Strong Bank Earnings

Strong Bank Earnings

S&P 500 futures climbed on Thursday, following the benchmark index’s best performance since November, driven by a favorable inflation report and strong bank earnings. Investors are eagerly awaiting further economic insights, with the December retail sales report anticipated to show a 0.5% increase, slightly down from November’s 0.7% rise, according to Dow Jones estimates. Additionally, weekly jobless claims are expected to be released. Earnings reports from Morgan Stanley and Bank of America are also on the docket, concluding the earnings season for major banks.

European markets experienced a positive surge on Thursday, driven by impressive performances in the luxury and technology sectors. Luxury stocks soared, particularly those of Cartier, which reported strong results. This uplift was mirrored in the shares of France’s LVMH, Kering, and Christian Dior, all of which saw gains of around 8%. Retailers such as Moncler, Burberry, Swatch, and Hermes also performed well, clustering at the top of the Stoxx index. Technology stocks rose by 1.87%, with chip companies like ASM International and Be Semiconductor benefiting from better-than-expected earnings from Taiwan Semiconductor Manufacturing Company.

Asia-Pacific markets saw a positive trend on Thursday, with most indices recording gains. Korea’s central bank maintained its benchmark interest rate at 3%, defying expectations. This decision seemed to bolster investor confidence, as the Kospi rose by 1.23% and the Kosdaq by 1.77%. The Korean won, however, weakened slightly, trading at 1,456.91 against the US dollar. In Japan, the Nikkei 225 edged up by 0.33%, while the Topix dipped marginally by 0.09%. Hong Kong’s Hang Seng index climbed 1.08%, and China’s CSI 300 saw a modest increase of 0.11%. Meanwhile, Australia’s S&P/ASX 200 advanced by 1.38%, despite a slight uptick in the unemployment rate to 4% in December from 3.9% in November.

Economic Calendar

Earnings Calendar

Notable reports for Thursday before the bell include BAC, FHN, IIIN, MTB, MS, PNC, UNH, & USB. After the bell reports include OZK, & JBHT.

News & Technicals’

British oil major BP announced on Thursday its plan to cut thousands of jobs as part of a significant cost-cutting initiative. The company informed staff that approximately 4,700 roles would be impacted by the proposed changes, constituting a large portion of this year’s anticipated reductions. Additionally, BP plans to reduce its contractor numbers by 3,000. These measures aim to lower costs, following CEO Murray Auchincloss’s statement last year that BP intends to achieve at least $2 billion in cash savings by the end of 2026.

Target raised its fourth-quarter sales forecast on Thursday, attributing the increase to a surge in holiday shopping both in-store and online, especially during major discount days. The retailer now expects comparable sales to grow by about 1.5%, an improvement from its previous projection of flat growth. This metric includes sales from Target’s website and stores open for at least 13 months. Despite the positive sales outlook, Target did not revise its profit forecast, suggesting that the boost in sales was driven by promotional deals. The company anticipates fourth-quarter earnings per share to range between $1.85 and $2.45.

The Biden administration announced an executive order on cybersecurity on Thursday, introducing new standards for companies selling to the U.S. government and requiring greater transparency from software providers. This move follows several high-profile ransomware attacks on entities like Change Healthcare, Colonial Pipeline, and Ascension health care system. Additionally, Microsoft revealed in 2023 that Chinese attackers had breached U.S. government officials’ email accounts, leading to a critical federal report and subsequent changes at the company. Under the new order, software vendors must prove their development practices are secure, with evidence to be posted on a government website for the benefit of all software users, as stated by Neuberger.

Although we have seen some strong big bank earnings, the regional banks appear to be struggling a bit this morning.  Continue to expect wild volatility and remember we have three day weekend just around the corner with the inauguration that could easily create some bumpiness due tot the big changes that are expected.

Trade Wisely,

Doug

Key Inflation Reports

Key Inflation Reportsv

 US Stock futures rose as investors prepared for the first of two, key inflation reports this week. The producer price index (PPI), which tracks wholesale inflation, is scheduled for release at 8:30 a.m. ET. Economists surveyed by Dow Jones expect the headline PPI to have increased by 0.4%, with the core PPI, excluding food and energy, anticipated to rise by 0.3%. In the earnings arena, major banks are set to kick off the fourth-quarter earnings season. JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo will report their results on Wednesday, followed by Morgan Stanley and Bank of America on Thursday.

European markets traded higher, reversing the recent negative sentiment in the region. However, investors remain cautious, closely monitoring borrowing costs for core European economies as bond yields stay elevated. The oil and gas sectors led the losses, declining by 0.7% after BP announced that its fourth-quarter profit would be impacted by up to $300 million due to weakening refinery margins. Retail stocks also faced challenges, with JD Sports plummeting to the bottom of the Stoxx 600 after lowering its profit guidance.

Asia-Pacific markets experienced a general upward trend, with notable gains in several key indices. Hong Kong’s Hang Seng index surged by 1.9%, and mainland China’s CSI 300 saw an impressive rise of 2.63%. In contrast, Japan’s markets were the exception, as the Nikkei 225 fell by 1.83% and the Topix decreased by 1.16%. South Korea’s Kospi closed with a modest increase of 0.31%, while the small-cap Kosdaq performed better, adding 1.39%. Australia’s S&P/ASX 200 also ended the day positively, up by 0.48%. Meanwhile, investors are keeping a close eye on India’s rupee, which has weakened to a record low against the U.S. dollar.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday before the bell include PGR.  After the bell reports include APLD, & CVGW.

