NASDAQ 100: Approaches A New High

Summary:

Rising and sustained expectations for early interest rate cuts have led to a strong rally in the US stock market, led by the technology sector, with the Nasdaq 100 index hitting a new all-time high yesterday.

The Nasdaq 100 initially rallied during Wednesday trading awaiting the Federal Reserve's announcement. That said, I think there is a situation in this market where no matter what happens in the future, buyers are going to come back and try to take over. With this in mind, I think he needs to pay close attention to the 50-day EMA, especially the level around 15,500.

Of course, this assumes that you can access this area. After all, this is a very bullish brand, and there's still a lot of noise that could be positive for it. Finally there's the "Santa Claus Rally" and Wall Street will obviously have a lot to say about its potential upside.

A short-term pullback could bring upside potential, with short-term support below the 16,000 level. Below this, the 15,750 level will also be supported.

In general, I think this is a situation where people continue to try to pursue performance, but it's a little overwhelming at the moment.

All things being equal, I believe we will continue rising through the end of the year, but the real question is whether we need to retreat to find support. I think it's very likely that this will happen at some point, especially with the Federal Reserve statement coming out later on Wednesday, and it would certainly cause quite a ripple.

In general, I think people will continue to rely on situations like this, if for no other reason than to demonstrate to their customers that they own all the appropriate stocks. So I think this is the situation where they are taking these actions.

Additionally, it should be kept in mind that the 'Magnificent 7' continues to lead this pair, so while the market may continue to see significant volatility, buyers should look to buy this pair until the new year.

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Devin

Economic

Red Sea Chaos Risks Driving Up Price of Goods for Global Economy_1

Attacks in the Red Sea linked to the Israel-Hamas war will cause shipping delays and drive up the price of goods, bringing a new inflation risk to the economy.

Shipping companies are diverting cargoes after Iran-backed Houthi militants attacked commercial vessels plying the Red Sea. The vessels will have to sail around Africa instead of taking the shorter route through the Suez Canal.

This rerouting will mean higher shipping costs and longer delivery time, Bloomberg Economics analysts including Gerard DiPippo wrote in a note. The Red Sea is one of the world's most important shipping lanes, carrying about 14% of global maritime trade. Among the economies most affected by the trade disruptions would be Greece, Jordan, Sri Lanka and Bulgaria, the analysts said.

More than 20% of containers passing through the Suez Canal carry goods from Asia to European and Mediterranean nations, according to logistics intelligence firm project44. Diverted ships would have to sail around Africa to reach Europe, adding a minimum of seven to 10 days to the journey, they estimated.

Still, there are reasons to believe the disruptions will have only a moderate economic impact, Bloomberg Economics said.

While the cost to send a 40-foot container from Shanghai to Rotterdam has jumped 44% from the end of October before the attacks began, and by more than 26% to Genoa, they remain well below levels in 2021 and 2022 during the pandemic, data compiled by Bloomberg show.

The effect on inflation in Europe will be limited as markets and shipping companies adjust to the new situation, according to Bloomberg Economics.

Chinese exports have also been weak all year and could slow next month, as factories typically wind down early in the year due to the end of Christmas demand and before the Lunar New Year break in Asia. However if the disruptions continue or worsen, it could put more downward pressure on that trade.

Exports from China to Europe fell in each month since June, while export growth from Japan to Western Europe slowed to 1.1% in November from a year earlier.

The US has announced a new task force intended to protect commercial vessels traveling through the Red Sea. Countries participating include the UK, Bahrain, Canada, France and Italy. Both Japan and China have military bases in Djibouti, near the Red Sea, but have not said they would take part in the naval effort.

“The best the world can hope for may be a moderate risk scenario, in which shipping is diverted for at least several months until the security situation in the Red Sea stabilizes,” the Bloomberg Economics analysts wrote.

