MARKET WRAPS
Watch For:
Retail Sales for November; Weekly Jobless Claims; Canada Manufacturing Survey for October; earnings from Costco and Lennar
Today's Headlines/Must Reads
- The Fed Underwrites the Recovery
- What to Watch in Retail Report: A Slow Start to the Holiday Season
- The Sea-Monster-Sized Ship Disrupting Biden's Wind-Energy Dreams
- News Publishers See Google's AI Search Tool as a Traffic-Destroying Nightmare
Opening Call:
Stock futures rose early on Thursday as investors remained in buoyant mood after the Federal Reserve surprised by indicating its cycle of interest rate hikes was over and it was minded to cut rates by 75 basis points in 2024.
"This unexpected shift resonated harmoniously with investors as the 'rallying cry ' was heard from every corner of global financial markets, " SPI Asset Management said.
Indeed, the nascent Thursday session saw continued investor optimism, with 10-year Treasury yields dipping further to 3.95% and stock-index futures extending their rally.
However, there are signs that traders may be overly confident and the rally is overextended in the short term, some analysts observed.
The CBOE VIX index was trading just below 12, its lowest in about four years. And the S&P 500's 14-day relative strength index, a momentum gauge, closed Wednesday's session at 78.2, according to Dow Jones data, well above the overbought threshold of 70.
"Technically the snapback in multiple sectors in the last month is certainly a positive heading into 2024. Unfortunately, U.S. equities show RSI readings at elevated levels and the risk/reward scenario certainly hasn't improved after a [roughly] 13% rally in the last seven weeks," Fundstrat said.
Overseas
Global stocks surged. Indexes in Australia, Hong Kong and South Korea all added more than 1% and the Stoxx Europe 600 index also rose by more than 1%.
The Bank of England and European Central Bank are both expected to leave their main rates at 5.25% and 4% respectively later on Thursday.
Stocks to Watch
Adobe reported fiscal fourth-quarter adjusted earnings and revenue that topped analysts' expectations, but the stock was down falling 5.7% after the company issued a fiscal 2024 revenue forecast that was short of estimates.
Apple closed at a record high of $197.96 on Wednesday, rising 1.7% in the session. In premarket trading, the stock was slightly higher again.
Pfizer was up 0.4% in premarket trading to $26.77, a day after falling 6.7% following its cut to 2024 earnings and revenue guidance. J.P. Morgan reduced its price target on the stock to $30 from $34 and maintained a neutral rating. BofA lowered its price target to $35 from $38 and also remained neutral on the shares.
Forex:
The Fed's signals that interest-rate cuts are on the horizon saw the dollar drop sharply on Wednesday, a move which could extend further, MUFG said.
"The dollar is now more at risk of further weakness heading into early next year. Market participants have moved to price in even earlier and more aggressive Fed rate cuts into next year."
Post-Fed Analyst Roundup
Insight Investment's "reasonable base case" is two interest-rate cuts by the Fed by the end of 2024.
"However, we do not expect to see any activity until the summer, given our view that inflation will continue moderating [while remaining above-target] during the first half of the year."
Insight sees risks around the outlook, as resilient inflation could justify a longer pause, or even a hike if inflation were to reaccelerate, while a recession may call for an earlier and faster pace of rate cuts.
ING said the Fed might cut interest rates by 150 basis points in 2024, starting in May, with a further 100bps following in early 2025.
"The Fed is seemingly buying into the argument that they can cut interest rates because falling inflation will push up real borrowing costs, but given our more cautious outlook for growth, we think the Fed will end up being more aggressive on rate cuts than both they and the market are currently expecting."
Barclays Research has changed its expectations for interest-rate cuts by the Fed, now expecting three rate cuts of 25 basis points each, starting in June.
"We were surprised by the FOMC's reluctance to push back against the notable easing of financial conditions over the past month or so."
Energy:
Oil futures rose close to 2%, bolstered by signals of potential interest rate cuts next year by the Fed and a larger-than-expected weekly withdrawal from U.S. crude storage.
"Positive sentiment in the broader financial market pushed up oil prices, " ING said.
"However, the market remains cautious as economic concerns continue to cloud demand prospects."
