Market Daily
Macro Update:
US CPI data in line with expectations
Both headline and core US CPI rose 0.3% MoM in November, in line with market consensus. Market sees that a 25bp Fed rate cut next week is almost a done deal with probability rising to 99% after the data release from 89% yesterday.
Moderate inflation, resilient economic growth, continued monetary easing and expectation of Trump’s stimulus will provide a macro “Goldilocks” backdrop for an extended rally in US equities in the short term, in our view.
Main Upcoming Macro Indicators
Equity Market Updates
US EQUITIES
US stocks rose on Wednesday, lifted by a rally in tech stocks, after in-line inflation figures boosted expectations of a Fed interest rate cut this month.
EUROPE EQUITIES
European shares closed higher on Wednesday, recouping earlier losses, as yesterday’s US inflation figures also boosted sentiment in the region.
HK EQUITIES
Hong Kong stocks reversed all early-session gains to close lower for a second day on Wednesday as investors stayed on the sidelines while China’s Central Economic Work Conference gets underway.
Adobe (ADBE US)
Shares of Adobe fell in extended trading on Wednesday after the company announced a weaker-than-expected sales outlook, with FY25 revenue expected to come in at USD23.4B vs. USD23.8B expected. This may negatively impact Adobe’s share price going forward as concerns rise over how the company could lose business to emerging AI-based startups.
Adobe’s share price slump came despite posting better-than expected top- and bottom-line for FY4Q24, with revenue at USD5.61B vs. USD5.54B expected, while adjusted EPS came in at USD4.81 vs. USD4.67 expected.
MARKET CONSENSUS: 36 BUYS, 9 HOLDS, 3 SELLS, AVERAGE TP USD616.11
Mondelez International (MDLZ US)
Mondelez on Wednesday approved a new USD9B stock repurchase authorisation, which is likely to support the company’s share price in the near term. The new buyback program is effective beginning 1 January 2025 and replaces an existing USD6B authorisation which has about USD2.8B remaining that would expire at the end of next year.
Mondelez made its share buyback announcement as it faces setbacks in talks to buy chocolate maker Hershey, raising doubts about the deal.
MARKET CONSENSUS: 25 BUYS, 3 HOLDS, AVERAGE TP USD79.19
Macy's (M US)
Shares of Macy’s fell on Wednesday after the company trimmed its full-year profit outlook on the back of its recent accounting scandal regarding delivery costs, which saw a lone employee hiding millions of USD in expenses.
Macy’s said that the accounting misstatement will have a full-year bottom-line impact of USD79M and trimmed its adjusted EPS forecast for 2025 from USD2.55-USD2.90 to USD2.25-USD2.50.
Along with the forecast downgrade, Macy’s also reported FY3Q revenue at USD4.74B vs. USD4.76B expected, with adjusted EPS at USD0.04 vs. USD0.035 expected.
MARKET CONSENSUS: 4 BUYS, 9 HOLDS, 1 SELL, AVERAGE TP USD17.2
Zalando (ZAL GY)
German retailer Zalando said on Wednesday that it would acquire fashion group About You in a deal valuing its rival at EUR1.1B, as part of plans to form a pan-European e-commerce platform, which would likely boost its competitive position in the region.
The combined business of Zalando and About You aims to have an adjusted earnings before interest and taxes (EBIT) margin of between 10% and 13%, Zalando said in a statement.
MARKET CONSENSUS: 25 BUYS, 7 HOLDS, 1 SELL, AVERAGE TP EUR35.34
Inditex (ITX SM)
Zara owner Inditex said on Wednesday that the start of 2024’s holiday season had got off to a good start, with revenues rising around 9% during the six weeks to 9 December as the world’s biggest fast-fashion retailer kept drawing in shoppers even as rivals struggled. This could potentially be supportive for Inditex’s share price in the near to medium term.
Nevertheless, Inditex’s positive announcement came after the company posted weaker-than-expected FY3Q25 results as rainy weather hit some key European markets.
The company’s FY3Q25 revenue stood at EUR9.36B vs. EUR9.53B expected, while adjusted EPS was at EUR0.54 vs. EUR0.56 expected.
