Market Daily
Macro Update:
Powell underlines US economy's strength
Fed Chair Powell, on Wednesday, reaffirmed the resilience of the US economy, citing stronger than expected growth and a robust labour market amid persistent inflationary pressures. He also underscored the Fed's focus on steering monetary policy toward neutral levels. His remarks, coupled with weaker than expected ISM Services PMI data at 52.1 for November, and slightly below expectation ADP private payroll data, bolstered expectations for more rate cuts. We continue to see a 25bps rate cut delivered at the December FOMC. Elsewhere in France, a no-confidence vote ousted Prime Minister Barnier as the political turmoil continues.
Main Upcoming Macro Indicators
Equity Market Updates
US EQUITIES
US equities set records with S&P 500 on its 56th high this year as the Santa Claus rally continues.
Tech is likely to remain the key driver with Mag-7 rising for a 4th session, helped by Nvidia and Tesla, and Microsoft.
EUROPE EQUITIES
EU equity markets closed mixed on Wednesday as French political turmoil takes spotlight.
HK EQUITIES
HK equities closed down marginally on Wednesday, as investor sentiment remained on the fence in the backdrop of a potential trade war following tech sanctions by US and hopes for further stimulus measures from China.
Seven & I (3382 JP)
The JPY9T proposed management buyout of Seven & I is reportedly set to include plans for an IPO of its North American convenience stores and gasoline stations business to ease financing concerns.
As the founding Ito family races to formalize a proposal to counter a rival JPY7.1T offer by Alimentation Couche, the listing of the operations is being considered as the optimal way to quickly pay down loans that would be extended by 3 of Japan’s biggest banks in the buyout, the people said.
MARKET CONSENSUS: 5 BUYS, 11 HOLDS, AVERAGE TP JPY2440
Rio Tinto (RIO LN)
Rio Tinto will ramp up capex to the most in more than a decade. The raw materials giant will boost spending to $11B in 2025, up from $9.5B this year.
Miners are shifting focus to expansion and dealmaking with an eye on metals needed for the world’s shift from fossil fuels. The firm plan to grow copper volumes by 18% next year and 40% by 2030, to reduce its reliance on Australian iron ore.
A more resilient than anticipated steel demand cycle would potentially raise share’s price.
MARKET CONSENSUS: 15 BUYS, 6 HOLDS, 2 SELLS, AVERAGE TP GBp5838.18
Alphabet (GOOGL US)
Google entered a partnership with Air France-KLM S in order to help the airline transform its data and GenAI strategy.
With this strategy change, Air France-KLM aims to improve its passengers' experience with more personalized offers, simplify data and generative AI use, and speed up innovation within the company.
MARKET CONSENSUS: 59 BUYS, 13 HOLDS, AVERAGE TP USD210.52
Mitsubishi Corp (8058 JP)
Mitsubishi said it had suffered a loss of more than $90M in China after uncovering suspected fraud by one of its copper traders. The firm had disclosed a loss of $92.2M in its most recent quarterly results, citing “a loss in its Chinese trading business,” without further explanation then.
The latest scandal is likely to make Mitsubishi, already one of the most conservative trading houses, even more cautious.
MARKET CONSENSUS: 7 BUYS, 8 HOLDS, AVERAGE TP JPY3259.17
PVH (PVH US)
PVH issued a downbeat earnings forecast for the holiday quarter, with sales expected to fall more than expected as its Calvin Klein and Tommy Hilfiger brands continue to slump.
The company on Wednesday guided for sales to fall between 6% and 7% in the current quarter, wider than the 4.5% decline the market estimated.
Q3 results beat but Q4 weak guidance is likely to cast a cloud of doubt on recent rally. Shares are expected to face some downwards pressure in the near term.
MARKET CONSENSUS: 12 BUYS, 5 HOLDS, AVERAGE TP USD124.45
Earnings Announcements
US Market
Veeva, DocuSign
European Market
-
HK - China Market
-
Global Indices Changes (%)
Fixed Income Market Updates
It was a whirlwind of activity on Korea's political front. We think the ongoing political uncertainty is unlikely to spill over to Korea's credit market. Liquidity is ample, following Bank of Korea's swift and decisive action to restore market stability.
