Making sense of the forces driving global markets |
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- STOCKS: New highs on Wall Street but S&P 500 and Dow close lower. Japan's Nikkei +2% to new high, Shanghai Composite a new 10-year peak.
- SHARES/SECTORS: Microsoft-5%, Meta -8%, Alphabet +8% in after hours trade. Consumer staples and real estate down 2.7% and 2%, respectively.
- FX: Dollar up strongly, biggest rise in G10 space vs Swissie. Argentine peso +2%, PBOC fixes Chinese yuan at strongest level in a year.
- BONDS: U.S. yields rise sharply, as much as 11 bps at the short end, bear flattening the curve.
- COMMODITIES/METALS: Gold pares gains after Powell's comments, oil up nearly 1%.
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* The $5 trillion club... Chipmaker Nvidia is the world's first $5 trillion company, only three months after it reached the $4 trillion mark. Its market cap is up 12-fold since the launch of ChatGPT in 2022, and is now worth around half of the entire benchmark European Stoxx 600 index. UBS and BofA are among those significantly raising their price targets still. The firm's importance to U.S. growth, power and national security is increasingly evident. CEO Jensen Huang unveiled $500 billion in AI chip orders and said he plans to build seven supercomputers for the U.S. government, while President Trump says he will speak to Chinese President Xi Jinping about Nvidia's state-of-the-art Blackwell AI chip on Thursday. * ...and Wall Street's historic imbalance Contrast Nvidia and the 'Mag 7' AI megacaps with the wider market. Tuesday was a historic day on the S&P 500 for a very different, but related, reason - even though the index rose, 398 of its constituents fell. Analysts say that's the worst market breadth for an 'up' day since at least 1990, maybe ever. The latest surge at the top has meant the equal-weight S&P 500 has lagged badly, so much so, it is now underperforming the benchmark market-weight index by the widest margin since May, 2003. How long can literally two handfuls of stocks keep lifting such a heavy weight? * Fed cools on December cut The Federal Reserve lowered interest rates by 25 basis points on Wednesday, as expected, but Fed Chair Jerome Powell said another cut in December is not a done deal. "Far from it". Wall Street pared its gains and rates traders dramatically reduced the probability of a December cut to 65% from 85% before the Fed meeting. It was over 90% earlier this week. The Fed's next meeting is in six weeks, which is a long time for policymakers, especially in the fog of a government shutdown. |
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US job market is now 'no hire, more fire' |
The U.S. labor market has been characterized as a 'no hire, no fire' landscape for much of the past year. But 'no hire, more fire' increasingly looks more accurate, providing further ammunition for the Federal Reserve to cut interest rates. Retail giant Amazon on Tuesday announced 14,000 layoffs, with more to come next year, while delivery service UPS revealed that it has cut a whopping 48,000 employees over the past year. The reasons cited include protecting margins, employing more artificial intelligence, and reversing pandemic-era over-hiring. These aren't the only eye-opening announcements recently: around 25,000 workers are being let go at Intel, 15,000 at Microsoft, and 11,000 at Accenture. The Trump administration is also firing swathes of government workers. In total, U.S. employers announced almost 950,000 job cuts in the January-September period, according to global placement firm Challenger, Gray & Christmas, with the top affected sectors being government, tech and retail. While most of that was earlier in the year, these figures suggest the labor market is truly cracking, lending credence to Fed Chair Jerome Powell's view that downside risks to employment outweigh upside risks to inflation. |
What could move markets tomorrow? |
- Trump-Xi meeting in South Korea
- Germany inflation (October, prelim)
- Euro zone GDP (Q3, prelim)
- European Central Bank interest rate decision
- U.S. earnings, including Apple, Amazon, Eli Lily, Mastercard, Comcast, Starbucks
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