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Marketmind: Buoyant markets hold near year's highs

[December 04, 2023] A look at the day ahead in U.S. and global markets from Mike Dolan

After closing at their highest level of the year on Friday, U.S. stocks mostly hogged those gains into the new week - with 'peak rates' optimism, Friday's U.S. jobs report and falling oil prices jockeying with edgy geopolitics for attention.

The S&P500 recorded its highest close since March 2022 on Friday - the month the Federal Reserve started its brutal five-percentage-point-plus interest rate squeeze. It's now just shy of a 20% gain for the year to date.

The milestone was hit as Fed boss Jerome Powell, for many investors at least, gave his clearest signal yet that the rate campaign is over and the central bank was now weighing the effects and when it may be able to ease back.

"We are getting what we wanted to get," Powell said during an event at Spelman College in Atlanta, noting the "full effects" of the Fed's rate hikes have not yet been felt.

Powell added that "the risks of under- and over-tightening are becoming more balanced" and the data would guide them from here.

Fed futures markets think a first cut may come as soon as March - with a quarter-point easing by then already two-thirds priced. Two-year Treasury yields hit their lowest since June on Friday and 10-year yields their lowest in three months, although they edged higher on Monday.

Encouraging the disinflationary theme, oil prices extended declines, pressured by investor skepticism over the latest OPEC+ decision on supply cuts and uncertainty surrounding global fuel demand. U.S. crude hit its lowest in two weeks and is tracking year-on-year losses of almost 10%.

With rate cuts expected at least as soon as the Fed in Europe and around the world, the dollar held up well.

Attention turns squarely to the labor market this week, with a series of updates on jobs and hiring that culminates in the November payrolls report on Friday. Hiring is expected to have picked up last month, but with the jobless rate staying at 3.9%.

Wall St stocks futures held the bulk of Friday's gains before the bell on Monday - giving back just 0.2%.

Some concerns about the resumption of fighting in Gaza and attacks on commercial shipping in the Red Sea saw volatility levels pop marginally higher and gold prices briefly surged to a new record before giving back all of those gains.

One of the worries about U.S. stock gains in the year to date has been the breadth, or lack of it, with a narrow leadership of megacap tech names. But that is widening into yearend as peak rate hopes encourage some rotation to smaller cap stocks. The S&P equal-weighted index is now up 6% for 2023.

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The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., March 9, 2020. REUTERS/Carlo Allegri

World stocks were generally holding up too.

But the relentless underperformance of China continued and the blue-chip CSI 300 Index fell 0.7%. Tech giants listed in Hong Kong fell for a fifth straight session, sliding 1.9%.

WuXi Biologics plunged more than 20% on a disappointing earnings forecast and that weighed on Hong Kong markets generally - but the mood among foreign investors at least is dour.

Chinese equities saw net outflows from long/short fund managers for a fourth successive month, mainly due to a reduction in long bets, Goldman Sachs' prime services team said in a report on Monday, without revealing the figure.

The only positive was a near-10% jump in ailing Evergrande, which said it has been granted an adjournment of a court hearing into a liquidation petition to Jan. 29.

In Europe, Greece's 10-year government bond yield dropped to its lowest level since June after ratings agency Fitch upgraded the country's sovereign credit rating to investment grade, citing the sharp downward trend in general government debt.

Bitcoin joined gold's latest surge and broke above $40,000 for the first time since May 2022 as it rides a wave of momentum on peak interest rates.

In corporate news, music streaming giant Spotify said it will lay off around 1,500 employees, or 17% of its headcount, to bring down costs, after letting 600 of its staff go in January, and 200 more in June.

Key developments that should provide more direction to U.S. markets later on Monday:

* U.S. Oct factory goods orders

* European Central Bank President Christine Lagarde speaks

* U.S. Treasury auctions 3-, 6-month bills

* U.S. corporate earnings: GitLab, RGC Resources, Fusion Fuel Green, Joann

(By Mike Dolan, editing by Kirsten Donovan mike.dolan@thomsonreuters.com)

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