $105 billion, with oil service providers and private producers poses a threat to production, investment, and the survival of suppliers, warns industry groups. In addition to financial debt, Pemex owes about $17.22 billion to local and foreign companies, prompting concerns over delayed payments affecting hydrocarbon production in Mexico. 
• US bank shares declined on Friday after New York Federal Reserve President John Williams stated that discussions about interest-rate cuts are premature. Williams’ comments tempered market expectations for early 2024 rate cuts, leading to a modest pullback in banking shares. Analysts, however, maintain optimism for the sector’s outlook in 2024, citing a recent rebound and anticipating potential benefits from lower rates and improved investor sentiment. 
• H&M’s local-currency sales for Q4 declined by 4%, exceeding analyst expectations for a 3% drop, marking the largest decline since Q3 2022. The Swedish fashion retailer faces increased competition from Zara owner Inditex, which reported a 15% rise in local-currency sales for the nine months through October. H&M aims to prioritize profit margin over sales, focusing on selling more expensive products with fewer discounts. 
• Shares of DocuSign surged up to 12.5% on Friday following reports that the e-signature company is exploring a sale. The Wall Street Journal revealed the early-stage discussions, with private equity and tech firms potential bidders. While no deal is guaranteed, analysts suggest the move could attract interest, considering DocuSign’s market cap of around $11 billion. 
• Morgan Stanley reaffirmed an “Overweight” rating and set a 12-month price target of $380 on Tesla, emphasizing confidence in the electric automaker’s technology despite a recall of over 2 million vehicles for a faulty autopilot system. The analysts highlight Tesla’s leading position in edge AI and the potential of diverse revenue drivers beyond the core auto business, such as Network Services, Mobility, Energy, and Insurance. Tesla plans to address the recall through an Over-The-Air software update with no substantial cost impact anticipated for FY24. 
• UBS analysts upgraded Boeing to a Buy rating and raised the price target to $315 from $275 per share, citing further re-rate potential after a 23% rise in the stock over the past month. Strong November deliveries, improving supply chain conditions for the 737 MAX, and robust demand for new aircraft contribute to UBS’s positive outlook on Boeing’s valuation. The equity currently trades at a 15% discount to its historical relative based on free cash flow. 
• Costco reported little to no inflation overall and noted deflation in some larger-ticket items, particularly in furniture sets and bulky, lower-priced items, driven by lower freight costs. The company estimated inflation in the 0% to 1% range for the recently ended quarter, with some deflationary items experiencing reductions of 20% to 30%, primarily due to freight-related factors. 
• Wells Fargo upgraded General Electric to Overweight with a price target of $144, citing value in GE’s aerospace assets, a clean balance sheet, and potential margin upside. The analysts anticipate high-teens pro forma EPS CAGR for GE (excluding Vernova) over the next few years, driven by double-digit organic sales and capital allocation. The Vernova spin-off is expected in early Q2 2024. 
• Colgate-Palmolive shares rose Friday following an upgrade from Bank of America to Buy from Neutral, accompanied by a price target increase to $90 from $75 per share. BofA analysts noted the company’s sales and margin inflection, raising their FY24 and FY25 EPS estimates and expecting share price differentiation in the Consumer Staples coverage universe in 2024. Key drivers include positive US volume and market share, above-average emerging markets growth, and margin expansion. 
• Bank of America raised its price target for Nike to $130 from $110 while maintaining a Neutral rating. The firm anticipates a consensus sales miss for Nike in both 2Q and 3Q24 but expects the company to beat consensus EPS expectations. The key debate is now focused on the sales turnaround, and analysts will look for signs of accelerating direct-to-consumer trends and successful innovation to support a sales acceleration in 4Q. 
• Bernstein analysts have made an unconventional call to buy Nvidia shares, which has surged more than 230% year-to-date. Despite the impressive performance, the analysts consider the stock’s massive returns as disappointing and highlight its current affordability, trading at its cheapest level since the 2018 crypto blow-up. They believe in the long-term opportunity for Nvidia, emphasizing its potential for sustained growth. 
• Global markets await key economic data this week. In the US, attention turns to the annual PCE price inflation, durable goods orders, housing data, and Q3 GDP growth. Euro Area eyes final inflation figures and consumer confidence. The UK prioritises the November CPI report and retail sales. Asian markets monitor China’s Loan Prime Rates, China and Japan’s monetary policy, and economic releases in Australia.