Volatility spiked alongside a jump in rates this week after a hawkish pivot by the US Federal Reserve. Unfortunately the Fed was not the only impediment to investor sentiment. A string deteriorating breadth for the S&P continued and volumes rose ahead of the FOMC and options expiration. Dysfunction in DC, specifically the Republicans inability to get a short term spending bill out of the House, cast a pall over just how effective they will govern when Trump retakes the reigns next month. Elon Musk and President-elect Trump appeared to kill a bipartisan deal that had been on the table through their effective use of social media, leaving Congress in limbo ahead of a Saturday deadline and potential government shutdown. Also, a number of disappointing earnings reports from the likes of Micron, Lennar and Nike came alongside continued weakness in industrial PMI readings, weaker than expected new home sales, and the largest current account deficit on record, keeping investors on edge. Worries about stagflation and bond vigilantes resurfaced in some circles as rates pushed to new post-election highs despite the Fed’s decision to cut short term rates by another 25 basis points.
Wednesday’s FOMC announcement and Powell’s press conference in particular were clearly the main event and driving force triggering a crescendo in trading. The Fed delivered what many expected, a decidedly hawkish cut. SEP dots matched that of the markets, projecting just two rate cuts in 2025, and futures quickly leapfrogged that taking the December 2025 projected fed funds rate back up to 4.00%. Powell acknowledged the decision to cut was a close call and the Fed pushed out their expectation for inflation getting back to target to 2027. He noted higher inflation and increased uncertainty were two main reasons they were pulling back 2025 rate cut forecasts. He was also repeatedly pressed about his confidence and thinking around the inflation path, while admitting progress has taken longer than he would have liked to see. The US 10-year yield climbed above 4.5% for the first time since May, taking it above the current fed funds rate. The US dollar moved out to a 2-year high amid significant weakness seen in emerging market currencies. The VIX surged more than 70% in the immediate aftermath of the Fed decision and US indices plunged led by the Russel 2K which fell ~5% on the day.
Markets found a modicum of stabilization heading into Thursday’s session after a string of other central bank announcements, highlighted by the BOE and BOJ, which both offered up more dovish message than the Fed. Momentum pick up further into Friday’s trading after November Core PCE of 0.1% fell to the level Chairman Powell foreshadowed at the FOMC press conference, offering hope core year-over-year numbers will look more promising in 2025. Following that welcomed print, several Fed speakers hit the tape. 2025 voter Goolsbee comments goosed sentiment Friday morning as he said rates are still likely to come down by a 'judicious amount' next year. The VIX deflated, stocks climbed, recouping a significant portion of Wednesday’s losses, while rates came off the highs of the week. House speaker Johnson also once again indicated he believed Republicans reached a unified agreement to move forward on spending deal, and he expected to avoid a government shutdown late Friday. For the week, the S&P fell 2%, the DJIA was off 2.3%, and the Nasdaq lost 1.8%.
Corporate news this week was heavily weighted to sectors that are struggling in the current environment. The major US steel producers all came out with lowered earnings guidance for the quarter, citing lower selling prices and volumes. Micron’s quarterly report showed that memory makers are in a slump as management guided well below consensus and forecast growth would only return in the second half of FY25. Lennar was representative of the home building sector, reporting a top and bottom line miss and guiding lower citing the squeeze higher in mortgage rates constraining affordability. Nike beat lowered expectations amid its nascent turnaround plan but projected terrible guidance for the near term. Europe’s largest stock, Novo Nordisk saw shares tumble on Friday based on less than spectacular trial results for its next generation weight loss drug, CagriSema. Fedex beat earnings estimates but cut guidance based on sustained weakness in US industrial production. On the positive side, Fedex announced it would spin off its freight operations to unlock value, a move that was applauded by Wall Street. Carnival Corp was another bright spot projecting business is to be steady as she goes, reporting booking volumes that continue to break records and another year of strong yield improvement in 2025.
