Weekly Market Update: Holiday spirits remain high on Wall Street, bolstered by constructive data
Investors remained cheery heading into the Christmas holiday. M&A announcements continued to bubble up providing more hope that the deal environment will be substantially improved in 2024. The BOJ offered nothing new on plans to exit NIRP, removing a potential overhang for now. Corporate commentary from the likes of FedEx, Nike and General Mills did offer some caution by illustrating the challenges companies face as macro headwinds have begun to crimp demand while their ability to take additional pricing wanes. Also various central bank officials tried to temper 2024 rate cut expectations with some Fed officials opining the market had gotten over its skis. Nevertheless, Treasury yields stayed under wraps and the underlying bid in equities and risk assets remained in place, largely on the belief interest are coming down in 2024.
A range of economic readings continued show sustained signs that growth is slowing. UK CPI and German Dec IFO weakness pulled forward expectations for rate cuts there. US Final Q3 GDP was revised lower than expected, Philly Fed revealed a sharp contraction in new orders. Nov US PCE ran cooler than even expected, with core m/m just missing rounding down to zero while headline m/m printed negative for the first time since July 2022. In general, the readings clearly remained supportive to the case for central bank rate normalization, underscoring the belief the Fed is likely to start cutting rates in the first half of 2024. Volumes predictably dried up and trading was choppy into the holiday weekend. Oil prices drifted up on worries surrounding transit in Red Sea. The S&P gained 0.8%, chalking up its eighth straight week of gains and its longest winning streak since 2017, while the DJIA rose 0.2%, and the Nasdaq gained 1.2%.
Corporate news this week remained decidedly mixed, with definite winners and losers among the earnings reporters. Carnival proved to be a winner, beating quarterly estimates and touting strong bookings over the holiday season. Micron’s Q1 results dazzled investors, sending shares to a 52-week high as the company promised better pricing power for the fiscal year. FedEx missed quarterly expectations and cut guidance as it noted soft US market conditions and peak holiday volumes flat versus last year. Nike shares got kicked to the curb based on its cautious outlook for the second half of the fiscal year as the shoe-dogs observed more cautious consumer behavior developing globally. China regulators announced a fresh crackdown on the online gaming industry, setting time limits and other restrictions to ease video game addiction, and sending gaming stocks like Netease into a tailspin on Friday.
In M&A news this week, US Steel finally reached a deal, but not with the expected suitor, as Nippon Steel scooped up the US producer for a lofty enterprise value of $14.9B. Elsewhere, the FTC brought an end to Ilumina’s deal for Grail, sending a chill through investment bankers as they attempt to arrange other large deals. Similarly, Adobe broke off its $20B deal with Figma, citing regulatory hurdles, forcing it to pay a $1B breakup fee.
WEEKEND
ILMN FTC orders Co. to unwind Grail acquisition on antitrust grounds - US press
(CN) Ex-PBOC adviser Yu Yongding reiterates call that China needs to cut US Treasury bond holdings, notes low interest rates and potential risks over US' growing net debt overseas - The Standard
MON 12/18
(PH) Philippines and Japan start talks on a reciprocal access agreement that would allow the deployment of military forces on each other’s soil
OPENAI.IPO Said to have suspended ByteDance's account it used GPT to train its own AI model; Most of ByteDance’s GPT usage done through Microsoft’s Azure platform - The Verge
All contracts of Containerized Freight Index Futures hit 10% limit-ups overnight following COSCO Shipping and Evergreen Marine Corp suspended cargo loading in Bab-el-Mandeb Strait and will avoid Suez Canal after recent Yemen attacks
(UK) Reportedly 'strong signal' that UK’ govt is considering social media restrictions for under-16 children - Sky News
(DE) GERMANY DEC IFO BUSINESS CLIMATE SURVEY: 86.4 V 87.7E
JETS According to Tier1 analysts, airlines' system net sales accelerate for the fourth consecutive week during the week ending Dec 10th
X Confirms to be acquired by Nippon Steel for $55.00/shr in an all-cash transaction with EV of ~$14.9B
(US) Fed's Mester (voter in 2024): Markets are 'a little bit ahead' of Fed on rate cuts; Next phase is not when to reduce rates, even thought that is where the markets are at - FT
(US) BoFA analysts now expect the Fed to make 25bps rate cuts in Mar, June, Sept and Dec 2024
