ASX to fall, S&P 500 rally runs out of petrol

ASX futures down 74 points or 1% to 7456 near 8am AEDT

• AUD -0.5% to 67.32 US cents
• Bitcoin +2.5% to $US43,412 at 9am AEDT
• On Wall St: Dow -1.3% S&P -1.5% Nasdaq -1.5%
• In New York: BHP -1.8% Rio -1.8% Atlassian +1.9%
• Tesla -3.9% Apple -1.1% Nvidia -3% FedEx -12.1%
• Stoxx 50 -0.03% FTSE +1% DAX -0.1% CAC +0.1%
• Spot gold -0.5% to $US2030.01/oz at 4.26pm in New York
• Brent crude -0.1% to $US79.18/bbl at 4.16pm in New York
• Iron ore +1.3% to $US134.00 a tonne
• 10-year yield: US 3.85% Australia 4.05% Germany 1.97%
• US prices as of 4.55pm in New York

What’s driving markets

Global bond yields extended their fall, paced by the UK after the latest monthly inflation data came in far lower than expected, triggering a surge in rate-cut bets.

The yield on the UK 10-year note tumbled 12 basis points to 3.52 per cent; Germany’s counterpart slid below 2 per cent.

In a note, Morgan Stanley said: “Inflation is trending down, but recent soft readings are exaggerated. We expect firmer prints ahead, and 2.4 per cent core PCE for 2024. The pattern in core inflation we expect would stand at odds with the market implied expectation for a rate cut in March. We continue to see the first cut in June.“

BCA Research sees the potential for the first rate cut as early as March. “Labour demand will continue to decelerate in 2024 and the unemployment rate will move higher. This will cause the US economy to enter recession in the second half of the year.

“In this context, the Fed will ultimately deliver more than the 160 bps of rate
cuts that are priced for 2024, though the dovish surprise to expectations will
occur in the second half of the year after the recession has begun.”

BCA said its baseline expectation is that the Fed will respond to low inflation by moving toward rate cuts in May or June (and possibly as early as March). “Rate cuts will be tentative initially, we anticipate no more than 50 bps of easing by the end of June.”

Paul Nolte, a market strategist at Murphy & Sylvest Wealth Management, said the focus in on Friday’s release of the Fed’s favoured measure of inflation (personal consumption expenditures – PCE).

“After all the champagne bottles get cleared from New Year’s Eve, there will be plenty of Fed governors chatting up their economic views ahead of the next meeting at the end of January. By then, there should be a bit more clarity on both inflation and economic growth. Hopefully, the Fed and the markets are seeing the same things by then.”

Today’s agenda

No local data

Overseas data: UK Public sector borrowing November; US third-quarter GDP at 12.30am Friday, Philly Fed December index, Leading index November, Kansas City Fed December index

United States

Shares in FedEx tumbled after the company released results that signalled headwinds for its express business. Operating margins at the express unit sank to 1.3 per cent from 3.1 per cent a year earlier, Bloomberg reported. During the height of the pandemic and supply-chain disruption in the second quarter of 2021, margins had reached 8.7 per cent.

Apple to reach $US4 trillion value in 2024: Wedbush Dan Ives calls the dispute involving Apple’s watches which has dented the stock’s upward momentum this week a “headache issue” that will be resolved soon.

Tesla is getting trounced by S&P 500 three years after joining Tesla shares have risen about 11 per cent since entering the benchmark US index, which itself has surged 28 per cent over the same time.

China view

In a note, Société Générale said more fiscal support from China’s government will be needed to meet its 5 per cent growth target for 2024.

“The fiscal policy is set to step up and take a leading role in supporting the economy, but the focus remains on industrial policy. There is still little willingness to do much explicitly about consumption. Speeding up local government debt restructuring is reiterated. China will likely be looking at a notable increase in government bond supply – both central and local – next year.”

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