MARKET WRAPS
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Opening Call:
European stock futures were broadly down in tandem with largely lower Asian stock benchmarks; the dollar weakened slightly; Treasury yields steadied; while oil futures and gold gained.
Equities:
Stock futures in Europe were broadly lower early Monday as traders rapidly reset their interest rate expectations for next year.
U.S. stocks closed mostly higher Friday, with major U.S. equity indexes booking a seventh straight week in the green in the wake of the Federal Reserve's policy meeting.
Analysts at Barclays warned that the sharp year-end rally could set investors up for disappointment in 2024.
"Aided by light positioning and a dovish Fed, the year-end rally is essentially borrowing from 2024 returns, leaving less room for upside next year," Barclays head of U.S. equity strategy Venu Krishna said.
Forex:
The U.S. dollar weakened slightly early Monday.
U.S. growth is likely to lose steam from the lagging impact of Fed rate hikes, setting the stage for bond yields to fall further and pressuring the US dollar, Corpay's currency strategist Peter Dragicevich said.
The upswing in U.S. bond yields and the relative strength of the U.S. economy "were pillars behind the USD's outperformance a few months ago," but as these fade--and assuming growth in China continues to pick up and spills over into the Eurozone, Asia and Australia--"we expect the USD to continue to gradually weaken over the next few quarters," he said.
Bonds:
Treasury yields were little changed after finishing Friday with their biggest weekly declines in more than a year as government debt rallied on the prospect of rate cuts in 2024 by the Federal Reserve.
"In the year ahead, investors across financial markets will be focused on timing the Fed's first rate cut as [Fed Chair Jerome] Powell begins the process of gradually returning policy rates to neutral," BMO Capital Markets rate strategists Ian Lyngen and Ben Jeffery said.
"We expect that when the Fed eventually reduces the target range, it will occur later than investors anticipate, and the first cut will be of the 'fine-tuning' quarter-point variety," they said.
Energy:
Oil futures gained in Asia amid concerns over recent attacks on ships traveling through the Red Sea.
Attacks on the ships have raised the potential for disruptions to the transport of oil and other goods, providing some support for prices.
The Red Sea is "one of the hot pockets of seaborne crude flows," accounting for approximately 10% of global volume, said Manish Raj, managing director at Velandera Energy Partners.
"Although the attackers lack sophistication ... shipping crews are even less sophisticated, making them easy targets."
Metals:
Gold prices advanced as investors mull mixed cues and wait to see how long the so-called Santa Claus rally will last.
Expectations that global central banks will cut interest rates next year were lifting sentiment toward gold, said Saxo's head of commodity strategy Ole Hansen.
The precious metal has consistently staged a strong rally in December for the last seven years, he said but cautioned that the biggest risk now is that markets are too optimistic about rate cuts.
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Copper prices edged lower with investor sentiment likely damped after New York Fed President John Williams on Friday said it is too early to think about cutting interest rates.
Fitch Ratings expects demand for base metals to increase in 2024.
Although there is likely to be sufficient copper mine supply, smelter capacity will constrain copper production until 2025 at least, leading to a tightly balanced market in 2024, it said.
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Iron ore futures fell amid lower demand from steel mills.
Increased losses have forced Chinese steel mills to suspend production for more maintenance, analysts at Baocheng Futures said.
Given the weakening prospects for iron ore demand, prices are likely to remain under pressure in the short term, they added.
TODAY'S TOP HEADLINES
China's Millionaires Are Worried. That's a Problem for Wall Street.
China's economic slowdown has become a big problem for banks that serve the rich.
For years, banks including Citigroup, JPMorgan and UBS competed hard to win business from China's giant pool of wealthy people. They hired thousands of relationship managers with the language skills and cultural know-how to gain the trust of mainland China's moneyed class, and helped them buy shares in Hong Kong, real estate in the U.S. and expensive paintings from European collections.
The Bill for Bigger Government Is Coming Due for World's Taxpayers
Rich countries are raising more money from taxpayers than they have in decades to finance a burst of state spending as surging interest rates make borrowing less attractive.
Tax revenues have risen to record levels as a share of economic output in a number of major economies, including France, Japan and South Korea, according to data published by the Organization for Economic Cooperation and Development, the club of mainly rich countries.
