IG Morning Call

[MongiIG]

Global stock markets cheered Jerome Powell's more cautious tone last night, and revised down expectations of further rate hikes by the US central bank. Powell said the risks to the outlook were more equally balanced, with inflation expectations now 'in a good place'. The chances of a rate cut by June next year also rose, according to market pricing. The focus now shifts to the Bank of England, which is also expected to leave rates unchanged, and then on to Apple's earnings tonight. 

 

[MongiIG]

Stocks have enjoyed one of their strongest week of the year, with major US indices having clocked up gains of around 5%. Asian markets continued to make headway, shrugging off mixed results from Apple, with the bullish impetus provided by the pause in central bank hiking efforts and hopes of a peak in interest rates continuing to be the main driver. Attention now turns to the latest US payroll report, which is expected to show a slowdown in job creation from last month. Another strong open is expected for European markets, though US futures are more mixed, with Apple's after-hours fall putting some pressure on Nasdaq 100 futures. 

 

[MongiIG]

The new week has begun with more gains for stocks in Asia, after the impressive recovery in equities last week. Softer economic data and more cautious central bank commentary has tilted investors towards thinking that the peak in rates is now behind us. Cuts are now priced in for 2024, and with little major data this week the outlook is unlikely to change. Most heavyweight earnings have been released, pointing towards a quieter week for markets. 

 

[MongiIG]

Asian indices fell back overnight as some of the bullish momentum of the past week faded. The RBA raised rates once more, by 25 basis points, but the Australian dollar fell in the wake of the decision due to the softer language employed. A mixed picture was seen in Chinese trade data, with imports stronger but exports weaker. Once more markets confront a day without major heavyweight economic data, now that the RBA is out of the way, but US markets continue to exhibit strong momentum - the S&P 500 has rallied for six sessions, its longest run since June, and the Nasdaq 100 has moved higher for seven days, a streak not seen since January.

 

[MongiIG]

Global stocks continue to see their momentum slow, with the focus turning to speeches today and tomorrow from Jerome Powell, which dominate an otherwise quiet macro calendar. After the gains of last week, equities have consolidated, awaiting further news. Oil prices have come under pressure, falling sharply yesterday on poor Chinese data. While the fall in oil prices helps to reduce fears of renewed inflation, the ongoing rise in stocks helps to loosen financial conditions, which may yet tilt the Fed towards one more rate hike this year. 

 

[MongiIG]

A mixed session for Asian stocks nonetheless saw the Japanese tech sector make headway. Chinese CPI showed the world's second largest economy tipped back into deflation in October, which put pressure on stock markets there. Markets find themselves awaiting another speech from Jerome Powell, after a speech on Wednesday that did not provide any further detail on monetary policy. Aside from weekly US jobless claims, it looks to be another quiet day, though the S&P 500 has managed to cling on to its winning streak. 

 

[MongiIG]

It was a quiet start to the week in Asia, as attention turns to Tuesday's US inflation reading. While the ASX 200 declined, the Nikkei was flat, though the Taiwanese market made a 1% gain. Stocks finished the week in strong form on Friday in the US, though European markets had come under pressure. Monday's session is likely to be a quiet one, with little data or earnings scheduled. Moody's downgrade of its US debt outlook on Friday highlighted the challenges regarding the US government's financial position, though it does not appear to be hitting risk appetite for now.  

 

[KoketsoIG]

The key event of the week is upon markets, as the latest US inflation figures are released this afternoon. Asian stock markets showed mixed results on Tuesday as investors await the crucial inflation data, which is predicted to show a decrease in the rate of price increases. South Korea's Kospi rose 1.2% and Japan's Topix index increased 0.5%. Chinese indices edged lower, as the recent run of poor data continued to weigh on sentiment. UK employment data showed that the unemployment rate held at 4.2% in September, while average hourly earnings rose 7.9%,  ahead of expectations but down from the previous 8.4%. Futures point to a cautious start for European and US markets. 