News & Technicals’

According to a report by Bloomberg News on Monday, the Chinese government is considering a plan for Elon Musk to acquire TikTok’s U.S. operations to prevent the app from being effectively banned. This contingency plan is one of several options China is exploring as the U.S. Supreme Court deliberates on whether to uphold a law requiring ByteDance, TikTok’s China-based parent company, to divest its U.S. business by January 19. If the deadline passes without compliance, third-party Internet service providers would face penalties for supporting TikTok’s operations in the U.S. Under the proposed plan, Musk would manage both X, which he currently owns, and TikTok’s U.S. business. However, Chinese officials have not yet made a final decision on whether to proceed with this plan.

Two Robinhood broker-dealers, Robinhood Securities LLC and Robinhood Financial LLC, have agreed to pay a combined $45 million in penalties to settle administrative charges by the Securities and Exchange Commission (SEC). The SEC found that the firms violated over ten securities law provisions related to their brokerage operations. These violations included failing to report suspicious trading promptly, not implementing adequate identity theft protections, and inadequately addressing unauthorized access to their computer systems. Additionally, Robinhood Securities was cited for failing to provide complete and accurate securities trading information, known as blue sheet data, to the SEC for more than five years.

A global sell-off in bond markets is intensifying, raising concerns about government finances and the potential for higher borrowing costs for consumers and businesses worldwide. Bond yields have been climbing globally, with the U.S. 10-year Treasury yield reaching a new 14-month high of 4.799% on Monday. In the UK, 30-year gilt yields are at their highest since 1998, and the 10-year yield has hit levels not seen since 2008. Japan, which has been working to normalize its monetary policy after ending its negative interest rates regime last year, saw its 10-year government bond yield rise above 1%, the highest in 13 years, on Tuesday. In the Asia-Pacific region, India’s 10-year bond yields rose the most in over a month on Monday, nearing two-month highs at 6.846%. Similarly, yields on New Zealand and Australia’s 10-year benchmark government bonds are also near two-month highs. Meanwhile, China’s 10-year bond yield dropped to a record low this month, leading the central bank to suspend its government bond purchases last Friday.

On Tuesday, Los Angeles firefighters prepared for intense winds that could exacerbate two massive wildfires, which have already claimed two dozen lives, destroyed entire neighborhoods, and burned an area equivalent to the size of Washington, D.C. Meteorologist David Roth from the National Weather Service’s Weather Prediction Center warned of potential hurricane-force winds reaching 75 mph (120 kph) from early Tuesday, with gusts between 50-70 mph expected through Wednesday. Over 8,500 firefighters battled the blazes from both the air and ground, successfully preventing the fires from spreading overnight. Los Angeles City Fire Chief Kristin Crowley cautioned residents, stating, “This setup is about as bad as it gets. We are not in the clear.”

With the beginning of earnings season tomorrow and the combined influence of the key inflation reports, PPI today and CPI plan for significant price volatility.  Today also keep a close eye on the bond yields as they provide some strong clues to overall market direction.

Trade Wisely,

Doug

Stock Futures Declined

US stock futures declined on Monday as investors continued to offload shares of key technology companies that have been driving the recent bull market. This sell-off has been fueled by a surge in bond yields, particularly the 10-year Treasury yield, which reached its highest level since late 2023. Investors are anticipating the start of the fourth-quarter earnings season, hoping it will bring some stability to the volatile markets. Several major banks, including Citigroup, Goldman Sachs, and JPMorgan Chase, are scheduled to report their earnings on Wednesday, while Morgan Stanley and Bank of America will release their results on Thursday.

The pan-European Stoxx 600 index traded lower this morning, with most sectors experiencing declines. Investors in the region are closely monitoring eurozone and U.K. government bond yields, which climbed to fresh multi-month highs last week. Market focus will also shift to the U.S. December consumer price index release on Wednesday morning, following the release of the December producer price index report on Tuesday. These key economic data points will provide further insights into the trajectory of inflation and potential monetary policy decisions.

Asia-Pacific markets experienced a downturn on Monday. Mainland China’s CSI 300 index declined by 0.27%, likely influenced by a record low for China’s 10-year bond yield this month. Hong Kong’s Hang Seng Index also saw a decrease of 0.73%. In India, the Nifty 50 and BSE Sensex indices fell by 0.95% and 0.80%, respectively, ahead of the anticipated release of inflation data later in the day. South Korea’s Kospi and Kosdaq indices closed lower, with losses of 1.04% and 1.35%, respectively. Australia’s S&P/ASX 200 index also experienced a decline of 1.23%. Japan’s markets were closed for a holiday.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell we have no noteworthy reports. After the bell reports include KBH.

News & Technicals’

U.S. Treasury yields climbed higher on Monday as investors braced for key inflation data releases. The 10-year Treasury yield, which had surged to its highest level since November 2023 following a stronger-than-expected jobs report on Friday, continued to rise by one basis point to 4.784%. Similarly, the 2-year Treasury yield saw an increase of three basis points, reaching 4.421%. This upward trend in U.S. Treasury yields aligns with a broader global rise in bond yields, reflecting a growing expectation among traders that interest rate cuts will occur at a slower pace this year. This cautious outlook is primarily driven by the anticipation that the U.S. Federal Reserve will proceed carefully, navigating a complex economic landscape characterized by both potential economic strength and lingering uncertainties.