ADBE *ADOBE AND FIGMA MUTUALLY AGREE TO TERMINATE $20B CASH-STOCK MERGER AGREEMENT CITING NO CLEAR PATH FOR REGULATORY APPROVALS
(US) DEC NAHB HOUSING MARKET INDEX: 37 V 37E
AAPL Follow Up: Said to plan 'rescue' for its Apple Watch business in US; said to be submitting software workaround to customs agency - US financial press
TSLA Co is planning a 10% or higher pay rate increase for some workers at Nevada battery Gigafactory - US financial press
(US) Pentagon confirmed Prosperity Guardian international mission to counter attacks on commercial vessels in Red Sea; US Central Command confirmed that Yemen's Houthis carried out two attacks on commercial shipping in southern Red Sea on Dec 19 - X post
TUES 12/19
(EU) EU reportedly confirms to extend tariff suspension on US steel and aluminum for 15 months until end of Mar 2025 - press
(JP) BOJ Gov Ueda: Little chance for us to say that we will change policy in Jan 2024; Chances are also low that we will flag rate hike at Jan's meeting; Decision will depend on information by then - post rate decision press conference
(HU) HUNGARY CENTRAL BANK (MNB) CUTS BASE RATE BY 75BPS TO 10.75%; AS EXPECTED
Redfin: Redfin Home Price Index showed that U.S. home-price growth slowed for the third straight month in Nov; New listings climbed 1.3% m/m to the highest level in over a year
(US) NOV HOUSING STARTS: 1.560M V 1.360ME (above all analysts' estimates and six-month high); BUILDING PERMITS: 1.460M V 1.465ME
(CA) CANADA NOV CPI M/M: +0.1% V -0.1%E; Y/Y: 3.1% V 2.9%E
BAC CEO: Consumers remain in good shape, but the overall activity is slowing down; Spending still running +4-5% y/y in Dec, but that's about half the rate it was growing at last year at this time - media interview
(US) Mid Dec Manheim wholesale used vehicle Index at 205.5, +0.3% m/m, -6.3% y/y
(MX) Mexico Pres Lopez Obrador (AMLO): Efforts are underway to challenge to new Texas migration law
(US) Atlanta Fed GDPNow: raises Q4 GDP from 2.6% to 2.7%
MAERSKB.DK CEO: US led Red Sea task force will take a few weeks to get going - CNBC
FDX Notes peak holiday season volume is similar to last year; US market conditions remained soft, with Q2 demand lower than we anticipated; Retains majority of business won from UPS - earnings call comments
(US) Trump to be disqualified from 2024 Republican ballot in Colorado state by vote of 4-3, according to Colorado Supreme court [first court to disqualify Trump from the ballot; the decision is NOT obligatory for other states and does NOT refer to US general election] - CNBC
(CN) CHINA PBOC MONTHLY LOAN PRIME RATE (LPR) SETTING: LEAVES BOTH 1-YEAR AND 5-YEAR RATES UNCHANGED; AS EXPECTED
(MY) Malaysia (~63% Muslim population) to block Israel-based shipping Co. Zim from anchoring; PM says Malaysia will not accept ships bearing Israel flags to dock - financial press
WED 12/20
(UK) NOV CPI M/M: -0.2% V 0.1%E; Y/Y: 3.9% V 4.3%E (lowest annual pace since Sept 2021, below all analysts' estimates)
Containerized Freight Index Futures hit 10% limit-ups overnight for 3rd consecutive session and closed at the highest levels since debut in Aug
(DE) German 10-year Bund yield below the 2% level for the 1st time since March
(TW) Taiwan Nov Export Orders Y/Y: 1.0% v 5.2%e (1st increase in 15 months); Sees Dec orders -8.0% to -4.2% y/y implying slowest annual growth in 14 years
GIS Expect some of the recent headwinds, such as our competitors’ improved on-shelf availability, to lessen as we exit Q3; Expect contributions from organic price/mix to decelerate but remain positive in FY24 - prepared remarks
SONY Exec: Seeing strong momentum in Nov-Dec for PlayStation 5 console, lifetime sales exceeding 50M units
(RU) US coalition announces revisions to Russia oil price cap compliance regime; To tighten enforcement of Russia oil price cap
(US) NOV EXISTING HOME SALES: 3.82M V 3.78ME
(US) DEC CONSUMER CONFIDENCE: 110.7 V 104.5E
(US) DOE CRUDE: +2.9M V -2.5ME; GASOLINE: +2.7M V +1ME; DISTILLATE: +1.5M V +1ME
(EU) European Finance Ministers (EcoFin) said to have reached an agreement on reform of EU fiscal, debt rules - press
(US) TREASURY $13B 20-YEAR BOND REOPENING DRAWS 4.213% v 5.245% prior, BID-TO-COVER 2.55 v 2.59 PRIOR AND 2.70 OVER LAST 8 REOPENINGS
(US) FAA issues bulletin: Suspect UK supplier handled aircraft parts from additional makers; probe may widen
WBD Reportedly in talks to merge with Paramount - press
MU Reports Q1 -$0.95 v -$0.99e, Rev $4.73B v $4.66Be; Guides Q2 above consensus
MU We have driven a strong inflection in industry pricing this calendar quarter, which will allow us to benefit from higher prices earlier in our fiscal year compared to prior plans - prepared remarks