It's the Magnificent Seven's Market. The Other Stocks Are Just Living in It.
Big tech stocks reclaimed their position as the market's leaders this year. Just how far ahead of the pack have they run?
Collectively, the stocks known as the Magnificent Seven-Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla and Meta Platforms-have jumped 75% in 2023, leaving the other 493 companies in the S&P 500 in their dust. (Those have risen a more modest 12%, while the index as a whole is up 23%.)
Stocks Beat the Odds This Year. Why They Can Do It Again in 2024.
Against long odds, 2023 has been a splendid year for markets. The S&P 500 index has risen 23% and the Nasdaq Composite has shot up 41%, fueled by an unexpectedly strong economy, the artificial-intelligence ambitions of Big Tech, and lately, the prospect of interest-rate cuts in the 2024. Even the bond market has perked up after a historic downturn, one that briefly sent yields to highs not seen since before the 2008-09 financial crisis.
As investors chill the bubbly for their year-end celebrations, they should lay in more for 2024. While the S&P 500 isn't cheap at 19 times next year's expected earnings, and the timing and pace of rate cuts are uncertain, stocks look poised for another strong year, with this year's narrow rally broadening out to encompass many more issues.
Adbri Gets Takeover Offer From CRH, Barro Group
SYDNEY-Building materials supplier Adbri said it has received a takeover offer from U.S.-listed CRH and the Barro Group that values its equity at around $1.41 billion.
Adbri said it is evaluating the cash offer of 3.20 Australian dollars (US$2.14) a share and has allowed the bid group until Feb. 28 to scrutinize its books on an exclusive basis.
U.N. Calls for Investigation of Deaths at Hospital That Israel Says Was Hamas Command Center
United Nations officials called for an investigation into an Israeli military raid on a Gaza hospital during which patients died and the armed forces said they detained scores of Hamas militants and recovered a trove of weapons and other military equipment, some of which officials said was hidden inside an infant incubator and a resuscitation station for newborns.
Israeli forces withdrew from Kamal Adwan Hospital in northern Gaza on Saturday after entering the facility on Tuesday. The U.N. Human Rights Office said it was calling for an investigation of what transpired during the raid, citing allegations from medical staff that patients had died because of the conditions in the facility.
Israeli Military Reveals Tunnel It Says Hamas Built for Large-Scale Attack
GAZA-A quarter of a mile from a civilian border crossing between Israel and northern Gaza lies what Israel's military says is the largest tunnel discovered in the enclave. It is large enough that large vehicles can drive through it, and yet, until recently, Israel didn't know the tunnel reached right up to its border.
Israeli troops uncovered the tunnel exit buried under a sand dune a few weeks ago. Israeli officials believe that the tunnel, up to 50 meters deep at points, and 2 1/2 miles long, took years and millions of dollars to build and was meant to facilitate a large-scale attack on Israel.
Abramovich Pledged $3 Billion for Ukraine War Victims. The Money Is Frozen in the U.K.
LONDON-Two weeks after Russian tanks rolled into Ukraine, Russian oligarch Roman Abramovich said he would sell his soccer club Chelsea FC and donate the billions of dollars in proceeds to the victims of the war in Ukraine. At the time, it seemed an elegant solution for a billionaire under growing scrutiny in the West for his ties to Russian leader Vladimir Putin.
Yet more than a year and a half later, the $3 billion donation is sitting frozen in a U.K. bank account amid a long-running dispute with the British government over how the vast sum should be spent.
Illumina to Shed Cancer-Test Maker Grail After Antitrust Battle
Gene-sequencing company Illumina said Sunday it will divest itself of cancer blood test maker Grail, following Illumina's loss in its legal battle against U.S. antitrust regulators.
Illumina said it will pursue the divestiture through a third-party sale or capital markets transaction, with a goal of completing terms by the middle of next year.
Robinhood Woos Wealthier Clients From Bigger Brokerages
Robinhood Markets, known for a clientele of first-time investors, is attracting customers with fatter wallets from other brokerages.
Through Wednesday, the trading app received about $1.1 billion in account transfers since Oct. 23, when it began offering a 1% match on transferred brokerage accounts, the company said. In the second and third quarters of this year, customers transferred about $350 million and $375 million, respectively, to Robinhood from other brokerages, according to company filings.
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12-18-23 0014ET