Global oil-demand growth is expected to slow next year, reflecting weaker major economies in the wake of higher interest rates, according to the IEA.
Metals:
Base metals and gold rose sharply after the Fed took a dovish turn, a strong bullish tailwind for risk assets and commodity markets, Peak Trading Research said.
TODAY'S TOP HEADLINES
Easing Food Prices Are Great News for Shoppers, but Bad News for Staples Stocks
The cost of food at home in November's inflation report saw one of the smallest advances among the items the government tracks-good news for hungry shoppers, less so for staples stocks.
It's just the latest blow for the stocks after a tough year, and 2024 may not bring much relief.
GM Cruise Executives Leave After October Crash
General Motors' driverless-car business Cruise said nine employees departed following a review of the company's handling of an Oct. 2 incident that resulted in serious injuries to a pedestrian.
In a statement Wednesday, the company said the employees left following an initial review of the Cruise's response to the incident, in which the pedestrian was struck and dragged 20 feet by one of its driverless ride-hail cars.
Adobe Says Significant Costs, Penalties May Arise Out of FTC Investigation
Adobe said it could face significant costs or penalties tied to a Federal Trade Commission probe into its disclosure and subscription cancellation practices.
The software maker said on Wednesday that it has been cooperating with FTC staff since June 2022 seeking information tied to its practices as it relates to the Restore Online Shoppers' Confidence Act, according to a regulatory filing.
Regis CEO Open to Joining Gold-Mining Deal Fray After Closing Hedge Book
Regis Resources' chief executive is looking forward to the miner enjoying a cash-building phase following a period of heavy investment and the closure of an onerous hedge book.
But Jim Beyer, who has led Australia's third-largest listed gold producer since 2018, isn't ruling out a return to the deal table for Regis, more than two years after its roughly $600 million investment in the AngloGold Ashanti-run Tropicana gold mine.
ECB, Bank of England Expected to Follow the Fed on Keeping Rates Steady
The European Central Bank and the Bank of England are expected to follow the same course as the Federal Reserve in keeping interest rates unchanged this month.
Both make their final decisions of the year on Thursday, and economists expect them to hold steady. The ECB will update its forecasts for inflation and growth, giving investors clues about when rates might change.
Russian Court Upholds Detention of WSJ's Evan Gershkovich
A Russian court upheld the detention of American journalist Evan Gershkovich, a ruling that means the Wall Street Journal reporter will remain in custody through January on an allegation of espionage that he, the Journal and the U.S. government vehemently deny.
Gershkovich appeared in court for the appeal of last month's ruling that extended his detention at the request of investigators from Russia's Federal Security Service, or FSB. The rejection of that appeal Thursday keeps him behind bars awaiting trial until Jan. 30, which will mark 10 months since his arrest.
House Votes to Back Opening of GOP Impeachment Probe of Biden
WASHINGTON-The House narrowly approved opening an impeachment probe into President Biden on Wednesday, hours after his son, Hunter Biden, defied a congressional demand to testify on Capitol Hill, marking a sharp escalation in the battle between the White House and Republicans.
The House voted 221-212 along party lines to formally authorize Republicans' impeachment probe, which party leaders initiated several months ago, hoping to add legal and political muscle to the investigation into whether the president had ties to his son's overseas business dealings. While GOP lawmakers have obtained testimony that Joe Biden before becoming president occasionally met with his son's business associates, they haven't uncovered support for those claims or established that he profited from his family's overseas endeavors.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
Empire Co 2Q
Enghouse Systems 4Q
Transat A.T. 4Q
Economic Calendar [ET]:
0830 Oct New Motor Vehicle Sales
0830 Oct Monthly Survey of Manufacturing
Stocks to Watch:
STEP Energy: Net Debt to Meet Target at Close of 4Q on Continued Deleveraging; Deleveraging a Key Priority, Will Continue Into 2024; Increased 2024 Capital Budget to Fund Growth Initiatives; Fracturing Activity Across Major North American Oil & Gas Regions Slowed in 4Q; To Use Downtime in 4Q to Prepare for Highly Utilized 1Q in Canada, U.S.
(MORE TO FOLLOW) Dow Jones Newswires
12-14-23 0605ET
