Stocks Pare November's Gain, Oil Battles 6-Month Low, Yen Jumps

Nothin' Lasts Forever 

Stocks are taking a bit of a breather from the cold November gain and we see some weakness into Thursday morning in Europe following another paring back of the rally in the US on Wednesday. Asian stocks dipped as China data was soft, whilst Japanese equities were hit by pivot talk coming from the Bank of Japan. Oil sank to its lowest in 6 months on booming US exports, whilst gold firmed up despite the US 10yr Treasury yield ending at its lowest in three months on soft US jobs data.  

Running on Fumes 

The FTSE 100 shed 0.4% in early trade on Thursday having risen a bit on Wednesday. The DAX dipped 0.2% in early trading after striking a fresh record high yesterday with another gain of 0.75%. Wall Street was lower with the Dow and S&P 500 both declined for a third straight day. So, tale of the tape is Europe maybe running out of steam at last after going straight up since the end of Oct; whilst the US has already started to pare gains made last month in anticipation of the massive central bank week ahead and US jobs report tomorrow. Can yields really move further to the downside?  

Already Pricing in Cuts 

The market is already pricing in a LOT of cuts next year and it’s unclear if the narrative can hold beyond the FOMC and ECB next week. Soft jobs figures so far are not undermining it. US employment data again missed expectations, following the(relatively) weaker Jolts job openings report. The ADP employment report was +103K vs +130K estimates. Unemployment claims data today fc +221k initial claims; NFP tomorrow fc +185k.  

P/E on the S&P 500 currently x21x, with a multiple expansion of 9% in 2023, now well above the 19x average of the last 35 years. What’s interesting is that this does not put 2023 in the big league of multiple expansions...partly that’s because it’s been driven by a handful of megacap stocks. Bets for rate cuts are high... Remember the recession hits after the first cuts and the market doesn’t bottom until after either... Yields dropped yesterday with the 10yr down to 4.10...less support coming from this kind of move now than it offered up to this point. 

Praise the Lord and Open the Spigots 

Oil tumbled further as US oil exports surge - Kpler and Vortexa said American shipments for the week ended in Dec 1st could reach 5.7mn bpd. This just goes to the heart of the problem facing OPEC – it cannot be the swing producer of last resort if the US is pumping like mad. Crude prices this morning are trying to rally from a 6-month low as data showed China exports in November grew 0.5% yoy vs f/c -1.1%, though imports fell 0.6% vs f/c +3.3% and overall the data indicated China is still struggling to grow its economy. Shares in Shenzhen hit a 5-year low, whilst Hong Kong slipped to its weakest in over a year.   

Normalisation Around the Corner?  

Bank of Japan governor Ueda said they have several options on which interest rates to target when they end negative rates. I don’t know why the Nikkei shipped 2% on this really – we know the BoJ is about to normalise policy and end YCC. The yen was also sharply higher with USDJPY to 145.60, its lowest since the start of September.  

Markets are going all in on rate cuts next year. DB - "We are bringing the first cut forward to Apr-24,and see a significant risk of a cut in Mar-24. We now expect the ECB to cut 150bp in 2024 (100bp previously), with 50bp cuts back-to-back in April and June". ECB's Kazimir: Market bets for a Q1 rate cut are 'science fiction'.  

USDJPY – sellers going after 145  

WTI – testing the long-standing old support level around $69.75...sellers target Jun/Jul swing lows at $67?