MON 12-16
(CA) Safety Min Dominic Leblanc will be named Canada's new Fin Min and sworn in today – press
(DE) GERMAN CHANCELLOR SCHOLZ DOES NOT SURVIVE CONFIDENCE VOTE IN BUNDESTAG (AS EXPECTED)
(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 42.5 V 43.1E (30th month of contraction); “What is really catching the eye is the trend in prices in the services sector. Input price inflation shot up significantly in December, hitting the highest since April"
(EU) EURO ZONE PRELIMINARY MANUFACTURING PMI: 45.2 V 45.3E (30th month of contraction); Notes business confidence regained some ground in December but remained weaker than the series average
(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 41.9 V 43.0E (23rd month of contraction, lowest since May 2020); "Particularly alarming, though not surprising, are the first layoffs by French service providers in almost four years"
(UK) DEC PRELIMINARY MANUFACTURING PMI: 47.3 V 48.5E (3rd straight contraction); "Fastest decline in UK private sector employment for nearly four years, despite marginal upturn in output"
(US) Cleveland Fed’s Inflation Nowcast forecasting Dec US CPI Y/Y to accelerate again to 2.9% from 2.7% (prior saw to 2.8%) and Dec US CPI M/M to come at 0.4%; Truflation proxy of US aggregated Inflation Index stays at 3.00%, near highest since early autumn 2023
(US) DEC PRELIMINARY S&P MANUFACTURING PMI: 48.3 V 49.7 PRIOR (6th month of contraction)
(US) DEC EMPIRE MANUFACTURING: 0.2 V 10.0E; New Orders: +6.1 v +28.0 prior
(US) Redfin: Asking rents for newly constructed apartments rose 1.5% (the biggest year-over-year increase in 18 months); The absorption rate over the past two quarters has returned to the 50-55% rate seen in the late 2010s
(US) Tier1 analysts citing call with data provider to homebuilders Zonda: Some builders commented that after a slow start to November, demand appeared to improve mid-month post-election, but demand trends have not improved meaningfully following the slowdown in September/October. Roughly 40% of builders said demand was slower than expected but not worrisome, 25% said demand is slower than expected and causing concern, while 30% said demand is on track and only 5% said demand is stronger than expected
(US) Zillow: 2025 forecast expects only about 100,000 more sales than in 2024; Inventory and new listings are trending in the right direction, reducing pandemic-era deficits.
9434.JP Masayoshi Son to announce $100B 4-year invest plan with Trump team – CNBC
COF Reports Nov Domestic net charge-offs 6.08% v 5.82% m/m
STLD Guides Q4 $1.26-1.30 v $1.58e; Profitability meaningful lower q/q; Notes underlying steel demand remains seasonally steady for the primary steel-consuming sectors, as evidenced through solid customer order activity
TMUS Opens Registration for Starlink Direct-to-Cell Satellite Service Beta Launch
TUES 12-17
(DE) GERMANY DEC IFO BUSINESS CLIMATE SURVEY: 84.7 V 85.5E (lowest since May 2020); Notes the weakness of the German economy has become chronic
(DE) GERMANY DEC ZEW CURRENT SITUATION SURVEY: -93.1 V -92.6E (lowest since pandemic low of -93.5); EXPECTATIONS SURVEY: 15.7 V 6.9E
(RU) Russia Ministry of Health announces it has developed its own mRNA vaccine against cancer, it will be distributed to patients free of charge; Plans to launch it in general circulation in early 2025 - Russian state press (update)
(RU) Russia Investigative Committee: Confirms General Igor Kirillov [chief of nuclear protection forces] was killed in Moscow explosion - financial press [**Note: the most senior Russian officer to be assassinated since 2022]
(US) NOV ADVANCE RETAIL SALES M/M: 0.7% V 0.6%E (highest since Jan 23); RETAIL SALES (EX-AUTO) M/M: 0.2% V 0.4%E
