LDN - Business

Stocks mixed; 'indestructible' gold passes $2,100

[December 04, 2023] By Nell Mackenzie and Wayne Cole

LONDON/SYDNEY (Reuters) -Global shares were mixed on Monday, while gold spiked to all-time peaks above $2,100 at the start of a busy week for economic data that will test market wagers on rate cuts from major central banks next year.

MSCI's broadest index of world shares rose 0.1% after hitting a fourth month high in earlier trading. However, Europe's STOXX 600 benchmark fell 0.1%.

European retailers enjoyed an early "Santa Rally" as the index of top retailer shares traded up 1.1% to its highest since March 2022. But any early holiday cheer was offset by losses in the basic resources index, which fell 1.7%, undermined by lower copper prices. [MET/L]

Attacks on commercial vessels in the Red Sea on Sunday risked reigniting investor worries about a widening of the war between Israel and Hamas, potentially complicating the outlook for a rally that saw U.S. stocks crest a fresh closing high for the year last week.

But front of mind for analysts and traders was the U.S. November payrolls report due on Friday, which needs to be solid enough to support the economic soft-landing scenario, but not so strong as to threaten the chance of easing. Median forecasts see payrolls to rise 180,000, keeping unemployment steady at 3.9%.

Wage growth still sits above the Fed's target, said Bruno Schneller, managing director at INVICO Asset Management. If upcoming data aligns with expectations, it could mean the end of rate hiking this year and a shift to cuts in 2024.

"Considering the upcoming 2024 U.S. presidential election, the Fed will likely avoid actions that could be perceived as favouring any candidate, leading us to expect no major surprises and a continued data-dependent approach from the Fed," said Schneller.

Futures now imply a 60% chance the Fed will ease as soon as March, up from 21% a week ago, and are pricing in around 135 basis points (bps) of cuts for all of 2024.

The turnaround in Treasuries has been nothing short of astonishing as two-year yields fell 41 bps in just a week, the best performance since the mini-crisis in the U.S. bank sector in March.

So it was no surprise that some profit-taking emerged on Monday and nudged yields on 10-year notes up to 4.25%, but still well short of the October top of 5.02%.

BULLISH FOR EM

"Starting in June, we expect the Fed to start cutting rates by 25bp per quarter until reaching a terminal rate of 3% in 2026," BofA global economist Claudio Irigoyen said.

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People walk through the lobby of the London Stock Exchange in London, Britain August 25, 2015. REUTERS/Suzanne Plunkett/File Photo

"Our year-end 2024 U.S. rate forecasts for two-year and 10-year Treasuries are 4.00% and 4.25%, bringing an end to the yield curve inversion," he added.

Such an outlook should also be positive for emerging markets. BofA noted returns in the 12 months after the last Fed hike tend to be highly positive, with EM equities averaging around 10% and total EM bond returns even higher.

Central bank meetings in Canada and Australia this week are both expected to see rates there unchanged.

The tumble in Treasury yields in turn pulled the rug out from under the dollar, particularly against the yen, where it slid 1.8% last week and was last down at 146.63.

Speculation about an eventual unwinding of the Bank of Japan's super-loose policies has added to the pressure on yen carry trades and could carry the Japanese currency back to its July highs around 138.00.

The euro ticked down 0.1% to $1.0875. It has also been climbing recently, but suffered a reversal last week when surprisingly soft inflation data led markets to price in a March rate cut from the European Central Bank.

The dollar rose 0.2% against a basket of currencies =USD while US stock futures pointed over 0.3% lower,.

The ever-hawkish Bundesbank President Joachim Nagel pushed back against the doves in an interview over the weekend. But with inflation subsiding so fast markets figure the ECB will have to ease just to stop real rates from rising.

ECB President Christine Lagarde will have her own chance to comment in a speech and Q&A later on Monday.

The dive in yields and the dollar has been a boon for non-yielding gold, which hit a record of $2,111.39 an ounce [GOL/] before sliding back to $2,071.50 an ounce by 0945 GMT.

Oil prices dropped on doubts that OPEC+ will be able to maintain planned output cuts. Underlining this, U.S. oil production is at record levels above 13 million barrels a day and rig counts are still rising. [O/R]

The attacks on shipping in the Red Sea offered only fleeting support and Brent eased 60 cents to $78.28 a barrel, while U.S. crude fell 57 cents to $73.52 at 0954 GMT.

(Reporting by Wayne Cole; Editing by Sam Holmes, Kim Coghill and Alison Williams)

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