Markets brace for US CPI data

General market commentary

U.S. equity markets experienced a decline on Tuesday, with the S&P 500 and Nasdaq both falling by 0.3%. This downturn was marked by narrow leadership, particularly in the communication services sector, which saw a notable rise of over 2%, primarily driven by Alphabet's impressive announcement regarding its new quantum computing chip, Willow. This chip is touted to significantly enhance computational capabilities, allowing tasks that would take traditional supercomputers billions of years to complete to be done in mere minutes. In contrast, Oracle faced substantial pressure as its shares plummeted more than 6% following disappointing earnings results, underscoring the mixed sentiment among investors as they await key inflation data that could influence the Federal Reserve's interest rate decisions next week

Overseas markets reflected a similar cautious tone, with European indices trading mostly lower while Asian markets showed mixed results. Bond yields also edged slightly higher, with the 10-year Treasury yield reaching 4.23% and the 2-year yield closing at approximately 4.14%. Investors are particularly focused on the upcoming Consumer Price Index report expected to indicate a monthly inflation rate around 2.7%, exceeding the Fed's target of 2%. While many market participants anticipate a potential rate cut from the Fed next week, some analysts caution that such cuts may be less frequent in 2025 due to ongoing economic pressures, including tariffs and other policy changes that could spur inflation.

Latest market update

Asian equity markets exhibited mixed performance on Wednesday, with Chinese shares rising as investors anticipated government stimulus measures, while Japan's Nikkei 225 fell 0.4% amid inflation concerns. South Korea's KOSPI gained 0.9%, and Australia's S&P/ASX 200 declined by 0.5%, reflecting a cautious sentiment ahead of key U.S. inflation data.

US equity futures are expected to remain steady as investors await crucial inflation data that could significantly influence Federal Reserve policy.

The Euro Stoxx 50 ended its eight-day rally on Tuesday, declining by 0.7% as industrials led the drop with a 1.1% fall, influenced by weaker-than-expected Chinese trade data. Notable market movers included Delivery Hero, which plummeted 10% after a disappointing debut for its Talabat unit, while Commerzbank gained nearly 3% following a board change.

The yield on the US 10-year Treasury rose to around 4.24% on Wednesday, marking its third consecutive day of gains ahead of a key US inflation report. Despite this increase, markets are pricing in an 86% chance of a 25-basis-point rate cut by the Federal Reserve later this month.

The dollar index remained steady around 106.3 today as investors awaited a crucial US inflation report that could influence Federal Reserve policy. Meanwhile, the euro is currently trading at 1.0522 against the dollar, reflecting ongoing market dynamics amid expectations of potential rate cuts from central banks.

Oil prices saw slight gains this morning, supported by optimism over stimulus measures in China, although a firm dollar and geopolitical tensions limited the upside. Additionally, unexpected increases in U.S. oil inventories reported by the American Petroleum Institute added to the cautious sentiment in the market.

Equities on the move

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

Alphabet has unveiled its new quantum computing chip, Willow, which can solve complex problems in under five minutes—tasks that would take traditional supercomputers approximately 10 septillion years. This breakthrough allows for exponential error reduction as more qubits are added, addressing a major challenge in quantum computing and paving the way for future advancements in the field.

Apple is set to introduce satellite connectivity to its Apple Watch Ultra by 2025, allowing users to send messages without cellular or internet access. Additionally, the company is developing a blood pressure monitoring feature for the smartwatch, enhancing its health-related functionalities.

Tesla sold 21,900 electric vehicles in China during the first week of December, marking its highest weekly sales in the fourth quarter of 2024. This follows a record month in November, where Tesla's sales exceeded 73,000 units, with the Model Y remaining the best-selling passenger vehicle in China with total sales of 556,000 units over the past year.

General Motors announced it will cease funding its Cruise robotaxi project, citing the significant costs and time required to scale the business amid increasing competition in the market. The automaker plans to integrate Cruise into its driver assistance technology division, focusing on enhancing systems like Super Cruise, while expecting to reduce spending from $2 billion to $1 billion annually.

Citigroup is on track to meet the upper range of its 2024 revenue projections, with a target of $80 billion to $81 billion, as confirmed by CFO Mark Mason. The bank plans to enhance shareholder returns through increased share buybacks, having already completed half of its $1 billion buyback goal for the current quarter.

MicroStrategy shares rose 3.3% amid speculation about the company's potential inclusion in the Nasdaq 100 index, set for rebalancing on December 13, 2024. This follows a year of significant growth for MicroStrategy, driven by its aggressive Bitcoin purchasing strategy, with the firm holding approximately 423,650 bitcoins valued at around $41 billion.

Mizuho raised its price target for Amazon from $240 to $260, highlighting the growing opportunities in generative AI applications as a key driver for growth. The firm expects significant advancements from Amazon Web Services, particularly with innovations like the Trainium2 chip and the Bedrock platform, which are set to enhance app development and reduce costs in the generative AI space.

Bernstein analysts upgraded American Airlines to Outperform from Market-Perform, raising the price target from $14 to $24 due to an improved industry outlook and a new co-branded credit card deal with Citi expected to boost cash flow significantly. The airline's fourth-quarter earnings guidance has increased by 73%, now projected at $0.55-$0.75 per share, driven by lower fuel costs and stronger pricing.

Goldman Sachs upgraded Norwegian Cruise Line Holdings to a Buy rating, raising its price target from $29 to $35, citing strong demand and improved financial prospects for the cruise sector in 2025. The investment bank anticipates that demand will significantly outpace supply, enhancing pricing power and resulting in a projected increase in new-to-cruise passengers.

Upcoming data and events

Data due for today includes the November Consumer Price Index (CPI) and core CPI figures, along with expected earnings reports from Adobe, which will offer valuable insights into both inflation trends and the company's financial performance.

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