EUROPEAN BANK COCO (AT1)
French banks AT1 bonds performed against expectations with active flows two ways. EUR-denominated non-French banks' AT1 bonds remained in demand with inventory hard to source. The AT1 space closed around 0.2point higher on average with asset managers in Europe mostly buyers in this space. Volume has been decent as activity picked up after Thanksgiving and investors are positioning for year-end.
ASIA INVESTMENT GRADE (IG)
Focus was on Korean IG space given the ongoing headlines and heightened political uncertainty. We see limited spread widening, contained to around 10bps in general. Higher beta names such as insuance Tier 2 and bank AT1 bonds were the underperformers, with spreads around 10-20bps wider. Outside of Korea, shorter end bonds were in demand. State Bank of India senior bonds found support with the new 2029 trading tigher while long end ThaiOil bonds traded around 5bps wider as investors trimmed duration risk as we approach year-end.
ASIA HIGH YIELD (HY)
We have Rakuten adding to the Asian High Yield space, which triggered buying across its existing curve. The new Rakuten perpetual printed US$550mio with a coupon of 8.125%. In Indian HY, Adani complex had a firm session as concerns around the situation eased. Non-bank financials and renewables saw demand from asset managers, supporting sentiment in the Indian HY space. China HY space was relatively muted which could be due to investors shifting their focus to developments in its neighbour: Korea. Prices were marked unchanged to around 0.25 point higher in China HY with thin trading.
Forex Market Updates
The US Dollar saw litle change as market expectations for a 25bps rate cut in December rose, following Powell's comments and release of key economic data.
USD
The US Dollar remained steady against a basket of other major currencies yesterday, reflecting cautious sentiment ahead of the Fed December policy meeting. Fed Chair Powell's remarks supported normalisation of monetary policy and the market is now pricing a 76% chance of a 25bps reduction at the December FOMC. Nevertheless, markets remain cautious, with Friday’s nonfarm payroll report expected to provide further clarity on the Fed's next move.
The Dollar Index looks likely to be capped by technical resistance around 107.5 for the time being.
EUR
The Euro had little change on Wednesday despite the French Prime Minister Barnier being outsed following a no-confidence vote in the the National Assembly. Markets had already priced in the political risks, albeit the continuing political turmoil further clouds the French rising debt and economic outlook. Markets are also assessing ECB President Lagarde’s remarks, who indicated further rate cuts, together with ECB member Holzmann hinting at a possible 25bps reduction in December. Uncertainty surrounding US tariff policies under the incoming administration adds pressure on European inflation forecasts, prompting cautious sentiment as markets await additional data to gauge the eurozone’s economic outlook.
While the common currency’s near term outlook remains bearish, technical support at 1.0410 looks poised to hold for now.
AUD
The Australian dollar fell close to 0.70% yesterday to a four-month low, driven by weaker-than-expected Q3 GDP growth of 0.3%, below the 0.4% forecast. Annual growth slowed to 0.8%, highlighting sluggish consumer spending, while government expenditure kept the economy afloat. Markets now expect the RBA to cut rates as early as April, pulling forward expectations from May. Despite steady interest rates at 4.35%, investors remain cautious as economic uncertainty persists, with the next RBA meeting on December 10 unlikely to deliver an immediate policy shift.
AUD/USD is likely to trade with a downward bias below 0.6530 moving forward.
XAU
Gold prices edged higher by around 0.3% on Wednesday following the weaker than expected US private payroll data and Fed Chair Powell’s comments. Markets are now awaiting key data for further clues on the Fed's policy direction. Gold's safe haven appeal was also bolstered by geopolitical tensions, including political instability in South Korea and ongoing conflicts in Ukraine and Israel. With expectations of a 25bps rate cut at the December meeting, gold remains well-supported in a low interest rate environment.
The precious metal should see some consolidation above technical support around 2560 for the time being.