MU Inventories for memory and storage are at or near normal levels for most customers across PC, mobile, auto and industrial end markets; Smartphone demand is showing signs of recovery; Q1 results reflect Micron’s strong execution combined with improved pricing - earnings deck
(KR) South Korea Dec 1-20th Exports Y/Y: +13.0% v +2.2% prior; Imports Y/Y: -9.2% v -6.2% prior
(TW) China to terminate tariff concessions on some Taiwan chemical products from Jan 1, 2024 - China Finance Ministry
THRS 12/21
(US) Citigroup analysts raise US bank stocks to Overweight; Raise Healthcare sector to Market Weight and Consumer Discretionary sector to Market Weight
(CN) CHINA BANS EXPORT OF SOME RARE-EARTH PROCESSING TECHNOLOGIES; EFFECTIVE IMMEDIATELY - PRESS [**Note: China started to ban rare earths manufacturing technologies in 2022]
UUUU Commences production at three of its U.S. uranium mines, also preparing two mines (Whirlwind and Nichols Ranch) to commence uranium production within one year; Notes its uranium production could be expanded to up to 5M pounds of U3O8 per year in the coming years
KMX Reports Q3 $0.52 v $0.43e, Rev $6.15B v $6.31Be; Resumed share repurchases during Q3 first time in a year
ANGOLA LEAVES OPEC - PRESS [**Note: Angola is the second largest oil producing country in Sub-Saharan Africa with output of ~1.2Mbpd, ~4% of total OPEC production]; Becomes 1st country to leave OPEC since Qatar and Ecuador left in 2019-2020
Redfin: Seen a double-digit annual increase in week to Dec 17th in homeowners contacting its real estate agents for help selling homes, and new listings are up 9% y/y (the biggest annual increase since July 2021)
(US) Reportedly top US and China military officials spoke in sign of warming ties after a 16-month rupture; Video call between generals followed a summit agreement between Pres Biden and China’s Pres Xi - press
(US) Q3 FINAL GDP ANNUALIZED Q/Q: 4.9% V 5.2%E; PERSONAL CONSUMPTION: 3.1% V 3.6%E
(US) Q3 FINAL GDP PRICE INDEX: 3.3% V 3.6%E; CORE PCE Q/Q: 2.0% V 2.3%E
(CZ) CZECH CENTRAL BANK (CNB) CUTS 2-WEEK REPURCHASE RATE BY 25BPS TO 6.75%; AS EXPECTED; 1st rate cut since May 2020
(US) INITIAL JOBLESS CLAIMS: 205K V 215KE; CONTINUING CLAIMS: 1.87M V 1.88ME
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: -10.5 V -3.0E (lowest since Sept); New Orders: -25.6 v +1.3 prior
CCL Reports Q4 -$0.07 v -$0.12e, Rev $5.40B v $5.32Be
(CN) China reportedly to ban exports of rare-earth magnets with other restrictions on the vital industrial metals - Japanese press
(US) Weekly Baker Hughes Rig Count: 620 v 623 prior (-0.5% w/w)
NKE Reports Q2 $1.03 v $0.84e, Rev $13.4B v $13.4Be; Expects softer H2 rev outlook; Announces plan for $2B in cumulative cost savings over the next three years
NKE Exec: We are seeing indications of more cautious consumer behavior globally; Adjusting channel growth forecasts for rest of FY and stepping up plans to reduce marketpace supply for key franchises; Nike Digital had its strongest Black Friday week ever - earnings call comments
NKE Cuts FY24 Rev +1%, Affirms Gross margin +140-160bps (prior: FY24 mid-single digit growth; gross margin expanding 140-160bps) - earnings call
(JP) JAPAN NOV NATIONAL CPI Y/Y: 2.8% V 2.8%E; CPI EX FRESH FOOD (CORE) Y/Y: 2.5% V 2.5%E (Core CPI rises at slowest annual pace since July 2022)
(CN) China regulator (NPPA) issues draft rules for online game industry to prevent excessive game time; Sets spending limits and bans daily login rewards - China press
FRI 12/22
(UK) Q3 FINAL GDP Q/Q: -0.1% V 0.0%E; Y/Y: 0.3% V 0.6%E; Q2 GDP growth was revised lower to zero growth
(RU) Russia Deputy Foreign Min Ryabkov: US seizing Russia frozen assets could end ties; May take political action in response to US missile deployment in EU and APAC
(JP) Japan Cabinet approves ¥112T ($793B) draft budget for FY24/25 (as expected); Raises FY24/25 assumed interest rates for the first time in 17 years
Containerized Freight Index Futures hit 15% limit-ups overnight for 5th consecutive session, surged 70% this month
(US) NOV PRELIMINARY DURABLE GOODS ORDERS: 5.4% V 2.3%E (biggest increase since pandemic); DURABLES (EX-TRANSPORTATION): 0.5% V 0.1%E
(US) NOV PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 0.2% V 0.3%E
(US) NOV PCE DEFLATOR M/M: -0.1% V 0.0%E; Y/Y: 2.6% V 2.8%E (1st negative M/M print since July 2022)
(IR) Reportedly Iranian paramilitary vessel has provided intelligence to Houthi rebels in targeting ships in the Red Sea – press
(US) NOV NEW HOME SALES: 590K V 690KE
(US) DEC FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 69.7 V 69.4E; 5-10 year inflation expectations 2.9% v 2.8% prelim (lowest since Sep 2022)
(US) Atlanta Fed GDPNow: Cuts Q4 GDP from 2.7% to 2.3%
(US) Supreme Court rejects special counsel request in Trump case; Will NOT immediately consider Trump's immunity claim