The U.S. government announced new restrictions on the export of artificial intelligence chips and technology, aiming to maintain American dominance in AI by controlling its global spread. These regulations will limit AI chip exports to most countries while granting unrestricted access to U.S. AI technology for close allies. The measures, designed to prevent China, Russia, Iran, and North Korea from accessing advanced computing power, will also cap the number of AI chips that can be exported to other nations. This move reflects a broader strategy to concentrate advanced AI development within the U.S. and its allies.

In a recent podcast interview, Meta CEO Mark Zuckerberg criticized Apple for its perceived lack of innovation and the imposition of “random rules” on its platform. While acknowledging the iPhone’s significant impact in making smartphones ubiquitous, Zuckerberg expressed frustration with Apple’s current approach. He argued that Apple has not introduced any groundbreaking innovations since the iPhone’s initial release, essentially “sitting on it” for two decades. Furthermore, Zuckerberg criticized Apple for implementing arbitrary rules that hinder competition and innovation within the tech ecosystem

Blue Origin was forced to abort the inaugural launch of its New Glenn rocket on Monday due to a last-minute technical issue with the vehicle. This setback significantly impacts Blue Origin’s efforts to compete with SpaceX in the satellite launch market. The company decided to stand down the launch attempt to address the identified subsystem issue, which would have exceeded the available launch window. Blue Origin is now evaluating potential dates for the next launch attempt. The ambitious mission aimed to achieve a significant milestone by landing the first-stage booster on the offshore ship Jacklyn in the Atlantic Ocean for future reuse while propelling the second stage into orbit.

Although stock futures declined this morning, we are looking at a substantial oversold situation in the short term. Start watching for clues of a modest relief rally but keep in mind all the uncertainty we face in the days ahead that anything is possible.  Expect significant volatility throughout the week.

Trade Wisely,

Doug

Another Premarket Pump

Another Premarket Pump

U.S. stock futures were pointing higher on Wednesday morning, offering yet another premarket pump after a tough Tuesday. The previous session saw a decline across major averages, triggered by stronger-than-anticipated growth in the U.S. services sector. The Institute for Supply Management’s services index for December revealed a significant acceleration in activity, accompanied by a concerning rise in prices. These fueled fears of persistent inflation, casting doubt on the anticipated path of interest rate cuts by the Federal Reserve. Market attention now shifts to the upcoming release of the ADP private payrolls report and jobless claims data, both scheduled for Wednesday morning. Later in the day, the minutes from the Fed’s December meeting are expected to provide further insights into the central bank’s policy outlook.

European markets displayed resilience on Wednesday morning, trading higher despite disappointing news. German industrial orders unexpectedly fell in November, initially causing some market jitters, particularly in the auto sector. However, the broader market sentiment remained positive, with most sectors experiencing gains. Notably, financial services stocks saw a significant increase of almost 1%. The auto sector, after an initial dip, recovered and was trading 0.3% higher later in the morning. Market participants are now eagerly awaiting the release of European consumer confidence and economic sentiment data later in the day, which could further influence market direction.

Asia-Pacific markets experienced mixed trading on Wednesday. The Hang Seng Index fell by 0.83%, and mainland China’s CSI 300 closed 0.18% lower. The Chinese onshore yuan reached a 16-month low of 7.3316 against the US dollar. In Japan, the Nikkei 225 dipped 0.26%, and the Topix lost 0.59%. Conversely, South Korea’s Kospi rose by 1.16%, and the Kosdaq Index increased by 0.19%. Notably, shares of South Korean tech giant Samsung Electronics surged 3.43% despite a worse-than-expected profit forecast for the fourth quarter.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday before the bell include AYI, ACI, ANGO, HELE, MSN, RDUS, & UNF. After the bell reports include GBX, JEF, & PENG.

News & Technicals’

U.S. Treasury yields remained largely unchanged in early Wednesday trading as investors braced for key economic data releases. The benchmark 10-year Treasury yield held steady near its highest level in over eight months, reached on Tuesday. The 2-year Treasury yield also saw minimal movement. Market participants are keenly awaiting the release of the Federal Reserve’s December meeting minutes at 2 p.m. ET, particularly for insights into the central bank’s future policy direction, especially after the unexpected hawkishness displayed in the “dot plot” during their last meeting. Additionally, the ADP private payrolls report, scheduled for release later in the morning, is expected to provide a preview of the official jobs report from the Bureau of Labor Statistics due out on Friday.

Ann Altman, sister of OpenAI CEO Sam Altman, has filed a lawsuit alleging sexual abuse by her brother between 1997 and 2006. The lawsuit claims the abuse caused severe emotional distress and mental anguish. In a joint statement, Sam Altman, his mother, and his brothers denied the allegations.

The aviation industry faces another challenging year with Boeing’s delivery delays and persistent supply chain issues. The anniversary of a 737 Max incident, where a door panel detached, has reignited concerns about Boeing’s safety and quality standards. While Boeing has implemented changes like mandatory training and increased inspections, aviation consultant Mike Boyd argues these measures are insufficient. He believes the entire board of directors should have been replaced, highlighting the deep-rooted nature of the company’s problems.

