Markets brace for inflation test ahead of Fed

General market commentary

Equity markets finished higher on Thursday, led by gains in industrial and technology shares. The Nasdaq Composite rose slightly by 0.2 per cent, while the S&P 500 edged 0.1 per cent higher. The Dow Jones Industrial Average was broadly flat, slipping by less than 0.1 per cent. Strength in industrials, technology and communication services offset weakness in consumer staples, healthcare and consumer discretionary equities. Rising US Treasury yields, with the ten year yield reaching 4.10 per cent, accompanied the moves as investors reassessed the outlook for monetary easing.

Labour market data created a mixed backdrop for equities. Initial jobless claims fell to 191000, the lowest since 2022 and below expectations, while planned layoffs dropped sharply in November. This resilience complicated market expectations for next week’s Federal Reserve meeting, although markets continued to price in a high probability of a rate cut. The US dollar strengthened modestly and WTI oil traded higher after US Russia discussions failed to produce progress toward a peace agreement. Among individual names, Meta Platforms climbed on budget cut reports and Dollar General surged after raising guidance, while Intel fell following news it would retain its networking and communications unit.

Latest market and economic update

Asian equity markets were mixed on Friday as investors assessed shifting central bank signals. Japan’s Nikkei 225 fell sharply on rising Bank of Japan rate-hike expectations, while Chinese benchmarks were flat and Hong Kong edged lower. India traded cautiously ahead of the RBI decision, and South Korea gained, with Singapore and Australia largely steady.

US equity futures were largely unchanged as Wall Street closed flat, supported by expectations of a Federal Reserve rate cut ahead of the PCE inflation report. In after-hours trading, Ulta Beauty surged 6% on strong earnings, while Hewlett Packard Enterprise and SoFi Technologies fell 9% and 6%, respectively, following weaker-than-expected revenue and updates.

European equities closed higher on Thursday, led by rebounds in banks and automakers. The STOXX 50 and STOXX 600 both gained 0.5%, with Inditex extending gains from the previous session and Stellantis rising 3.6% after a UBS upgrade. Mercedes, BMW, Volkswagen, Santander, BNP Paribas and BBVA also advanced, while pharmaceutical giants Sanofi and Bayer fell.

The US dollar steadied around 99 on Friday, poised for a second weekly decline amid expectations of a Federal Reserve rate cut. Markets price an 87% chance of a 25-basis-point cut next week, with further reductions likely next year. The dollar traded at 1.1655 against the euro, pressured by Fed easing prospects and mixed US labour data.

Oil prices were on track for a weekly gain, supported by expectations of a Federal Reserve rate cut, rising U.S.–Venezuela tensions and stalled Moscow peace talks, though both benchmarks eased slightly on Friday. Brent hovered near $63, while WTI held above $59. Supply risks, geopolitical uncertainty and steady OPEC+ output helped offset signs of a growing surplus.

US initial unemployment claims fell to 191,000 last week, the lowest since September 2022, easing fears of a weakening labour market. Despite tech-sector layoffs and weak hiring, overall job losses remain moderate. Continued claims suggest a steady unemployment rate, while the Fed weighs interest rate decisions amid persistent labour market stasis and economic uncertainty.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Netflix has reportedly emerged as the top bidder for Warner Bros Discovery, entering exclusive talks and offering a substantial breakup fee to address regulatory risks. The process has drawn criticism from rival bidders, including Paramount and Comcast, who question the fairness of the sale. Warner Bros Discovery is seeking final bids as industry concerns grow over Netflix’s potential dominance.

Meta shares jumped after reports that Mark Zuckerberg plans steep cuts to its metaverse budget. Executives are considering reductions of up to 30% for 2026, potentially triggering layoffs, as part of wider annual cost reviews. With weaker-than-expected industry competition and ongoing investor criticism, Meta may scale back spending on Quest hardware and Horizon Worlds.