 

[MongiIG]

Markets have been given a double boost from a slowdown in the pace of US and UK inflation. The former had the biggest impact, as investors reacted enthusiastically to the sight of CPI growth slowing in the headline and core readings, and on both the monthly and annual figures. Stocks in the US surged, and equities made headway in Asia as well. This morning's UK inflation figures have repeated the trick, delivering on the UK government's promise to half inflation by the end of the year. The US figures mean that a Fed rate hike in December is almost fully off the cards, with the central bank essentially now in a holding pattern should inflation continue on its current trajectory. The dollar weakened following yesterday's figures, while commodity prices made some gains. Now markets wait to see if today's US PPI figures repeat the good news. 

 

[MongiIG]

Stocks trimmed their gains overnight in Asia, after the post-inflation rally, but optimism continues to predominate overall. The US-China summit provided signs of progress in relations between the two powers, and a stopgap funding deal in Washington will avoid a partial government shutdown for the time being. Today's focus is on US retailers, after Target unveiled impressive earnings and a solid outlook that sent the shares up 20%. Walmart updates the market later today, along with weekly US jobless claims and a host of Fed speakers.

 

[MongiIG]

Asian markets were mixed again on Friday, with a gain of 0.5% for the Nikkei but heavy losses for the Hang Seng. Shares in Alibaba fell after it announced that it would scrap a plan to spin off its cloud computing arm and list its grocery chain. Meanwhile, markets looked at a rise in US jobless claims and poor earnings from Walmart and worried about whether the US economy was beginning to show signs of stagnation. Oil prices hit fresh four-month lows yesterday, and along with falling yields continue to act as a support for more gains in equity markets. UK retail sales fell 0.3% in October, an improvement on last month's 1.1% drop but much worse than the expected 0.5% gain. 

 

[MongiIG]

Asian markets were mixed again on Monday, with a loss for the Nikkei but strong gains for the Hang Seng as China's central bank maintained rates at the November fixing, as expected. The US dollar slid to fresh 2 1/2-month lows along with falling US yields which hit two-month lows and may keep  equity markets in the green after three straight weeks of gains. The oil price extends Friday's gains ahead of this weekend's OPEC+ meeting when additional supply cuts will be on the table. Argentina's election of a far-right libertarian, FOMC minutes, followed by US durable goods orders, services and manufacturing PMIs will be the main focal points as earnings season draws to a close with Zoom, Nvidia and HP earnings.

 

[MongiIG]

The rally in risk assets continues, with US markets making fresh gains on Monday, taking the Dow to its highest level since mid-summer. Asian indices were more cautious, but were nonetheless mostly higher overnight, and the Nikkei briefly touched a 33-year high. Lower Treasury yields have continued to provide the foundation for more gains in equities, while earnings season has also gone better than expected. While Fed minutes tonight will provide some possible additional detail on the path of rates, Nvidia's earnings tonight, perhaps the last big name of the season, will be the main event. 

 

[MongiIG]

European stocks remain bid following a sharp fall in US initial jobless claims and durable goods orders but are expected to trade in low volumes due to holidays in Japan and the US until the weekend. Further government support for the battered Chinese property sector helped the Shanghai index rise by about half a percentage point while the Eurozone, France, Germany and the UK are focusing on their manufacturing and services PMIs. The oil price took a hit as this weekend's OPEC+ meeting has been pushed back to the 30 November. 

 

[MongiIG]

European markets head for a lower open following a mixed Asian session as investors assess Japan's 3.3% inflation rate, the highest in three months, and as manufacturing shrinks below market forecasts for a sixth month. Germany's economy contracts 0.1% in the third quarter, reversing its 0.1% growth in the previous quarter ahead of today's IFO business climate index. In the UK consumer confidence rises in November. A quiet session is expected to be seen as stock markets are open for a half day on Black Friday in the US with the only data to be published being the US manufacturing and services PMI for November. Nonetheless major stock indices remain on track for their fourth consecutive week of gains.

 

[KoketsoIG]

Stocks in Asia traded lower on Monday after US markets managed to notch up a fourth weekly gain. November has seen a remarkable recovery in risk appetite, driven by a falling dollar and declining US Treasury yields. Some of the risk-on mood may fade as month-end looms, but previous instances of such strong momentum have tended to lead to more gains. Seasonality also remains a positive influence, while on a fundamental view, recent earnings have pointed to a better outlook for US companies than many feared.