China’s onshore yuan hit a 16-month low against the dollar on Wednesday, reaching as low as 7.3316. This decline coincides with rising Treasury yields, which strengthened the dollar. Despite China’s efforts to boost consumption through updated policies, the yuan has weakened for five of the past six trading days, depreciating over 0.44% since December 31st.

Trade Wisely,

Doug

Consecutive Gains in Tech

Consecutive Gains in Tech

U.S. stock futures remained relatively stable following consecutive gains in tech. A report from the Washington Post suggesting that President-elect Donald Trump’s tariff plan would be less extensive than anticipated initially boosted stocks, though Trump later refuted this in a Truth Social post. Cameron Dawson, chief investment officer at NewEdge Wealth, warned of potential market volatility throughout the year, citing high valuations and investor positioning as key factors. She emphasized that the elevated expectations for 2025 could lead to erratic price movements. Investors are also awaiting the Job Openings and Labor Turnover Survey due on Tuesday and the ADP private payrolls report scheduled for Wednesday.

European equities saw a modest rise as money markets largely ignored a regional inflation uptick and maintained their expectations for European Central Bank interest-rate cuts. Euro-zone consumer prices increased by 2.4% year-over-year in December, up from 2.2% in November, aligning with the median estimate from a Bloomberg poll. This rise was primarily driven by energy costs, which saw their first increase since July, according to Eurostat. Meanwhile, the broader market is dealing with the potential for escalating trade tensions after Donald Trump denied reports that he might ease plans for comprehensive tariffs upon his return to the White House.

Japan’s Nikkei 225 surged by 1.97%, driven by a rally in tech stocks, making it the leading performer among its regional peers. The Topix also saw a significant increase of 1.1%. South Korea’s Kospi edged up by 0.14%, while Australia’s S&P/ASX 200 rose by 0.34%. In contrast, Hong Kong’s Hang Seng index fell sharply by 1.43%, even as China’s CSI 300 climbed by 0.72%. The spotlight was on Hong Kong-listed tech stocks after the U.S. Defense Department designated Chinese tech giant Tencent Holdings and battery maker CATL as “Chinese military companies.”

Economic Calendar

Earnings Calendar

Notable reports for Tuesday before the bell include APOG, LNN, & RPM. After the bell reports include AIR, AZZ, CALM, & SLP.

News & Technicals’

On Tuesday, U.S. Treasury yields remained relatively stable as investors awaited key economic data that could provide new insights into the state of the economy and labor market. This week, several important economic reports are scheduled for release, with a particular focus on the labor market. The ISM’s latest PMI report for the services sector and the Job Openings and Labor Turnover Survey (JOLTs) are both due on Tuesday, with economists surveyed by Dow Jones expecting the JOLTs report to show 7.7 million job openings. Investors are closely monitoring this data as it could influence their views on the potential outlook for monetary policy, especially interest rates. This comes after the central bank indicated in December that fewer interest rate cuts might be forthcoming ahead of its next meeting on January 28-29. The Federal Reserve is widely expected to keep rates unchanged, with traders last pricing in a 93% chance of steady interest rates, according to CME Group’s FedWatch tool.

Annual inflation in the euro zone increased for the third consecutive month, reaching 2.4% in December, according to Eurostat on Tuesday. This preliminary figure matched the forecast by economists polled by Reuters and represented a rise from the revised 2.2% in November. Core inflation remained steady at 2.7% for the fourth month in a row, aligning with economists’ expectations, while services inflation slightly increased to 4% from 3.9%. Germany, the euro zone’s largest economy, saw a higher-than-expected inflation rate of 2.9% in December, as reported separately this week. In contrast, France’s inflation rate was 1.8% last month, falling short of the 1.9% predicted by a Reuters analyst poll.

Shares of Tencent Holdings plummeted nearly 8% in Hong Kong after the U.S. Department of Defense added the Chinese tech giant to its list of “Chinese military companies.” Battery maker CATL, a supplier for automakers like Ford and Tesla, was also included on the list. According to the National Defense Authorization Act of 2024, the DoD will be barred from directly procuring goods or services from these entities starting in June 2026, and indirectly from June 2027. Vincent Su, a senior equity analyst at Morningstar, noted that CATL’s inclusion on the list could deter U.S. customers from purchasing the company’s energy storage system (ESS) batteries in the future.

In response to the 2023 ruling and the backlash against diversity, equity, and inclusion (DEI) programs, McDonald’s has become the latest major company to alter its approach. Following the lead of Walmart, John Deere, and Harley-Davidson, which scaled back their DEI initiatives last year, McDonald’s announced on Monday that it will retire specific diversity goals for senior leadership. Additionally, the company plans to end a program that encouraged its suppliers to implement diversity training and increase minority representation within their leadership. McDonald’s will also pause “external surveys,” though it did not provide further details. This move aligns with similar actions by other companies, such as Lowe’s and Ford Motor, which have also suspended their participation in an annual survey.

Trade Wisely,

Doug

Upcoming Jobs Data

Upcoming Jobs Data

On Monday, S&P 500 futures saw a slight increase as investors anticipated upcoming jobs data in a shortened trading week. This week, which concludes the first five trading days of January, began with some uncertainty and ongoing concerns about the Federal Reserve’s interest rate projections. The New York Stock Exchange will be closed on Thursday to honor the passing of former President Jimmy Carter. The December jobs report, scheduled for release on Friday, is expected to be one of the final significant data points before the Federal Reserve’s meeting at the end of the month.