Amazon plans to end its partnership with the U.S. Postal Service by 2026, shifting billions of packages to its own delivery network. Previously the Postal Service’s largest customer, generating $6 billion in 2025, Amazon’s negotiations on new service agreements fell through. The move could make Amazon the most extensive delivery service in the U.S.

Hims & Hers is expanding into Canada after acquiring Livewell, enabling its weight loss programme next year. The move targets Canada’s obesity crisis and limited treatment access. With local leadership appointed, the company aims to broaden personalised healthcare offerings, advancing its international growth and mission to improve global healthcare access.

Rio Tinto plans to raise $5–10 billion through divestments and productivity gains, simplifying its business to three core units and selling non-core assets like titanium and borates. The miner targets $650 million in cost savings, aims to cut unit costs 4% by 2030, and raised its 2025 copper production forecast amid strong market demand.

European car shares surged 2.5–5% after President Trump proposed easing Biden-era fuel economy rules, lowering costs for gasoline vehicles. Porsche rose 5%, Mercedes and Volvo nearly 4%, Stellantis 2.7%. The move, while expected, boosts the sector, amid EU hints of delaying or revising 2035 combustion-engine bans, supporting hybrid and EV strategies.

Ulta Beauty raised its annual sales and profit forecasts, citing strong demand for makeup, skincare, fragrances, and celebrity-owned labels like Fenty Beauty. Third-quarter results exceeded estimates, with sales up 12.9% and EPS of $5.14. The company benefits from lower shipping costs and reduced inventory losses, projecting net sales of $12.3 billion and profit of $25.20–$25.50 per share.

Kroger narrowed its 2025 sales forecast as shoppers grow more selective amid cuts to food-stamp benefits and intensified competition from Walmart and Target. Third-quarter profits beat expectations thanks to cost savings and price cuts, but identical sales fell slightly short. The retailer is also scaling back automated fulfilment centres and adjusting its e-commerce strategy.

Dollar General raised annual profit and sales forecasts after beating third-quarter earnings, driven by strong discount-store demand, cost savings, and inventory control. Focus on low-priced items, in-store improvements, and operational efficiency is helping the retailer gain market share while transitioning from a growth to a mature business model.

Whiskey maker Brown-Forman beat quarterly sales expectations and maintained its annual outlook, as growth in travel retail and emerging markets offset weaker demand in the U.S. and developed markets. Sales fell 5% but exceeded forecasts, with net income down 13%. Fiscal 2026 is expected to be challenging amid consumer uncertainty and geopolitical volatility.

Philips shares experienced the largest one-day fall since February, after Citi raised concerns over growth. CEO Jakobs indicated 2026 organic sales may fall short of the 4.5% consensus, despite expectations of mid-single-digit growth and margin improvement. Tariff headwinds and muted Chinese demand add challenges, though Q3 profit exceeded expectations.

DA Davidson names Microsoft as the top AI investment, citing its strong partnership with OpenAI, which drives 6% of total revenue and 75% of Azure AI. Despite potential OpenAI scaling back, Microsoft retains the most profitable API compute spend, diversifies AI investments, and benefits from seven years’ access to frontier models, maintaining a Buy rating and $650 target.

Goldman Sachs upgraded Societe Generale to Buy, raising its 12-month price target to €72.75, citing efficiency gains and stronger earnings prospects. The bank’s cost-to-income ratio is expected to fall, driving double-digit returns and EPS growth of 19% from 2026–2028. Shares remain attractively valued relative to projected profitability and the broader European banking sector.

Bank of America downgraded Telefonica to Underperform after weaker cash flow, a halved dividend, and stalled strategy. Limited near-term catalysts remain. Europe’s telecoms sector is seen as defensively stronger, with falling capex, rising free cash flow, AI integration, and modest service-revenue and dividend growth projected for 2026.

Upcoming data and events

Friday’s key economic releases include the September PCE inflation and personal spending, followed by preliminary University of Michigan consumer sentiment and inflation expectations for December, US used car prices for November, October factory orders, Baker Hughes rig counts, and October US consumer credit, offering insights into inflation, spending, and credit trends.

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