MARKET WRAPS
Watch For:
Factory Orders for October
Today's Headlines/Must Reads
- Goods Deflation Is Back. It Could Speed Inflation's Return to 2%
- Stock Funds Get Back on Their Feet
- The Executives Who Could Be Johnson & Johnson's Next CEO
- China Evergrande Avoids a Debt Disaster-for Now
Opening Call:
Stock futures were trading in the red on Monday, with bond prices also weakening amid some tempering of recent enthusiasm over the potential for Federal Reserve interest rate cuts.
Investors will be looking ahead to important data this week to keep supporting the case for a rate cut, with November nonfarm payrolls numbers due at the end of the week.
"Investors expect further fall in U.S. jobs openings, less than 200,000 job additions last month with slightly higher pay on month-on-month basis. The softer the data, the better the chances of keeping the Fed hawks away from the market," Swissquote Bank said.
Overseas Markets
Major international benchmarks broadly weakened, with mining stocks weighing on the Stoxx Europe 600. Indexes ended lower in Japan, Hong Kong and mainland China.
Stocks to Watch
Alaska Air shares fell about 8% after the carrier agreed to buy Hawaiian Airlines in a roughly $1 billion deal. Hawaiian's share price almost tripled before the bell.
A rally in bitcoin sent shares of Coinbase Global up about 9%.
Spotify is preparing to lay off 17% of its workforce, in its third round of job cuts this year. Shares edged up about 2%.
Uber shares gained more than 4% after S&P said the ride-hailing company will join the S&P 500 index.
Forex:
The euro is likely to weaken as focus for the currency centers on easing inflation pressures, with a secondary focus on slowing growth, NatWest Markets said. "Both play euro negative against the dollar and on the crosses."
The latest eurozone inflation data, which were much lower than expected, suggest that the European Central Bank needs to recalibrate its growth and inflation forecast ahead of the Dec. 14 policy meeting, NatWest said. NatWest expects the ECB's interest-rate cuts to come sooner than many expect.
"With recent dollar weakness not justified, we see this as negative for EUR/USD."
NatWest also said the dollar fell steadily through November, a move which came "faster and more clearly" than expected.
"For both the dollar weakness in November and the U.S. Treasury rally, we wonder if the move has gone too far too fast even if it does jive with how we see 2024 eventually playing out," NatWest said.
On the dollar side, even more so than in Treasurys, NatWest said it was skeptical of chasing the move in the near term because of the broader growth outlook.
Bonds:
The 10-year Treasury yield may fall further, based on technical charts, UOB's Global Economics & Markets Research said.
The pace and extent of the 10-year yield's decline over the past month has exceeded UOB's expectations, and the 10-year yield could continue to drop over the next two months. However, any further fall will likely encounter solid support at the 55-week exponential moving average, which is currently 3.950%, UOB said.
Above the 55-week EMA, there is another support on the 10-year yield's rising trend line, which is 4.120%.
Energy:
Oil futures were down more than 1%, giving up Asian gains, on uncertainties around the OPEC+ voluntary output cuts and global demand growth.
Meanwhile, geopolitical tensions in the Middle East intensified as Israel resumed combat operations in Gaza and after Iran-backed Houthi forces in Yemen claimed responsibility for attacks against a U.S. destroyer and three commercial ships operating in the Red Sea.
Brent is forecast to rise to an annual average of $85 a barrel in 2024, according to BMI, adding it expected a sharp slowdown in developed economies in the first half which will put prices under heavy pressure; while in the second half, as global growth passes its nadir, sentiment will strengthen, positioning Brent for healthy gains.
Metals:
Base metals pulled back, with investors looking ahead to Friday's U.S. nonfarm payrolls figure and how it will affect Fed policy.
"Weaker job numbers on Friday would push the dollar lower and lever our commodity markets higher," Peak Trading Research said.
Gold prices softened, having spiked during the Asian trading hours and after hitting a new record high on Friday.
"Markets are pricing in several key interest rate cuts for next year--not only in the U.S. but also in Europe," Heraeus said.
"What's next for gold: If signs of low interest rates become more evident, gold should continue to soar next year."
Oanda said gold's medium-term uptrend is intact, but a minor pullback is possible, based on technical analysis.
Monday's swift rally has resulted in gold becoming extremely overbought, where the daily relative strength index momentum indicator is at 76.70, the highest since the medium-term uptrend began on Oct. 6, Oanda said.