This may not be the optimal scenario but it's happening when there's more shipping capacity and it's better than some of the alternatives, they added

Source: Bloomberg

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ING

Economic

Central Bank

UK inflation has dipped below 4%, and that's a huge surprise compared to what had been expected. What's more, the fall in headline CPI to 3.9% (from 4.6%) seems to be fairly broad-based at first glance. We're seeing discounting across the board on consumer goods, from clothing to household goods, and cars. Lower fuel and food contributions helped too.

But the Bank of England will be particularly comforted by the further surprise fall in services inflation, which came down to 6.3%, having peaked at 7.4% over the summer. Admittedly the Bank had argued, as recently as last week, that this downtrend isn't entirely linked to economic factors – the implication being that some of the move is just statistical noise. The Bank could still level that argument at this latest data, with some of the downside surprise linked to a fall in communications prices (ie internet/phone contracts etc) as well as volatile airfares. But we are also seeing more muted price pressures across areas like hospitality and holidays, which are what we'd more traditionally think of as services.

Surprise UK Inflation Slide Bolsters Chances of Summer Rate Cut_1

So what next? Despite today's positive surprise, we think services inflation could stay sticky in the 6% region into early next year. At face value, that would justify the Bank of England's more cautious approach at last week's meeting. The BoE took a decidedly different line to the Federal Reserve, offering implicit pushback against the quantity of rate cuts priced into financial markets in 2024. Expect officials to keep up that cautious narrative as we enter the new year.

But by the spring, we think the story is likely to begin to change. Areas like hospitality services should continue to experience disinflation. A combination of a further (gradual) slowdown in wage growth and the lagged impact of lower gas prices should help. Services inflation at 4% next summer seems feasible.

If the recent trends in consumer goods categories continue too, then there's a decent chance that headline inflation gets back to the 2% target as soon as May and potentially even dips below, particularly if petrol prices continue to fall (not our base case).

Further downward pressure on food inflation will also be a key driver here. The month-on-month increases in food prices have already slowed considerably since late 2022/early 2023, and there's a reasonable chance we start to see consistent price falls on the back of steadily decreasing producer prices.

Surprise UK Inflation Slide Bolsters Chances of Summer Rate Cut_2

Put that all together, and we think markets are right to be pricing a number of rate cuts for 2024. Investors now expect 140bp of cuts in 2024 after this latest downside surprise on inflation, starting in May. That's maybe pushing it, and we still think the Bank will prefer to tread a little more cautiously with 100bp of cuts starting in August.

But interestingly, this data has also seen investors reassess where the BoE stands relative to the Fed and European Central Bank. Up until now, markets had been expecting both of the latter to be much more aggressive than the BoE, but that narrative seems to be fading.

One thing we've often heard recently is that UK inflation (specifically services) is stickier and therefore that implies slower/later rate cuts relative to the eurozone. We wrote in more detail recently why a lot of the divergence in UK services inflation relative to the continent can be explained by factors not intrinsically linked to economic conditions. In the areas that really count for monetary policy – things like hospitality – the differences are much less dramatic. So while the BoE might be a little later to the cutting game than other European economies, we don't expect the UK to be an outlier when it comes to the extent of policy easing.

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Warren Takunda

Economic

Forex

The New Zealand Dollar is set to embark on a recovery against the U.S. Dollar in 2024 according to research from one of New Zealand's biggest financial institutions.

ANZ Bank says NZD has room to rise in 2024, "but not without volatility", particularly given some uncertainty surrounding the Reserve Bank of New Zealand's next moves on interest rates.

Nevertheless, the bigger picture is one that is supportive of the risk-sensitive Kiwi Dollar.

"A global return of risk appetite and the NZD’s high carry advantage will drive the upside we expect into 2024," says ANZ in a year-ahead outlook note.

"A positive cyclical outlook bodes well for high beta currencies like NZD," it adds.

The New Zealand Dollar has been one of the better-performing major currencies heading into year-end, courtesy of the improved investor sentiment linked to growing expectations that the Federal Reserve will be able to cut interest rates in the coming months.

According to ANZ, this recent outperformance can extend against the U.S. Dollar over the coming months.

