Morning Wrap: ASX 200 to rise, S&P 500 hits another 2023 high + Crunch week for central banks

ASX 200 futures are trading 13 points higher, up 0.18% as of 8:20 am AEDT.

Major US benchmarks posted modest gains on Monday, the Nasdaq manages to climb despite all seven mega cap tech stocks falling more than 1%, gold undercuts the key US$2,000 level after last week's brief rip to all-time highs, China's passenger vehicle sales spike 25.5% in November from a year earlier and it's crunch time for Central Banks – Will the Fed, Bank of England and European Central Bank hose down rate cut expectation this week?

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher and finished at best levels (Source: TradingView)

MARKETS

• S&P 500 higher, finished at best levels to mark fresh year-to-date high

• S&P 500 is less than 1% away from all-time high on a total return basis

• Nasdaq 100 managed to climb despite all seven mega-caps falling more than 1% (down a combined ~US$200bn in market cap)

• Nasdaq 100 breadth was very strong, with approximately 86 stocks up, 14 down

• Bond yields finished around breakeven, fading 5-6 bp gains

• Gold undercuts the key US$2,000 level, now down 7.7% since its brief all-time high of US$2,146 last week

• Survey shows S&P 500 will hit a record high in 2024 on US soft-landing (Bloomberg)

• Morgan Stanley's Wilson says US earnings likely to weaken in the fourth quarter before a rebound in 2024 (Bloomberg)

STOCKS

• Macy's receives US$5.8B buyout offer from investor group (Reuters)

• Cigna pulls out of planned merger with Humana – This would have been the largest deal of the year (FT)

• Eli Lilly's obesity drug Zepbound users regained substantial amount of weight after stopping use (Reuters)

• Moody's downgrades Walgreens to Ba2, outlook stable (Moody's)

• DoorDash to be added to Nasdaq 100, Zoom to be removed (Bloomberg)

CENTRAL BANKS

• Fed, ECB and Swiss National Bank unlikely to pivot amid strong labor data (FT)

• BoE's MPC may warn against rate cut bets at this week's meeting (Bloomberg)

• Goldman sees BoE rate cuts coming from August at quicker pace (Bloomberg)

• BOJ to see little need to end negative rates in December (Bloomberg)

• Economic weakness clouds BOJ's path to normalizing policy (FT)

GEOPOLITICS

• Israel presses ahead in battle against Hamas in southern Gaza (Reuters)

• Zelensky headed to Washington for talks with Biden (Bloomberg)

• Geopolitical risk biggest market concern heading into 2024 (Bloomberg)

CHINA

• China pledge support for economy in 2024, Xi says recovery at 'critical stage' (FT)

• China car sales growth accelerates in November as price war intensifies (Reuters)

• China's consumer prices sink deeper into deflation, signaling continuing weak demand (Reuters)

ECONOMY

• NY Fed’s Survey of Consumer Expectations has year-ahead inflation expectations down to 3.4% from 3.6% in October, the lowest since April 2021 (NY Fed)

• Eurozone set for its first recession since the pandemic survey shows (Bloomberg)

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Who wants to be a Christmas grinch?

This is the last huge week for central banks for 2023 and its set to challenge aggressive rate cut expectations.

Thursday, 6:00 am – The Federal Reserve:

• Most economists believe the Fed will hold rates this week but it’s what the voting members signal for 2024 that will have markets on edge.

• Bloomberg’s survey of Wall Street economists also suggests there will be 100 basis points of cuts next year but the Fed is not even close to there. 

• Its last dot plot in September suggested that a lot of its members believe there will be two or three rate cuts next year at the very most. Either way, they are not where the market is. 

• Morgan Stanley’s Ellen Zentner pointed out, the dot plot (aka the Fed’s version of educated dartboard throwing) has been moving much closer to market pricing and there is every chance they will project additional rate cuts next year at tomorrow’s meeting. If that happens… well, happy days. 

Thursday, 11:00 pm – The Bank of England

• Another pause is expected although it’s always fun to see which members vote for another hike (in the UK, monetary policy votes are named publicly - a rare outlier and a huge vote for transparency). 

• Most economists surveyed by Reuters think the Bank will only cut rates after the Northern summer.

• Morgan Stanley is an early outlier, arguing the first cut from London may come as soon as May 2024 but others like ING think it won’t come until 2025. 

Friday, 12:15 am – European Central Bank:

• This is the final decision major central bank decision of the year.

• What’s interesting about the ECB’s path for interest rates is how quickly everyone believes they will cut rates. 

• Markets forecast six 25-basis point cuts next year.

• When those cuts start is open to debate but the ECB but like many other central banks (including the RBA from next year), they only meet on monetary policy matters eight times a year. 

• Cutting interest rates at 75% of your meetings in one calendar year? It’s not unprecedented but it would be quite something. 

Next Tuesday, 2:00 pm – Bank of Japan:

• The reason I mention them in this list is because traders are increasingly betting that the Bank will eliminate negative rates as soon as next week.

• If it happens, the Bank will send an earthquake through global bond markets for the second Christmas in a row (last December, it loosened the 10-year yield target in a surprise move). 

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: Amcor (AMC) – $0.19, Washington H Soul Pattinson (SOL) – $0.51, SSR Mining (SSR) – $0.10

• Listing: None

Economic calendar (AEDT):

• 10:30 am: Westpac Consumer Confidence (Dec)

• 11:30 am: NAB Business Confidence (Dec)

• 6:00 pm: UK Unemployment Rate (Oct)

• 9:00 pm: Germany ZEW Economic Sentiment (Dec)

• 12:30 am: US Inflation Rate (Nov)