On the hourly chart, gold has retreated from upper boundary of its ascending channel, which now acts as near-term resistance at $2,126/oz. Also, the hourly RSI momentum indicator has just exited from overbought territory, which increases risk of a minor pullback, adds Wong, pegging support at $2,067/oz.
UBS has downgraded lithium prices, cutting its medium-term price forecasts for the battery material by 23%-45%.
A surge in dealmaking among metals and mining companies is likely to continue into 2024, according to BMI. It sees demand for M&A supported by global energy-transition tailwinds and easing inflation pressures.
Deal activity has been climbing since 2020 and much of it has recently centered around energy-transition minerals, including copper and lithium, it notes. Gold-industry consolidation is also ongoing.
"While securing supply to transition metals, major mining companies will also continue to focus on reducing their exposure to coal assets," BMI said.
TODAY'S TOP HEADLINES
Brookfield-Led Consortium's $11 Billion Bid for Origin Energy Fails
SYDNEY-An $11 billion bid for Origin Energy, one of Australia's largest power companies, was rejected by its shareholders on Monday in a stark illustration of how investors are adopting different strategies to bet on the energy transition.
Origin said that shareholders owning about 69% of its stock voted for the takeover, meaning that the bid made by a consortium led by Brookfield Asset Management fell short of the 75% approval threshold needed to secure a deal.
Roche Strikes Deal to Buy Drug Developer Carmot Therapeutics for $2.7 Bln
Roche aims to buy Carmot Therapeutics, a California-based pharmaceutical firm developing drugs to treat obesity and diabetes.
The Swiss pharmaceutical company said it has entered an agreement to acquire the private company for $2.7 billion with additional payments of up to $400 million based on drug-development milestones.
Spotify to Lay Off 17% of Staff, Its Third Round of Job Cuts This Year
Spotify is preparing to lay off 17% of its workforce or about 1,500 employees, as the company accelerates its profitability push.
Chief Executive Daniel Ek announced the job cuts-the Stockholm-based company's third round of layoffs this year-to staff Monday.
Alaska Air Reaches Deal to Buy Hawaiian Airlines
Alaska Air reached a roughly $1 billion deal to buy Hawaiian Airlines, a combination of two nearly century-old rivals that are dwarfed by the biggest players in a time of travel upheaval.
The proposed deal would unite carriers that largely serve destinations in the Pacific region and operate competing flights to Hawaii. Executives said the deal would solidify Alaska Airlines' position as the fifth-largest U.S. carrier. But they will have to win over antitrust authorities, who have challenged recent airline tie-ups.
How to Use Industry ETFs to Ride Waves of Momentum
Momentum-trading mutual funds, which try to hold stocks that benefit most from upward market trends, first appeared in the 1980s. There are still some out there. But these days, investors who want to ride market upturns-or bet on market reversals-are turning more to single-industry ETFs.
Investors over time have shifted to industry exchange-traded funds as a low-cost alternative to momentum mutual funds, whose returns have faltered over the past 20 years.
The Stocks Investors Are Putting Under the Tree
Retailers are making modest predictions about the holiday shopping season-and their stocks are going gangbusters in response.
Victoria's Secret, Foot Locker, Ulta Beauty and Dollar Tree are among the companies that offered somewhat mixed assessments of the state of the shopper last week. Yet each received an ovation from investors.
SEC, FASB Take Closer Look at Companies' Statement of Cash Flows
U.S. regulators and standard setters are taking a closer look at cash-flow statements, particularly how such corporate disclosures may lag behind other financial statements in terms of usefulness for investors and the quality of the information that companies provide.
The cash-flow statement helps investors figure out where a company is getting its money, how it is using it and if it has enough runway to operate and even survive. The Securities and Exchange Commission is reviewing how companies treat errors in these statements. In an unrelated move, the Financial Accounting Standards Board, which sets accounting rules for U.S. companies, is considering whether to require expanded disclosure on the cash-flow statement for financial institutions.
The New Green Investment: Getting Clean Energy to Big Cities
U.S. cities racing to cut their emissions are facing a roadblock: They can't access the wind and solar power being developed in remote sites hundreds of miles away.
Now a group of investors is betting on a startup that builds massive transmission lines to carry renewable electricity to urban areas.
U.S. Destroyer, Commercial Vessels Attacked by Drones, Missiles in Red Sea
(MORE TO FOLLOW) Dow Jones Newswires
12-04-23 0614ET