However, the Pound is tipped to defy NZ dollar strength as it will also advance against the U.S. currency and frustrate expectations for a dip back below 2.0 in GBP/NZD.

"Though the growth outlook remains challenging, recent data suggest the economy may be turning a corner," says ANZ on the UK economic outlook. As a result, analysts say the Pound, "is not to be underestimated".

Question marks over the path adopted by the NZD hang over whether or not the RBNZ will raise interest rates again.

Market pricing shows investors are not fully positioned for another move, but data due for release ahead of the February decision could yet sway the central bank into action.

Currency analysts warn that a rate rise will likely lead to a selloff in the NZD/USD, as we have seen after previous hikes. "The prospect that further tightening could heighten the risk of a recession will weigh on the currency."

All considered, ANZ's New Zealand to U.S. Dollar forecast for the end of March 2024 is 0.62, 0.62 by end-June, 0.63 by end-September and 0.63 by year-end. The exchange rate is currently at 0.6258.

ANZ's Pound-Dollar forecast profile reflects an expectation that the UK economy has turned a corner, with 1.30, 1.32, 1.33 and 1.34 pencilled in for the aforementioned time points.

This translates into a Pound to New Zealand Dollar forecast profile of 2.10, 2.13, 2.10 and 2.13.

Source: PoundSterlingLive

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Swissquote

Economic

Forex

Isn't it amazing how investors ignore the hawkish Federal Reserve (Fed) comments but fully embrace the dovish commentaries.

Fed's Thomas Barkin's words that suggested that the Fed could cut rates if recent progress inflation continues sent the Nasdaq 100 to a fresh record for the 3rd consecutive day and the S&P500 to a fresh ytd high and near an ATH record as well. Yet all the other central bankers' warnings that it could be too early to cut rates didn't see the same enthusiastic reaction. But the trend is your friend, the doves are your friends, the hawks are not your friends and that's – I guess – the magic ingredient to ensure a Santa rally.

Yet, there is no rational explanation to this asymmetric market reaction given that the latest USeconomic data points at ongoing strength, and the latter should be, in theory, supportive of the Fed hawks.

Investors are dreaming of aggressive rate cuts in an environment of strong economic growth, and that is not the right recipe for easing inflation and keeping it sufficiently low. The robust economic data and high earnings expectations are not compatible with a dovish Fed.

FedEx rings the alarm bell

The latest FedEx results didn't enchant investors yesterday. The company, which serves as a gauge of economic activity, missed expectations due to declining airfreight and trucking volumes. The stock price fell 7% after the closing bell. The selloff will likely send FedEx below its uptrending channel building since October – on the back of falling yields, but that negative correlation between the FedEx and the US 10-year yield is about to break, as FedEx, like most stocks, can't continue to rise on the back of the falling yields: a further fall in yields implies a decent economic slowdown and that isn't good for earnings, earnings expectations and hence the valuations.

Zooming out, the S&P stocks are now trading at nearly 20 times the 12-month earnings estimates, and the trailing 12-month EPS estimate is at a record. This is a valuable insight into the expectations regarding the overall earnings performance of the companies in the S&P500, and the numbers don't look like an economy that needs looser financial conditions.

Dollar weakness

Released yesterday, the latest housing data in the US showed that housing starts jumped nearly 15% in November as the mortgage rates dipped from above 8% to below 7% thanks to a swift fall in US yields. That's a good sign for economic health, but not necessarily for the future path of inflation. But the dollar didn't react.

Another interesting place to see is the US deposits. The US deposits were around 80% at the peak of the pandemic and are now reverting toward pre-pandemic norm of around 60%. The melting excess savings could slow down the US consumer spending, hence temper the economic growth and tame inflation, but Atlanta Fed's GDPNow points at a 2.7% growth in the US GDP in Q4. Thursday's official data will remind that the US economy grew more than 5% in Q3, a number that should raise questions regarding the dovish Fed optimism.

The Fed doves' optimism is overdone given the strength of the underlying economic data, and the upside pressure on energy and shipping costs as the world's leading energy and shipping companies have started avoiding Suez Canal due to Houthi attacks. The recent developments will start showing in the economic data in a few weeks and help investors assess the extent of global implications.