European markets edged higher on Monday, driven by gains in chip firms, despite a volatile start to the year for stocks. The day was relatively quiet in terms of data and earnings releases, with investors awaiting Spanish business activity and German inflation figures. Dutch chip companies were standout performers, with ASML rising 4.2%, ASM International up 4.3%, and BE Semiconductor Industries gaining 2.3%. Additionally, Taiwan Semiconductor Manufacturing Co. saw a robust performance in Asia, with its Taiwan-listed shares climbing 4.65% to reach an all-time high.

Asia-Pacific markets experienced a mixed performance as investors evaluated business activity data from several key economies in the region. China’s central bank announced over the weekend its plan to adopt a “moderately loose” monetary policy in 2025 to stimulate growth. This announcement coincided with a slight decline in China’s CSI 300 index by 0.16% and a 0.48% drop in Hong Kong’s Hang Seng index. Japan’s markets also saw declines, with the Nikkei 225 falling by 1.47% and the Topix index decreasing by 1.02%. Conversely, South Korea’s markets showed positive movement, with the Kospi rising by 1.91% and the small-cap Kosdaq increasing by 1.73%.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell include CMC. After the bell reports there are no notable reports today.

News & Technicals’

On Sunday, President Joe Biden signed the Social Security Fairness Act, a bipartisan law aimed at increasing Social Security benefits for public sector workers such as teachers, firefighters, and police officers who also receive pension income. This legislation repels the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which have been in effect for over 40 years. As a result, more than 2.5 million Americans will receive a lump sum payment of thousands of dollars to compensate for the shortfall in benefits they should have received in 2024, according to Biden.

Taiwan’s Foxconn, the world’s largest contract electronics manufacturer, exceeded expectations by reporting its highest-ever revenue for the fourth quarter. The company’s revenue surged by 15.2% to reach 2.13 trillion New Taiwan dollars ($64.72 billion), according to a statement released on Sunday. This impressive growth was driven by robust demand for AI servers, which bolstered the performance of Foxconn’s cloud and networking products division. Notably, Foxconn’s clientele includes prominent AI chip firm Nvidia, contributing to the strong revenue figures.

Volkswagen and Xpeng have agreed to open their respective super-fast charging networks to each other’s customers in China, as part of a newly signed memorandum of understanding. The two companies will also explore the possibility of co-branded super-fast charging stations. This collaboration is part of Volkswagen’s broader strategy to strengthen its presence in China, which includes investing in Xpeng and launching an aggressive schedule for electric vehicle releases.

On Monday, U.S. Treasury yields increased as investors looked forward to a series of key jobs data releases throughout the week. The 10-year Treasury yield rose by over 1 basis point to 4.614%, while the 2-year Treasury yield saw a slight increase of less than 1 basis point, reaching 4.281%. This movement in yields reflects investor anticipation of important jobs data in another shortened trading week.

We have a shortened trading week due to the closure on Thursday and the upcoming jobs data are likely crucial to future direction of the indexes. As the big push in big tech this morning, keep a close eye on the T2101 indicator.  We need to see an increase in breadth to accompany the move or the bears could whipsaw the gap open. 

Trade Wisely,

Doug

Revised Outlook for Interest Rates

Revised Outlook for Interest Rates

Following the Federal Reserve’s revised outlook for interest rates, trading became highly volatile, leading to a panic during the regular session. Jeff Buchbinder, LPL Financials’ chief equity strategist, attributed Wednesday’s market slump to “stretched positioning and sentiment,” which made stocks susceptible to a selloff. He noted that the significant rise in inflation expectations and the consequent bond selloff provided a convenient trigger. With the tech sector’s support waning, no other groups were able to compensate for the gap. Investors are now eagerly awaiting the GDP report, with futures indicating a cautious rebound.

European markets experienced significant declines, mirroring global trends. The Swedish Riksbank announced a 25-basis-point rate cut, while Norway’s central bank opted to keep its policy rate unchanged but hinted at potential rate reductions starting in March 2025. The Bank of England is also set to discuss its monetary policy decisions later in the day. Amid these developments, shares of British public services provider Serco Group rose by approximately 6.77%, whereas French broadcaster Canal+ saw its shares drop by 10.39%. Investors are closely watching these central bank actions and their implications for the broader market.

Asia-Pacific stocks and currencies experienced a decline amid a broader market sell-off. This downturn followed the Bank of Japan’s decision to maintain its policy rate at 0.25% for the third consecutive meeting. In reaction to this decision, Japan’s Nikkei 225 fell by 0.69%, and the Topix decreased by 0.22%. South Korea’s Kospi index dropped 1.95%, while the Kosdaq index declined 1.89%. Australia’s S&P/ASX 200 saw a 1.7% drop, Hong Kong’s Hang Seng index fell by 0.36%, and China’s CSI 300 index managed a slight increase. Investors are closely monitoring these developments as they reassess their positions in the market.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell include CAN, KMX, CTAS, CAG, DRI, FDS, LW, & PAYX. After the bell reports include AVO, FDX, & NKE.