000660.KR Develops high capacity SSD for AI data centers with 61TB product; Aims to lead the SSD market for ultra-high capacity data centers by developing 244TB products based on the world's highest 321-high 4D NAND developed in November, to overcome the capacity limitations of eSSD
NSANY Honda and Nissan said to commence merger talks – Nikkei
PFE Guides initial FY25 $2.80-3.00 v $2.90e, Rev $61-64B** v $62.9Be; Affirms FY24 outlook; First Phase of Manufacturing Optimization Program On Track to Deliver Initial Net Cost Savings in the Latter Part of 2025, Toward Goal of Improving Gross Margin Performance - PR ahead of guidance call
PWOD To be acquired by Northwest Bancshares in $270M all-stock deal
US releases study on economic and environmental impacts of LNG exports
UTHR Announces world’s first transplant of a UKidney, which it produced, into a living person on November 25, 2024; The first living recipient of a UKidney is recovering after a successful transplant; Plans to start a human clinical study in 2025, if cleared by FDA, with UThymoKidney and UHeart products to follow
WEDS 12-18
(EU) EURO ZONE NOV FINAL CPI Y/Y: 2.2% V 2.3%E; CPI CORE Y/Y: 2.7% V 2.7%E
(NZ) NEW ZEALAND Q3 GDP Q/Q: -1.0% V -0.2%E; Y/Y: -1.5% V -0.4%E (**Note: officially re-enters a technical recession)
(JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE UNCHANGED AT 0.25%; AS EXPECTED; Tamura (sole dissenter) proposed 25bps hike
(RU) Russia detains Uzbekistan citizen as a suspect in killing General Kirillov, who was the chief of Russia's Nuclear, Biological and Chemical Protection Troops – presss
(UK) NOV CPI M/M: 0.1% V 0.1%E; Y/Y: 2.6% V 2.6%E (highest annual pace since Mar)
(US) CDC confirms first severe case of H5N1 bird flu in a human in the US; Was confirmed on Dec 13th
(US) Fed Chair Powell: The economy remains strong overall and the labor market is solid - FOMC press conference
(US) Fed Chair Powell: Today was a closer call, but it was the right call; Slower pace of rate cuts reflects expectation of higher inflation - press conf Q&A
(US) FOMC CUTS TARGET RANGE BY 25BPS TO 4.25-4.50%; AS EXPECTED; POLICY STATEMENT LITTLE CHANGED FROM NOVEMBER; NOW SEE INFLATION HITTING 2% IN 2027 VS 2026
(US) FOMC SUMMARY OF ECONOMIC PROJECTIONS (SEP) FOR DEC: CUTS MEDIAN FORECAST PROJECTION TO 50 BPS OF RATE CUTS IN 2025 (PRIOR 100 BPS)
ANTHROPIC.IPO Chief Product Officer: AI agents are still "at least a year away" from being able to work autonomously; One of the biggest problems with current AI chatbots is how tough it is for users to learn to write prompts
GIS Reports Q2 $1.40 v $1.22e, Rev $5.24B v $5.16Be; Cuts FY25 profit outlook to reflect increased investment to fund improved volume and market share trends
GIS Our improvement in volume and market share is requiring higher promotional investment than we initially planned; Expect to deliver at least 95% free cash flow conversion in FY25, consistent with the guidance we provided at the start of the year - prepared remarks
GOOGL Omdia Research: Highlights the rapid growth in demand for Google's Tensor Processing Unit (TPU) AI chips, a trend that may be strong enough to start chipping away at NVIDIA's market dominance in GPUs; Notes shipments of TPUs, even at the lower estimate, are growing at a pace fast enough to take share from NVIDIA for the first time
LEN Reports Q4 $4.03 ex-items v $4.18e, Rev $9.95B v $10.2Be; Adjusted sales price, incentives, and margin in order to re-ignite sales; Notes chronic supply shortage continued to drive the market
MU Reports Q1 $1.79 v $1.75e, Rev $8.71B v $8.71Be; Guides well below consensus; Anticipate return to growth in H2
MU TTN Summary of 16:30ET Earnings Call: Rapidly ramping HBM3E production, aiming to achieve natural market share by the second half of calendar 2025; On track to achieve HBM targets and deliver substantial record in Micron revenue, significantly improved profitability, and positive free cash flow in fiscal 2025
THRS 12-19