 

[KoketsoIG]

Losses in Europe and on Wall Street were matched overnight by a lacklustre session for Asian indices, though the ASX 200 managed to push higher by 0.4%. ECB head Christine Lagarde warned that job growth may slow by year-end, while reminding investors that there were no plans to cut rates in the near future, despite the run of poor data coming out of the eurozone. Fast-fashion company Shein dominated the news on reports it would look to go public next year, with current projections giving it a valuation of $80-90 billion. Today's US consumer confidence figure is the main economic data point, but speakers from the Fed, ECB and BoE are all scheduled for this evening.

 

[KoketsoIG]

The poor performance of Chinese stocks continues, with the Hang Seng down sharply overnight, bucking a slightly more positive session for Asian markets. Previous Fed hawk Christopher Waller made waves by hinting that the Fed might begin to cut rates relatively soon if the decline in inflation continued, in order to engineer its much-vaunted 'soft landing' for the US economy. This gave risk appetite a lift in what was otherwise a generally quiet session. Australian inflation came in below forecasts, though the New Zealand central bank warned markets that more hikes could still be on the table if inflation did not ease. German inflation, the second estimate of US Q3 inflation and weekly EIA oil inventories are on the calendar for the day. 

 

[MongiIG]

Poorer economic data from South Korea and China put pressure on Asian markets, with China's manufacturing declining for a second month in a row and South Korea seeing industrial output fall by the biggest monthly amount in ten years. Stocks in Europe were given a lift yesterday by slowing German inflation figures, and this also helped to support Wall Street to an extent. More inflation data is expected today, this time from France and the eurozone, along with the US PCE price index. Given the surge in stock markets over the last month, and with month-end upon us, any uptick in US inflation data could put some pressure on equities. Also on the calendar for the day is the OPEC+ meeting, with the body discussing further output cuts given recent weakness in oil prices. 

 

[MongiIG]

US stocks had a strong end to last week, rallying in the wake of a speech by Jerome Powell. While the Fed chair was keen to stress that rate cuts were not on the table and that more hikes could come if needed, markets continue to take their cue from inflation data that shows price growth continuing to cool. Gold rallied to a new record high following the speech and the dollar fell. Asian indices were unable to maintain the bullish move, coming in generally weaker save for the ASX 200. Oil prices attempted to bounce on news of a drone attack on ships in the Red Sea, but then resumed their post-OPEC falls. A quiet day for economic figures lies ahead, though ECB president Christine Lagarde speaks at 2pm. 

 

[MongiIG]

Stocks continue to trim the gains made in November. Following a lower session on Wall Street, Asian indices came under pressure. The Nikkei hit a three-week low, while the Hang Seng index touched a fresh one-year low as funds continued to flow out of Chinese indices. The RBA left rates unchanged, and the dovish tone of the statement caught some by surprise. It said that future rate changes would depend on data. In China the Caixin services PMI hit a three-month high of 51.5, but this did little to boost sentiment towards Chinese stocks. European and US markets are expected to open lower, ahead of the US ISM services PMI, and as the focus turns to the monthly US job reports this week.

 

[MongiIG]

Indices in Asia staged a recovery from their lows, providing a more optimistic performance than that seen in the US yesterday. After a brief period of weakness, hopes are once again rising that central banks are at the end of their tightening cycle. The ASX 200 and the Nikkei 225 were the strongest performers, but Chinese indices continued their poorer run of form, struggling to move into positive territory for the day. Today sees the release of the latest ADP employment report in the US, the precursor to Friday's non-farm payrolls, along with a decision from the Bank of Canada. Rates are expected to remain unchanged at 5%. The Bank of England's latest Financial Stability Report is also published today, and BoE governor Andrew Bailey will speak at 11am. 

 

[MongiIG]

Asian indices took their cue from a poor finish on Wall Street, where bullish momentum faded thanks to declining energy stocks. Poor Chinese trade data hit sentiment in the Asia-Pacific region, as weakness in imports flagged fresh concerns about the Chinese economy. Lower oil and commodity prices hit markets on Wednesday, in part thanks to a revival in the US dollar. Overnight the yen saw fresh safe haven flows, taking USDJPY to its lowest level since mid-September, and hitting the Nikkei 225 hard. US weekly unemployment claims are the main event of the day, with a weaker open expected for most European and US indices. 

