Market believes Fed pivot is near

Equities wrapped up the week with modest gains, marking the S&P 500’s third consecutive weekly rise, driven by optimism about a potential end to the Federal Reserve’s rate-hiking campaign amid favourable economic data. Small-caps and cyclical sectors led the rally, fuelled by a surprising slowdown in inflation as reflected in CPI and PPI reports. Bond yields, inflation trajectory, and the Fed’s stance remain key factors guiding market sentiment, with the 10-year Treasury note yield falling to a two-month low. Retail and energy sectors were among the day’s strongest performers, with Gap’s strong quarterly results contributing to a 30% surge in its share price. European shares also closed higher, with the Stoxx 50 index up 0.9% on Friday, boosted by financials and healthcare, and ending the week 2.9% higher on optimism for aggressive central bank interest rate cuts in 2024 amid slowing global growth.

Summary for 20.11.2023

Asian markets mostly rose on Monday, driven by a rebound in Chinese equities following promises of additional government stimulus for the economy. The Nikkei 225 briefly reached a 30-year high, supported by strong earnings and optimism about the Bank of Japan’s dovish monetary policy, while investors across the region remained cautious ahead of key cues from the Federal Reserve and Nvidia’s quarterly earnings.

European shares are on track for a muted start as investors continue to weigh up the outlook for global monetary policy, while US equity futures dip ahead of Nvidia’s eagerly awaited earnings report and guidance.

Oil futures rose this morning, driven by expectations of OPEC+ potentially deepening supply cuts to counter falling prices amid easing concerns of Middle East supply disruption. Crude prices increased on Friday after reports that OPEC+ is considering additional supply cuts at its Nov. 26 meeting, though prices are still down nearly 20% since late September due to ample supplies, contango market conditions, and geopolitical developments.

The latest housing market indicators revealed a positive trend, with a nearly 2% increase in housing start in October, driven by strong gains in both multifamily and single-family units. Additionally, housing permits, a forward-looking signal for construction, exceeded expectations with a more than 1% rise. This suggests a favourable outlook for the consumer, and the recent decline in mortgage rates may contribute to further improvement in the near term.

Susan Collins, President of the Federal Reserve Bank of Boston, created market ripples on Friday by stating that interest rate hikes are probable, citing the persistent 3.4% core inflation rate as a concern despite the recent softening in inflation. Her remarks highlight the intricacies of stabilising prices, signalling potential challenges for businesses and consumers amid the central bank’s delicate balancing act in monetary policy.

Moody’s has maintained Italy’s sovereign debt rating at Baa3, while unexpectedly upgrading the outlook to stable from negative, citing a stabilisation of economic strength, a healthier banking sector, and improved government debt dynamics.

Argentina elected right-wing libertarian Javier Milei as president, securing 56% of the vote against rival Peronist Economy Minister Sergio Massa. Milei, known for radical economic views, vows to implement shock therapy, including shutting the central bank and ditching the peso for the US dollar, to address Argentina’s economic challenges, such as triple-digit inflation, recession, and rising poverty.

OpenAI’s board has hired Emmett Shear, the former chief executive officer of Amazon’s game-streaming site Twitch, to replace Sam Altman, who was fired as CEO on Friday. Efforts to reinstate Altman after a busy weekend of negotiations appeared to fail late on Sunday in San Francisco. Altman’s ouster sent ripples across the business world and followed his efforts to raise billions of dollars for a new chip venture.

Expedia’s shares rose 5.4% of Friday after Evercore upgraded the company to Outperform, attributing it to its growth potential and positive Q3 results. The shares have seen a 55.8% increase this year, driven by successful initiatives like the OneKey loyalty programme and completion of Vrbo unit integration. The upgraded price target of $200 suggest a 46% upside, reflecting confidence in Expedia’s future performance.

British billionaire Jim Ratcliffe is set to acquire a 25% stake in Manchester United for $33 per share, valued at about $5.4 billion. While the Glazer family will retain ownership, Ratcliffe plans to overhaul the club’s football operations, with the deal marking the end of a year-long sale process and prompting a 9.5% rise in Manchester United’s US-listed shares on Friday.

A Missouri jury has ordered Bayer to pay $1.56 billion to four plaintiffs who alleged that the company’s Roundup weedkiller caused cancer, marking the fourth consecutive legal loss for Bayer. The jury found Bayer’s Monsanto business liable for negligence and design defects, and Bayer intends to appeal, stating that studies support the safety of Roundup and its active ingredient, glyphosate.

All eyes this week will be on the release of FOMC meeting minutes in the US, along with key economic indicators including durable goods orders and PMIs for both services and manufacturing. Noteworthy earnings reports are expected from major companies such as Nvidia, Lowe’s, and Best Buy. Elsewhere, preliminary PMIs for major economies like Germany, the Euro Area, and Japan will be closely monitored, as well as the interest rate decision in the UK and inflation rates in Canada and Japan.

Disclaimer: The article is issued by Calamatta Cuschieri Investment Services Ltd, which is licensed to conduct investment services business under the Investments Services Act by the MFSA. For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.