The Week That Was
On Friday, the major US equity indices closed higher, reflecting trader and investor reactions to US Federal Reserve Chair Powell's remarks and recent economic indicators.
Fed Chair Powell, speaking at Spelman College in Atlanta, indicated a shift in the central bank's approach to interest rate policy. He suggested that the risks associated with overly aggressive interest rate hikes, potentially over-tightening the economy, are now more evenly matched with the risks of not increasing rates sufficiently to control inflation.
Powell noted, "The full effects of our tightening have likely not yet been felt," highlighting the importance of the Fed's assertive actions in preserving its credibility and keeping future inflation expectations stable.
Echoing his colleagues' recent statements, Powell stressed that it's premature to consider the battle against inflation won. He referred to a 3.0% annual increase in prices based on the Fed's preferred measure, with a notable 3.5% rise in October when excluding food and energy, a metric the Fed views as a more accurate indicator of inflation trends. Powell concluded with a cautionary note, affirming the Fed's readiness to further tighten policy if necessary.
The S&P 500 and the Dow Jones Industrial Average each rose, gaining 0.5% and 0.8% respectively, reaching new highs for 2023. Similarly, the Nasdaq Composite also increased by 0.5%.
In company news, Tesla's shares dipped by 0.6% following the announcement of the Cybertruck's price at $60,990, which is significantly higher than the previously stated $40,000 in 2019. Pfizer's stock also saw a decline, dropping 5% after the company decided to halt a Phase 3 trial of its weight-loss medication. On the other hand, Salesforce continued its upward trend, with shares increasing by 3.2%. Additionally, Paramount experienced a notable surge of 9.4% amid reports of potential collaboration with Apple (which saw a 0.7% increase) to bundle their streaming services.
The Week Ahead
This week in the US, the focus is set to be on several key economic reports: the US jobs report, JOLTs job openings, ISM Services PMI survey, and the preliminary Michigan consumer sentiment estimate.
Expectations are leaning towards a rise in nonfarm payrolls by 180 000 for November, a step up from October's 150 000 increase. The unemployment rate is predicted to hold steady at 3.9%, a peak not seen in 22 months, while wage growth might decelerate to 4%, the lowest since June 2021.
The ISM Services PMI is anticipated to show a modest uptick in the service sector's growth for November. Other significant data include the ADP employment change, foreign trade, factory orders, the economic optimism index, and final figures for third-quarter productivity and the November S&P Global Services PMI.
In Europe, Germany will be in the spotlight with its trade data for October, which is expected to show a decline in both exports and imports. Industrial production may see a slight recovery following four consecutive months of decline, and factory orders are likely to remain stagnant.
For the Eurozone, retail sales for October are projected to rise after four months of stagnation, and Q3 GDP data is expected to confirm a minor contraction.
The UK's economic calendar is comparatively lighter, featuring the Halifax House Price Index, BRC retail sales monitor, new car sales, and updates on S&P's PMI.
In China, November trade figures are awaited to reveal the effects of recent economic stimulus and liquidity injections on resource demand and overall economic activity, following mixed PMI data for the same period. Additionally, China will release new data on consumer and producer inflation.
Japan's focus will be on the December Tankan index and the current account data for October, providing insights into the country's economic health. Key Themes for the Week Ahead
Nonfarm payrolls
Traders and investors are keenly anticipating this Friday's November jobs report, a crucial indicator of whether the US economy's growth is stabilising.
If the job growth figure is unexpectedly high, it may challenge the current expectation that the US Fed will soon ease its tight monetary policy. Such a scenario could hinder the recent upward trend in the equities and bond markets seen in the fourth quarter.
Conversely, a disappointing job growth number could raise concerns about the economy slowing down, especially in the wake of the Fed's substantial 525 basis point rate hikes. This outcome might weaken investor confidence and risk-taking.
Economists predict that the US economy added 180 000 jobs in November, marking a slight increase from the 150 000 jobs reported in October.
In related news, upcoming data on Tuesday is anticipated to reveal a decrease in job openings for November.
Additionally, Thursday’s report on initial jobless claims will be closely monitored for any increase in unemployment rates, providing further insights into the labour market's health.
Santa rally
On Friday, US equity markets surged, propelling the S&P 500 to its highest point this year and marking a positive start to December. This rally was fueled by growing optimism among market participants who believe that the Fed might pause its rate-hiking cycle, a sentiment spurred by recent remarks from Fed Chair Jerome Powell.
Powell expressed a cautious approach towards future interest rate adjustments, acknowledging that the risks associated with over-tightening monetary policy are now more evenly balanced against the risks of failing to curb inflation.
While some market participants are now speculating about the possibility of a Fed rate cut by March 2024, it is important to note that market interpretations of the Fed's actions and economic conditions have occasionally been off the mark in the past few years. There is a chance that current market sentiment might also be misreading the situation.
In this week, there will be no further comments from Fed officials as the central bank enters its standard blackout period before its next meeting scheduled for 12 to 13 December.
Oil volatility
Oil prices fell by over 2% on Friday, driven by doubts regarding the effectiveness of OPEC+'s announced supply cuts and worries over a slowdown in global manufacturing.
Over the past week, Brent crude experienced a 2.1% decrease, while US crude prices dropped by more than 1.9%.
On Thursday last week, OPEC+ decided to cut approximately 2.2 million barrels per day (bpd) from the global oil supply in the first quarter of the next year. This figure includes the continuation of the current voluntary reductions of 1.3 million bpd by Saudi Arabia and Russia.
The decision by OPEC+, which produces over 40% of the world's oil, to reduce output follows a decline in oil prices from around $98 per barrel in late September, amid concerns about how slowing economic growth could affect fuel demand.
These cuts are on a voluntary basis and do not represent a collective adjustment of OPEC+'s production targets. The voluntary aspect of these reductions has led to scepticism about their full implementation and questions about the baseline from which these cuts will be calculated.
Eurozone data
Attention in the Eurozone is set to focus on President Christine Lagarde's speech on Monday, eagerly anticipated for potential new clues regarding the European Central Bank's (ECB) monetary policy stance before its key meeting on 14 December.
The ECB will enter its quiet period prior to the decision-making meeting, starting from Thursday.
Key economic data releases are also on the horizon. On Tuesday, the Eurozone will unveil industrial production figures for October from France and Spain. This will be followed on Wednesday by similar data from Germany and Italy.
Additionally, Wednesday's release of German factory orders will offer insights into the state of the manufacturing sector in the Eurozone's largest economy, shedding light on whether it continues to experience a downturn.
South Africa News
President Cyril Ramaphosa has committed to implementing measures to minimise the impact of blackouts on critical services such as hospitals and schools. This announcement comes in response to a recent High Court ruling in Pretoria, which mandated that essential services should be exempt from power outages. Additionally, the court determined that the frequent blackouts are a consequence of failures by Eskom and the government, infringing upon the fundamental rights of South African citizens.
Electricity Minister Kgosientsho Ramokgopa expressed optimism that the generators donated by the Chinese government will play a crucial role in maintaining a consistent power supply at healthcare facilities and schools, amidst ongoing load-shedding.
Economic Calendar
In the upcoming economic calendar for this week, several significant events are scheduled to take place.
source: investing.com