News & Technicals’

The Federal Open Market Committee (FOMC) voted 11-1 on Wednesday to reduce the federal funds rate to a range of 4.25%-4.5%. Cleveland Fed President Beth Hammack was the sole dissenter, advocating for maintaining the current rates. Despite the rate cut, Fed Chair Jerome Powell emphasized that interest rates are still significantly restraining economic activity and indicated that the Fed plans to continue cutting rates. However, Powell noted that further rate cuts would depend on more substantial progress in reducing inflation. The new quarterly forecasts revealed that several officials now anticipate fewer rate cuts next year compared to their earlier projections, and they expect slower progress on inflation in 2025. Additionally, Powell addressed a question regarding the Fed’s potential response to possible tariffs from the Trump administration.

Micron Technology shares plummeted by 15% following the release of disappointing guidance for the second quarter. Despite this, the company reported in-line revenue results and exceeded quarterly earnings expectations, with adjusted earnings per share of $1.79 on revenue of $8.71 billion, surpassing analysts’ forecasts of $1.75 per share. Year to date, Micron’s shares have risen by 22%, although this lags behind Nasdaq’s 29% gain. In its earnings report, Micron emphasized growth opportunities in data centers and artificial intelligence ventures, particularly those involving Nvidia’s processors.

On Thursday, the 10-year U.S. Treasury yield increased slightly, rising over one basis point to 4.516%, following the Federal Reserve’s indication that fewer rate cuts might be expected next year. This rise came after the yield surpassed 4.5% in the previous session; a level often associated with heightened market volatility. In contrast, the 2-year Treasury yield fell by more than two basis points to 4.331%. According to the CME FedWatch tool, the likelihood of another rate cut at Fed’s first policy meeting in January has dropped to below 10%. Investors are closely monitoring these developments as they reassess their expectations for future monetary policy.

During his annual “Direct Line” Q&A session with Russian citizens on Thursday, President Vladimir Putin acknowledged that inflation is a significant issue in Russia and that the economy is overheating. He described inflation as an “alarming signal” and emphasized that both the government and the Russian central bank are working towards achieving a “soft landing” for the economy. Despite these challenges, Putin expressed confidence in the overall performance of the economy, projecting a growth rate of 3.9-4% for the year.

Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School, described the recent stock sell-off on Wall Street as “healthy.” He explained that the Federal Reserve’s cautious outlook on future rate cuts served as a “reality check” for investors. Siegel noted that the market had been in a “runaway situation,” and the Fed’s stance reminded investors that interest rates would not drop as low as they had hoped when the easing cycle began. He remarked that the market’s previous optimism was excessive, making the sell-off unsurprising. Siegel also predicted that the Fed would likely reduce the number of rate cuts next year, possibly implementing just one or two reductions.

As we attempt to achieve a relief rally keep in mind the revised outlook for interest rates will keep price volatility challenging and option prices higher than normal for a while so plan carefully.  Today we have another big day of market-moving economic data that will kick off with the GPD report so buckle up it could be another very bumpy day.

Trade Wisely,

Doug

Interest Rate Decision

Interest Rate Decision

U.S. stock futures rebounded on Wednesday morning as traders anticipated the Federal Reserve’s December interest rate decision. The Dow Jones Industrial Average has been experiencing its worst downturn in 46 years, primarily due to a shift from traditional economy stocks to technology stocks, which are underrepresented in the Dow compared to broader market indices. The Federal Reserve is expected to announce its policy decision at 2:00 p.m. ET, with Fed funds futures indicating a 95% probability of a quarter percentage point rate cut, according to the CME FedWatch tool. This potential rate cut has heightened market interest and influenced trading activity.

European stocks saw gains on Wednesday, buoyed by economic data and corporate news. The U.K. reported a 2.6% rise in inflation for November, aligning with market expectations. Investors anticipate that the Bank of England will maintain its current interest rates at its final monetary policy meeting of the year on Thursday. In corporate news, shares of French carmaker Renault surged by 6% following reports of potential merger talks between Nissan and Honda, in which Renault holds a minority stake. This development contributed to the positive sentiment in the market.

Investors in Asia closely monitored Japan’s trade data ahead of an upcoming Bank of Japan rate decision. Japan’s exports saw a year-on-year increase of 3.8% in November, while imports fell by 3.8%, significantly missing expectations. This mixed economic data influenced regional markets differently. The Nikkei 225 closed 0.72% lower, reflecting investor caution. In contrast, South Korea’s Kospi rose by 1.12%, and Hong Kong’s Hang Seng index increased by 0.95%. Australia’s S&P/ASX 200 experienced a slight decline of 0.06%. Meanwhile, China’s CSI 300 gained 0.51% as investors awaited the People’s Bank of China’s loan prime rate announcement on Friday.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday before the bell include ABM, BIRK, GIS, JBL, & TTC. After the bell reports include LEN, MLKN, MU, SCS, & WS.

News & Technicals’

Despite inflation remaining above target, a robust 3% economic growth rate, and a strong labor market, futures market traders are almost certain that the Federal Open Market Committee (FOMC) will lower its benchmark overnight borrowing rate by 25 basis points, bringing it to a target range of 4.25% to 4.5%. This anticipated rate cut contrasts with the typical response of raising rates or maintaining the current level under such economic conditions. To justify this decision, Chair Jerome Powell and the committee will need to communicate their rationale effectively. Former Boston Fed President Eric Rosengren recently expressed his opposition to a rate cut at this meeting, highlighting the complexity of the decision.

