Rate cut rally takes a breather

On Wednesday, US equities experienced a late sell-off, with the S&P falling 1.5% and the Dow dropping 476 points, erasing initial gains. The dip was attributed to market fatigue after a recent surge and a pause following Tuesday's rally. The absence of a specific catalyst suggests a natural correction. Small-caps, after a 23% rally, and certain sectors like utilities and consumer staples performed poorly. The late sell-off wasn't linked to news, but disappointing FedEx results raised concerns. Technical indicators suggested an "overbought" market, prompting a mean-reverting move. Eurozone shares closed flat, with the Euro Stoxx 50 at 4,537. Lower-than-expected producer prices in Germany contributed to a slight rebound in European government bonds. Flutter Entertainment led gains, while Airbus, Safran, and SAP shares declined.

Summary for 21.12.2023

Most Asian stocks fell as investors locked in profits after a dovish Fed-triggered rally. Japan's Nikkei 225 led losses, dropping 1.6% due to a Toyota-Daihatsu scandal. Toyota shares fell nearly 4% after suspending Daihatsu unit shipments due to safety breaches. Australian and South Korean stocks declined, while Chinese shares showed mixed performance. India's Nifty 50 futures hinted at a positive open.

Global equity markets are showing mixed signals this morning with European shares set to decline after the global rally paused, while US equity futures edged higher following profit-taking in yesterday’s session.

Oil prices fell in Asia this morning as unexpected US inventory growth of 2.9 million barrels and potential Israel-Hamas ceasefire talks in Egypt weighed on supply disruption fears. Brent and West Texas Intermediate crude futures declined amid concerns about the oversupplied oil market in 2024. The Israel-Hamas conflict, ongoing since October, hasn't notably impacted oil supplies, but concerns persist over its potential escalation involving more Middle Eastern powers.

Philadelphia Fed President Patrick Harker suggested the Federal Reserve should start lowering interest rates, differing from some peers who resisted the idea. Harker's remarks hinted at potential rate cuts, contrasting with recent comments from other Fed members. Additionally, ECB Governing Council member Martins Kazaks suggested the ECB might cut rates around mid-2024, later than market expectations.

In November, US existing home sales rose by 0.8% to a seasonally adjusted annualized rate of 3.82 million units, rebounding from October's 3.79 million, the lowest since August 2010. The increase was attributed to a decline in mortgage rates. Total housing inventory was 1.13 million units, down 1.7% from October. The median existing-home price was $387,600, a 4% YoY increase. The National Association of Realtors predicts 4.71 million existing-home sales in 2024, up 13.5% from the anticipated 4.1 million in 2023.

In November 2023, the UK's annual inflation rate eased to 3.9%, the lowest since September 2021, down from October's 4.6% and below the forecasted 4.4%. The decline was driven by reduced prices in transport, recreation and culture, and food and non-alcoholic beverages, particularly motor fuels, computer games, and bread. Annual core inflation fell to 5.1%, the lowest since January 2022.

Toyota Motor shares dropped 3.8% as Japan's transport ministry inspected a subsidiary, Daihatsu Motor, over safety concerns dating back decades. Daihatsu halted vehicle shipments indefinitely due to safety-inspection irregularities involving 64 models, impacting Toyota's brand. The transport ministry may impose penalties, including revoking production certification. Toyota also announced a global recall of 1.12 million vehicles due to airbag deployment issues.

Boeing has obtained clearance from China's aviation regulator, a crucial step toward resuming deliveries of the 737 MAX to China after a four-year hiatus. Although individual aircraft deliveries still require approval from China's National Development and Reform Commission, this development marks progress. Boeing sees this as a significant step toward reestablishing a foothold in one of the world's key aerospace markets.

FedEx shares tumbled 12% on Wednesday following disappointing results and a weak outlook, contributing to a broader market selloff. The decline was driven by a 60% drop in quarterly operating income for its Express unit, influenced by macroeconomic conditions and reduced demand from the US Postal Service. Analysts expressed concern, leading to multiple price-target cuts. FedEx's struggles are seen as reflective of broader economic challenges, affecting its market value by approximately $8 billion.

Micron Technology's shares surged nearly 5% in extended trading yesterday after the company forecasted quarterly revenue above market estimates. The memory chipmaker anticipates a recovery in memory chip demand in 2024 after a significant downturn. Micron expects improved memory prices next year and further increases in 2025. The company's forecasted second-quarter revenue of $5.3 billion surpassed estimates, reflecting signs of recovery in the memory market for memory and flash storage. The demand for high-bandwidth memory chips, crucial for AI applications, is also expected to drive growth.

Apple is reportedly preparing to launch its Vision Pro mixed-reality headset in February, with production underway in Chinese facilities. Priced at $3,500, the complex product requires customized sales strategies, and Apple is enhancing its retail stores to accommodate it. Retail staff is undergoing training on the Vision Pro's features and sales techniques. The company is also developing visionOS, the device's next operating system version, expected in 2024.

Warner Bros. Discovery shares dropped over 5.7% on Wednesday after reports revealed early talks with Paramount Global on a potential merger. The CEOs of both companies reportedly met in New York City. The discussions explored merging streaming services Paramount+ and Max. Warner Bros. Discovery has a market value of around $29 billion, while Paramount's is just over $10 billion, indicating an uneven merger scenario. This move could signify further consolidation in the news and entertainment sector.

Wells Fargo downgraded software stocks, including Zoom, DocuSign, and Everbridge, citing ongoing challenges for pandemic-boosted companies. The analysts expect increased activist/M&A interest in 2024 but don't anticipate significant fixes for struggling business models. Salesforce was downgraded due to its stock performance, with expectations of more range-bound shares in 2024.

Wedbush analysts predict that Apple will become the first $4 trillion market cap company by the end of 2024, based on anticipated growth and monetization. The analysts maintain an outperform rating and a $250 per share price target, citing a strong holiday season and iPhone 15 growth exceeding Street estimates. Wedbush values Apple's Services business at $1.5 trillion to $1.6 trillion. They anticipate a robust year for Apple in 2024 amid a new tech bull market.

Lowe's shares inched down yesterday after Stifel downgraded the home improvement retailer from "buy" to "hold." The analysts cited a "more cautious approach" to Lowe's fiscal year 2024 and uncertainty about its ability to contend with a more sluggish category. Last month, Lowe's reduced its full-year financial guidance due to a larger-than-anticipated pullback in consumer spending on big-ticket products in the third quarter, reflecting a broader slowdown in purchases of pricier items amid inflation concerns.

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