Stock futures remain steady as Asian stock benchmarks lower
Stock futures began the week with little movement, while Asian stock benchmarks experienced a dip, largely due to concerns over deepening deflation in China. The dollar and Treasury yields stabilized, while oil futures saw a rise and gold prices edged lower.
European stock futures were muted at the start of a week filled with significant economic events, including central bank decisions from the Federal Reserve, the European Central Bank, and the Bank of England.
Optimism surrounding the US economy continues to grow, with Friday’s US jobs data indicating positive growth and a potential soft landing. Traders are anticipating rate cuts from the Federal Reserve in 2024, with the first one expected as early as March.
In the eurozone, inflation is declining rapidly, which may lead to interest rate cuts by the European Central Bank in early 2024. According to Brian Martin, head of global economics at ANZ, interest rates will have remained sufficiently high for a long enough period for the ECB to believe that inflation will return to target in a timely manner.
The ANZ predicts that the interest rate cuts will begin in March, as the effects of monetary tightening start to impact demand, and monetary and credit aggregates are already contracting. Data confirms that there is an accelerating and sustained improvement in inflation.
Currency markets may be affected by the release of US CPI and retail sales data later this week, which are expected to be softer than anticipated. The Commonwealth Bank of Australia suggests that this could put pressure on the US dollar.
Treasury yields remained steady after experiencing the largest one-day jump in months on Friday, following a stronger-than-expected US jobs report for November. The employment market continues to support positive economic growth as the country enters 2024, according to Steve Wyett, chief investment strategist at BOK Financial. He believes that the job report demonstrates that US consumers are still benefiting from a healthy job market. Wyett also suggests that the positive economic data indicates that the Federal Reserve may be slower to cut rates than current market pricing suggests.
Oil futures rose on Monday, with some stability emerging as Russia and Saudi Arabia voiced support for efforts to stabilize global oil markets through active supply management. The possibility of an emergency OPEC+ meeting being called in the event of further falls in crude oil prices has also helped to support the market.
JPMorgan advises European oil-company investors to take advantage of oil-price volatility in 2024. The bank suggests that while non-OPEC supply momentum is expected to balance the oil market in the first half of the year, resilient global demand and lower inventories indicate tightening in the market afterward. JPMorgan believes that $70 per barrel Brent is the lower end of the price range during periods of heightened volatility. The bank also emphasizes that OPEC unity remains intact, and investors may find buying opportunities during more volatile periods.
Gold prices dipped slightly in Asia, with the focus on US CPI data and the upcoming FOMC meeting. Despite the decrease, the precious metal remains above the key short-term support level of $2,000 per ounce. Fawad Razaqzada, market analyst at City Index and forex.com, suggests that gold needs to hold this level to maintain its recent bullish bias. If it fails to do so, a deeper retracement could occur, with major support found in the $1,950 per ounce area, which includes the 200-day average.
Copper miners have been experiencing increased disruptions and production misses recently, resulting in a potential market deficit for copper in 2024. Jefferies notes that forecasted market surpluses for 2024 have been eliminated, and a deficit market is now the most likely scenario as long as the US economy avoids a downturn. The combined 2023 copper production guidance from miners Teck, Rio Tinto, Vale, Anglo American, First Quantum, and Antofagasta has been cut by 8.0% since the start of the year, based on guidance ranges. This figure does not include the recent suspension of output guidance for First Quantum’s Cobre Panama.
Low stockpiles of iron ore at key Chinese ports are driving strong prices for the steel ingredient, according to the Commonwealth Bank of Australia. Although stocks have rebounded slightly, port inventories are the lowest they have been at this time of year since 2016. CBA notes that this is unusual given that China’s iron ore imports have outpaced the country’s steel output growth.
In other news, the Federal Reserve’s efforts to combat inflation are raising questions about the possibility of rate cuts. Small-business owners in Pennsylvania raised concerns about high inflation during a meeting with Federal Reserve Chair Jerome Powell. However, the year-end stock rally could be at risk if the Federal Reserve disappoints expectations for interest-rate cuts in 2024.
Treasury auctions are also causing concern on Wall Street. The size of the auctions, combined with the assumption that investors will buy any number of bonds issued by the government, is sparking market volatility.
The US Securities and Exchange Commission (SEC) is conducting examinations of investment advisers
More detail via Morningstar here… ( Image via Morningstar )