Inflation falls

As worries regarding the implications of developments in the Red Sea mount, latest inflation numbers from Europe and Britain give some respite.

Inflation in the Eurozone slowed to 2.4% in November and core inflation fell to 3.6% as expected.

In the UK, both headline and core inflation fell faster than expected in November. Headline CPI slipped below the 4% mark, as core inflation eased to 5.1%. Cable slipped below 1.27 as a kneejerk reaction to the softer-than-expected inflation figures.

Yet in absolute terms, core inflation in Britain is still more than twice the BoE's 2% inflation target. And even though the pace of easing is more than welcome, the Bank of England (BoE) is still last in line to join the pivot party. Therefore, hawkish BoE expectations should limit the pond selloff if, of course, investors continue to divest from the US dollar on the back of softening Fed expectations.

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Chandan Gupta

Stocks

The Nasdaq 100 index posted a bullish candlestick for the seventh day in a row, surging to a two-year high and a new mid-term high.

U.S. stocks are currently in a strong bull market, and the Nasdaq 100 Index has historically been a great investment in bull markets.

This index touched its previous record high yesterday, though it shied away from hitting a new milestone. As with the Dow, there is presently no sign of a pullback in the works, so the focus is on whether buyers can succeed in eking out a new record high before the end of the year.

In the short-term, some weakness may target the 16,000 area, where the price consolidated in November before its most recent leg higher.

Last week, weaker-than-expected US inflation data and a dovish stance from the Federal Reserve gave US stocks a big tailwind, with markets now expecting a rate cut in March 2024. I am happy to take a long position in the Nasdaq 100 Index. Especially since we saw a simple moving average crossover where the 50 day mark crossed his 100 day mark.

Stock markets, particularly in the United States, are generally optimistic, with the Nasdaq 100 hitting a record high yesterday and the benchmark S&P 500 hitting a 23-month high, close to its all-time high.

The bullish environment is due in part to a weaker dollar, and in part to more dovish expectations that the Fed will cut interest rates in 2024.

CME's FedWatch tool estimates a 67.50% probability that the first 25 basis point rate cut will occur in March 2024.

Despite pushback from Bostic and another FOMC member, who said yesterday that the Fed was in no hurry to cut rates.

NASDAQ 100: Really Bullish Or Is It Weaker Dollar_1

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Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

0:06

Map of warships currently deployed in the Red Sea, Gulf of Oman, Gulf of Aden, Persian Gulf, and Arabian Sea.

Latest News on the Israeli-Palestinian Conflict (December 20)_1

Yesterday, the naval chiefs of several countries with interests in the strategic Indian Ocean region kicked off a four-day meeting.

The meeting took place in Bangkok, Thailand, and was called the Indian Ocean Naval Symposium (IONS). Participants will discuss how to strengthen maritime cooperation, address challenges and strengthen maritime security architecture.

IONS is a voluntary initiative aimed at strengthening maritime cooperation among the navies of littoral countries in the Indian Ocean region. It consists of 25 member countries and eight observers.

Therefore, keep an eye on IONS developments in the coming days as these countries may propose their own military operations, separate from Operation Prosperity Keepers.

0:51

Yemeni media threatens again: Any threat against Yemen will turn the Red Sea into a graveyard for your fragile warships!

1:32

Ukrainian President Zelensky announced that the Ukrainian army is seeking to mobilize an additional 450,000-500,000 soldiers.

3:13

The Houthi armed forces in Yemen have unveiled their deadly weapon against the U.S. Navy and its coalition aircraft carrier battle group: Iran's "Tankil" anti-ship ballistic missiles!

Iran's "Tankil" (🇾🇪Yemeni name is "Zoheir") anti-ship ballistic missile was exported to Yemen a few years ago. This missile is in Ansarullah's arsenal and will be a very useful weapon in the Bab el-Mandeb Strait.

Latest News on the Israeli-Palestinian Conflict (December 20)_2