 

[MongiIG]

There were some muted gains in Asia overnight, but the main mover was the Nikkei, which slumped another 1.7% as the yen continued to strengthen and Japanese GDP was revised down. Hints from the Bank of Japan this week have prompted a flight of short sellers from the yen on expectations that 2024 will finally see some policy tightening in Japan, just as other central banks contemplate cutting rates. Meanwhile, oil clawed back some losses as Russia and Saudi Arabia called on other OPEC+ members to adhere to the recently-agreed production cuts, but both Brent and WTI are still down heavily for the week. US non-farm payrolls are the main event of the day, with the focus on whether job growth is slowing or remaining resilient.

 

[MongiIG]

Asia stock indices mostly advance as China consumer prices drop the most in three years after another positive session in the US on Friday, shrugging off stronger-than-expected US jobs data ahead of Wednesday's FOMC meeting. With the ECB and BOE meeting on Thursday, volatility is likely to pick up in the middle of the week. While today's economic calendar is devoid of any market moving data, Tuesday should be more interesting with UK unemployment, Germany ZEW economic sentiment and the US inflation data releases. 

 

[MongiIG]

Asian indices registered further gains on Tuesday, though the Nikkei 225 struggled to hold on to its early advance. US indices were higher on Monday, continuing their strong run, though nervousness is setting in ahead of inflation data this afternoon and tomorrow's Fed decision. Having come so far in such a short space of time, indices may be vulnerable to some short-term weakness at least, should inflation not meet expectations of a monthly decline, or if the Fed chooses to refute in strong terms the current expectations around rate cuts next year. The UK unemployment rate held at 4.2% in October, while wages grew more slowly for the three months to October, at 7.2%, versus 7.7% expected and 8% at the previous reading. 

 

[MongiIG]

Asian markets were mixed again, with small gains for the Nikkei 225 and ASX 200 countered by losses in Chinese indices. Attention now turns to the Fed meeting and decision tonight. While a 'no change' on rates seems all but certain, it is Powell's tone that markets will focus on. Expectations of a cut in the first half of the year have risen dramatically, but if Powell opts for a more cautious tone then stock markets may come under fresh pressure, while the dollar could be given renewed upward impetus. UK GDP shrank by 0.3% in October, as household spending was squeezed by rate rises. Stocks are expected to open in positive form in Europe and the US, but nervousness is likely to rise ahead of tonight's decision. 

 

[MongiIG]

A fresh record on the Dow caps an astonishing year for markets, as indices rallied in the wake of a dovish Fed meeting. Chairman Jerome Powell caught investors by surprise with his shift in policy, saying that the Fed would not make the mistake of keeping rates high for too long. The FOMC expects three rate cuts next year, which though below market expectations, was enough to give stocks a push higher and knock back the dollar. Now the focus turns to the BoE and ECB, to see if these banks will follow the Fed's lead or whether they will opt for a more cautious tone. US weekly jobless claims are also on the agenda for today. 

 

[MongiIG]

Markets are beginning to wind down for the year, though tomorrow's Bank of Japan meeting provides one last real hurdle for traders to navigate. Asian stocks were generally lower, with the Hang Seng leading the fallers. South Korean stocks were slightly pressured by news that North Korea had fired two ballistic missiles, including a long-range missile. The German IFO index is the only major piece of data on the calendar for the day. A weaker open is expected in Europe, but US futures are currently pointing to a positive start. 

 

[MongiIG]

While the Hang Seng came under further pressure thanks to property and tech stocks, the Nikkei 225 was given fresh life by the Bank of Japan's decision to stick to ultra-loose monetary policy. The bank made no major changes, which resulted in a weakening of the yen after its recent strong run against the US dollar. The last big event of 2023 is now behind markets, but for now there is little sign of any real slowdown in the rally in risk assets. News that more shipping companies would avoid the Red Sea boosted oil prices, and could lead to problems in global supply chains, but the announcement of a US-led taskforce in the region to deal with attacks has limited the impact of the news.