U.S. Treasury yields edged higher on Wednesday as investors awaited the Federal Reserve’s latest interest rate decision and guidance on the economic outlook. The yield on the 10-year Treasury note rose by two basis points to 4.40%, while the 2-year Treasury yield increased by one basis point to 4.25%. Market participants are keenly watching the post-meeting statement and the press conference with Fed Chairman Jerome Powell for insights into the central bank’s monetary policy stance and its assessment of the broader economy. These communications are expected to provide crucial clues about future policy directions.

Nissan shares soared by 24% while Honda Motor stock declined, following reports that the two Japanese automakers are considering a merger. According to the Nikkei newspaper, Honda and Nissan are exploring the possibility of operating under a holding company and are expected to sign a memorandum of understanding soon. Joe McCabe, president and CEO of AutoForecast Solutions, commented to CNBC that Nissan requires a “revitalization” after its partnership with Renault deteriorated. This potential merger could mark a significant shift in the automotive industry landscape.

Novo Nordisk’s popular diabetes medication, Ozempic, may have an unexpected side effect. Danish health authorities announced on Monday that they are requesting the European Union’s drug regulator to review findings from two Danish studies. These studies suggest a link between Ozempic and an increased risk of non-arteritic anterior ischemic optic neuropathy (NAION), a rare eye condition that can cause vision loss due to reduced blood flow to the optic nerve.

As we catch a very needed relief rally in the DIA and IWM plan carefully if you intend to add new positions with the FOMC interest rate decision coming at 2 PM Eastern.  Also keep in mind that we have a pending GDP report on Thursday and the Core PCE figures coming Friday morning as well as the possible government shutdown midnight on Friday unless a deal is reached in Congress.

Trade Wisely,

Doug

DIA Losing Streak

DIA Losing Streak

Stock futures declined following the longest DIA losing streak since 2018. Traders are eagerly awaiting the Federal Reserve’s next rate decision, which will be announced at the end of the central bank’s final two-day policy meeting of 2024, starting Tuesday. According to CME Group’s Fed Watch tool, there is a 95% probability of a quarter-point rate cut on Wednesday. Wall Street is particularly focused on insights into future policy moves that will be discussed during the meeting and in Chair Jerome Powell’s press conference afterward.

Early Tuesday, European markets were mostly in negative territory as investors focused on upcoming central bank meetings. The Bank of England is set to meet on Thursday, with markets currently anticipating only a slim chance of a final rate cut for the year. Despite the overall negative trend, Germany’s DAX index was up by 0.2%, following Chancellor Olaf Scholz’s loss in a confidence vote in the German parliament on Monday, which has triggered a snap election scheduled for February 23. Key data releases in Europe on Tuesday include U.K. unemployment figures and Germany’s Ifo business climate and economic sentiment index.

Asia-Pacific markets showed mixed performance, reflecting the varied gains seen on Wall Street. In a significant move, Chinese leaders announced plans to increase the country’s budget deficit to 4% of GDP in 2025, aiming to sustain economic growth at around 5% next year, according to a Reuters report. The CSI 300 in China fell by 0.26%, and Hong Kong’s Hang Seng Index decreased by 0.16%. Conversely, Australia’s S&P/ASX 200 rose by 0.78%. Japan’s Nikkei 225 and Topix both declined by 0.24%, while South Korea’s Kospi and Kosdaq dropped by 1.29% and 0.58%, respectively.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell include HEI, & WOR. After the bell reports include CALM, & NEOG

News & Technicals’

Respondents to the CNBC Fed Survey for December are confident that the Federal Reserve will cut rates on Wednesday, with 93% predicting a quarter-point reduction. However, only 63% believe this is the appropriate action for the Fed to take. The survey, which included 27 respondents such as economists, strategists, and fund managers, also highlighted concerns about the impact of President-elect Donald Trump’s tariffs and threatened deportations on the economic outlook. These factors have tempered optimism among some forecasters. Economist Robert Fry expressed his uncertainty, stating, “I can’t remember being this uncertain about the inflation outlook.”

U.S. Treasury yields edged slightly higher as investors awaited key economic data ahead of the Federal Reserve’s upcoming interest rate decision. By 5:51 a.m. ET, the yield on the 10-year Treasury had risen by over 2 basis points to 4.418%, while the 2-year Treasury yield increased by more than 2 basis points to 4.272%. The U.S. retail sales figures for November, set to be released on Tuesday, are expected to provide new insights into consumer behavior and spending. This will be followed by the latest building permit and housing starts on Wednesday, just before the Fed announces its interest rate decision later that day.

An index of Asian currencies dropped to its lowest level in over two years due to growing pessimism about China’s economic outlook and expectations that Trump’s second administration will strengthen the U.S. dollar. The yen, which had weakened beyond the 154 level against the dollar overnight, ended a six-day losing streak. The yen’s sharp decline over the past week has led strategists to caution that further weakening could prompt verbal intervention from authorities and increase pressure on the Bank of Japan to raise interest rates. However, traders are currently pricing in less than a 20% chance of a rate hike in December, according to swaps market data.

Volkswagen, Mercedes-Benz Group, and BMW have recently issued profit warnings, attributing their concerns to economic weakness and sluggish demand in China, the world’s largest car market. This challenging situation is further exacerbated by the potential imposition of U.S. tariffs on European autos, which could significantly impact Germany’s economy. Germany, being Europe’s largest exporter of passenger cars to the U.S., exported 23 billion euros ($24.2 billion) worth of cars last year, representing 15% of its total exports to the U.S., according to Eurostat and ING Research. The introduction of tariffs would therefore worsen the already difficult circumstances for Germany’s top original equipment manufacturers (OEMs).