(MX) MEXICO CENTRAL BANK (BANXICO) CUTS OVERNIGHT RATE BY 25BPS TO 10.00%; AS EXPECTED
(JP) BOJ Gov Ueda: For next rate hike want "one more notch"; Can't say if we will have enough info by Jan's meeting; Possible to get sense of wage talks before March; Price trend is rising very slowly; The price trend is a reason for gradual rate hikes - post rate decision press conference
(JP) JAPAN NOV NATIONAL CPI Y/Y: 2.9% V 2.9%E; CPI EX FRESH FOOD (CORE) Y/Y: 2.7% V 2.6%E
(UK) BANK OF ENGLAND (BOE) LEAVES BANK RATE UNCHANGED AT 4.75%; AS EXPECTED
(UK) BOE DEC MINUTES: VOTE WAS 6-3 TO HOLD RATES STEADY; Ramsden and Taylor joined dove Dhingra in voting for 25bps cut
(US) House defeats GOP stopgap and debt limit bill; Next steps are unclear to avoid US Govt shutdown
(UK) Water Regulator Ofwat approves £104B upgrade to accelerate delivery of cleaner rivers and seas and secure long-term drinking water supplies for customers
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: -16.4 V +2.8E
(US) INITIAL JOBLESS CLAIMS: 220K V 230KE; CONTINUING CLAIMS: 1.87M V 1.89ME
(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.1% V 2.8%E; PERSONAL CONSUMPTION: 3.7% V 3.6%E
(US) Pres Elect Trump: If we don't get debt ceiling eliminated or extended, then we're going to have a shutdown
(US) Q3 FINAL GDP PRICE INDEX: 1.9% V 1.9%E; CORE PCE PRICE INDEX Q/Q: 2.2% V 2.1%E
(US) WEEKLY EIA NATURAL GAS INVENTORIES: -125 BCF VS. -124 BCF TO -126 BCF INDICATED RANGE
ACN Reports Q1 $3.59** v $3.38e (unclear of comp), Rev $17.7B v $17.2Be
AGCO Guides prelim FY25 adj EPS $4.00-4.50 v $6.16e, Net Sales ~$9.6B v $10.6Be, adj op margin 7.0-7.5% (ex-grain and protein, Fx) - Analyst Meeting slides
CAG Reports Q2 $0.70 v $0.68e, Rev $3.20B v $3.14Be; Cuts profit outlook, notes higher than expected inflation and unfavorable FX rates
DRI Reports Q2 $1.84 v $2.05e, Rev $2.89B v $2.87Be
FDX To Separate FedEx Freight, Creating Two Industry-Leading Public Companies
FDX Reports Q2 $4.05 v $3.90e, Rev $22.0 v $22.0Be; Cuts FY25 outlook
NKE Reports Q2 $0.78 v $0.63e, Rev $12.4B v $12.1Be; Gross margin tops estimates, -100 bps y/y due to discounts and channel mix
NKE Guides Q3 Rev low double digit decline y/y v -7.3%e, Gross margin -300 to -350 bps y/y - earnings call comments
KMX Reports Q3 $0.81 v $0.61e, Rev $6.22B v $5.99Be
LW Reports Q2 $0.66 v $1.02e, Rev $1.60B v $1.67Be; Cuts outlook again, citing soft global restaurant traffic trends and challenging conditions persisting into FY26; Raises dividend 2.8%
PAYX Reports Q2 $1.14 v $1.12e, Rev $1.32B v $1.31Be
FRI 12-20
(US) NOV PCE DEFLATOR M/M: 0.1% V 0.2%E; Y/Y: 2.4% V 2.5%E (highest annual pace since July)
(US) NOV PERSONAL INCOME: 0.3% V 0.4%E; PERSONAL SPENDING: 0.4% V 0.5%E
(US) DEC FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 74.0 V 74.2E; 1-year inflation expectations 2.8% v 2.9% prelim
(US) Atlanta Fed GDPNow: Cuts Q4 GDP forecast from 3.2% to 3.1%
(US) NY Fed takes $98.4B (prior: $112.4B) in RRP program at 4.25%; 40 participating and accepted counterparties (lowest since April 23, 2021)
(US) Report: US data center power usage could triple in the next 3 years and account for up to 12% of total electricity consumption, as the industry undergoes its AI-drive transformation
NVO *CagriSema REDEFINE 1 trial achieved its primary endpoint by demonstrating a statistically significant and superior weight loss at week 68 with CagriSema versus placebo; CagriSema achieved a superior weight loss of 22.7% after 68 weeks compared to a reduction of 11.8% with cagrilintide 2.4 mg; 40.4% of patients who received CagriSema reached a weight loss of 25% or more after 68 weeks [**Note: Patients on Eli Lilly's highest Zepbound dose lost 23% of body weight in 176 weeks]
CCL Reports Q4 $0.14 v $0.08e, Rev $5.90B v $5.94Be; Expects to hit 2026 SEA Change EBITDA target one year early