MARKET CONSENSUS: 16 BUYS, 13 HOLDS, 3 SELLS, AVERAGE TP EUR52.59
Earnings Announcements
US Market
Costco, Broadcom, RH, Ciena
European Market
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HK - China Market
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Global Indices Changes (%)
Fixed Income Market Updates
The four major shareholders of ReNew Energy are paving the way for an exit from its U.S. listing. Meanwhile, privately-held Greenko Energy's major shareholder GIC appointed JPM for a potential sale of its c.$5bn stake in the former. We remain highly selective in the Indian High Yield space. The tight credit spreads in the Indian renewable space remained unperturbed by the recent headlines of potential changes in shareholders from its two largest players Greenko Energy and ReNew Energy.
EUROPEAN BANK COCO (AT1)
The European AT1 market had a considerably active session given the time of the year. There were active trades both ways with the space up around 0.125point in general. Asset managers in Europe were adding positions while hedge funds were skewed towards profit-taking. AT1 spreads had tightened 10-15bps this week, outperforming the rest of the bank capital bonds. Despite the continuing headlines surrounding French politics, French banks traded in line with the rest of its European peers.
ASIA INVESTMENT GRADE (IG)
It was a relatively quiet day in Asia IG space as most market participants are in a wait-and-see mode. Korea IG initially traded slightly tighter but flows were skewed towards more selling as the day progressed. Spreads were unchanged overall. India IG space traded slightly tighter on the day, with Reliance Industries in demand. Petronas had its rating affirmed by Fitch at BBB+ with stable outlook and its bonds traded around 2bps tighter across the curve. We continue to favour certain quasi-sovereign names and see them offering good yield pickup over the sovereigns.
ASIA HIGH YIELD (HY)
Sentiment improved in China HY space after the state media's comment on monetary policy for 2025. Investors started to add China risk on hopes that this time will be different. Survivors in China Real Estate space saw demand from asset managers. We prefer to wait for more clarity before taking any action. Outside of China, we remain highly selective in the Indian High Yield space as we view the tight credit spreads in the Indian renewable space as unfavourable.
Forex Market Updates
The US Dollar strengthened on Wednesday even as US inflation data reinforced expectations of a Fed rate cut next week.
USD
The US Dollar advanced on Wednesday after an in-line reading of US CPI data saw bets on a 25bps rate cut by the Fed next week jump from 89% to 99%. While US consumer prices increased by the most in seven months in November, analysts say that is unlikely to discourage the Fed from what will be the third cut of this easing cycle, given that the annual increase in inflation has slowed considerably from a peak of 9.1% in mid-2022. However, fewer rate cuts are expected next year than had been anticipated a few months ago, given the expected inflationary effect of incoming US President Trump’s proposed tariff and mass deportation policies.
The Dollar Index is likely to remain well supported above 105.50 heading into the end of the week.
CAD
The Canadian Dollar strengthened against its US counterpart yesterday after the BoC slashed its benchmark rate by 50bps to 3.25% as widely expected and indicated that further rate cuts would be more gradual in a shift from previous guidance. The central bank also said 4Q2024 growth might be weaker than expected and added that planned reductions in immigration levels suggested 2025 growth might also fall short of forecasts. Elsewhere, BoC Governor Macklem also addressed the possibility of the incoming Trump administration imposing tariffs on Canadian exports as a “major new uncertainty”.
Despite yesterday’s pullback, USDCAD’s bullish outlook remains intact and the pair could retest 1.4200 moving forward.
JPY
The Japanese Yen saw choppy price action against the USD on Wednesday, with the pair jolted into life by a Bloomberg report saying that the next BoJ rate hike is just a matter of time. The report added that while policymakers remain open to a hike next week, depending on data and market developments, they also see little cost to waiting and that even holding until January or later to raise rates is not seen as much of a risk because signs point to a very low possibility that inflation might overshoot.
USDJPY looks poised for some near term consolidation between 149.00 and 154.00.
XAU
Gold prices traded above the 2700 handle for the first time in two weeks yesterday after US inflation data came in line with forecasts and boosted the likelihood of a Fed rate cut next week, with all eyes now on tonight’s US PPI numbers to shed further clarity on the central bank’s easing path. The precious metal was also supported by a continuation of geopolitical tensions in the Middle East, which occurred despite the recent ceasefire deal between Israel and Hezbollah.
The precious metal could extend its recent rally towards 2745 on growing bullish momentum.