The DIA losing streak looks to continue today despite the T2122 indicator signaling a short-term oversold condition.  Market breath continues to be extremely concerning as the tech giants soar to record highs seemingly sucking all the energy out DOW and Russell indexes.  If a pullback begins be prepared for a possible quick substantial decline.

Trade Wisely,

Doug

Breaking a Seven-day Losing Streak?

On Monday, stock futures saw a slight rise to potentially breaking a seven-day losing streak, for the Dow Jones Industrial Average. Following a broad rally after President-elect Donald Trump’s November victory, the market has recently shifted to a narrower, tech-led movement. Joe Mazzola, head of trading and derivatives at Charles Schwab, noted that the market’s breadth is diminishing, with the rally becoming more concentrated in a few names. He expressed uncertainty about the sustainability of this trend but suggested it might continue through the end of the year. Investors are also looking ahead to the Federal Open Market Committee’s meeting on Tuesday and Wednesday, where officials are expected to lower the benchmark interest rate again.

European markets saw a decline as traders prepared for the final week of central bank actions for the year and the listing of three French media companies in Europe. France’s CAC 40 index fell by 0.58%, influenced by Moody’s unexpected decision to downgrade the country’s credit rating from Aa2 to Aa3, citing concerns over weakened public finances due to ongoing political instability. Investors were also focused on Berlin, where a vote of confidence in Chancellor Olaf Scholz was scheduled, potentially paving the way for snap elections in February.

Asia-Pacific markets experienced a downturn, reversing earlier gains as investors anticipated key decisions from major central banks, including the Bank of Japan and the People’s Bank of China. Despite a 3% year-over-year increase in China’s retail sales, the figure fell short of the 5% growth forecasted by economists. This underperformance contributed to declines across various indices: mainland China’s CSI 300 dropped by 0.54%, Hong Kong’s Hang Seng index fell by 1%, South Korea’s Kospi decreased by 0.22%, Japan’s Nikkei 225 saw a marginal decline, the Topix index experienced a larger loss of 0.3%, and Australia’s S&P/ASX 200 fell by 0.56%.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell no notable reports. After the bell reports include CMP, & MITK.

News & Technicals’

Monday, U.S. Treasury yields remained relatively stable as investors anticipated the Federal Reserve’s final meeting of the year. The 10-year Treasury yield decreased slightly by over 1 basis point to 4.381%, after surpassing 4.4% on Friday. Similarly, the 2-year Treasury yield dipped by less than 1 basis point to 4.234%. Investors were largely expecting a 25-basis-point interest rate cut from the FOMC on Wednesday, with a 97% probability according to the CME FedWatch tool. Market participants are keenly awaiting the Fed’s updated policy statement and Fed Chair Jerome Powell’s press conference for insights into future interest rate decisions. During this blackout period, Fed officials are restricted from making public comments ahead of the meeting.

Softbank CEO Masayoshi Son is set to announce a $100 billion investment in the U.S. over the next four years during a visit to President-elect Donald Trump’s Mar-a-Lago residence in Palm Beach, Florida. This substantial investment could be sourced from various Softbank-controlled entities, including the Vision Fund, capital projects, and Arm Holdings, where Softbank holds a majority stake. Not all of the funds will be newly raised; some will include previously announced investments, such as Softbank’s recent $1.5 billion investment in OpenAI, the company behind ChatGPT. This move underscores Softbank’s commitment to expanding its footprint in the U.S. tech sector.

The Bank of Japan (BOJ) is expected to maintain its benchmark interest rate at 0.25% during its upcoming two-day meeting this week, as it seeks more clarity on domestic wage and spending trends. According to a survey conducted between December 9-13, a slim majority of 13 out of 24 economists (54%) predict that the BOJ will keep rates unchanged, while the same number anticipate a rate hike in January. The BOJ, which last raised rates in July, has indicated its willingness to tighten monetary policy further if wage growth and prices meet its projections. BOJ Governor Kazuo Ueda recently suggested that another rate hike is approaching, contingent on economic data aligning with expectations, but he also highlighted potential risks, such as wage trends next year and changes in U.S. economic policy.

Russia’s central bank is anticipated to implement a significant rate hike later this week as inflation continues to escalate in its war-impacted economy. Despite multiple rate increases aimed at curbing inflation, the consumer price index rose to 8.9% in November, up from 8.5% in October, primarily due to rising food prices. The inflationary pressure has been exacerbated by a weaker ruble, following new U.S. sanctions in November, which has increased the cost of imports. As a result, economists expect the Central Bank of Russia (CBR) to raise interest rates by 200 basis points at its meeting on December 20, bringing the key interest rate to 23%. This move reflects the ongoing economic challenges Russia faces since its invasion of Ukraine in 2022.

Although the Dow is breaking a seven-day losing streak the tech sector stocks continue to reign supreme.  However, there is concern about how much longer that can continue unless market breath picks up.  This week investors will be focused on the FOMC decision on Wednesday, GDP on Thursday and the Core PCE numbers coming on Friday. Also keep in mind that the current CR will run out on Friday at midnight and the government could shut down unless Congress acts.

Trade Wisely,

Doug