Marketmind: Thanksgiving starters of AI and oil

[November 20, 2023]  A look at the day ahead in U.S. and global markets from Mike Dolan.

Thanksgiving may make for a clipped U.S. markets week, but there's plenty to chew on around the world before then - and a feast of intrigue in the artificial intelligence space.

Boardroom shenanigans at ChatGPT-developer OpenAI, where former boss Sam Altman was ousted on Friday and then hired by the firm's biggest backer Microsoft, raises interesting questions about the pace of AI development.

A key catalyst for some of the outsize Big Tech share gains this year, the craze around generative AI will also top the agenda as chip giant Nvidia reports earnings on Tuesday that will hold a light to a more than trebling of stock this year.

The macro week is partly shaped by the OPEC+ meeting on Nov. 26 amid reports the cartel may consider more oil output cuts to shore up recently plunging crude prices.

The failure of OPEC+ to buoy oil prices this year shows how much falling global demand is starting to shape prices and how much booming U.S. production is dominating the picture.

After plummeting almost 25% in six weeks, U.S. crude prices have backed up a bit after the Reuters report on possible cuts on Friday and held steady about $76 per barrel first thing.

That's also drawn a line for now under the recent slide in U.S. Treasury yields, which also bounced on Friday and were propped further by both Federal Reserve hawkishness and unexpected housing starts data from last month.

The S&P500 eked out another small gain on Friday, its fourth daily advance in a row and the highest close since Sept. 1. Futures were marginally higher ahead of Monday's bell - but the VIX volatility gauge was also slightly higher than Friday's two-month closing low.

The dollar was a big loser first thing Monday, also hitting its lowest since Sept. 1.

Softening U.S. debt yields have undermined the greenback but China's yuan led the way to three-month highs as the central bank there left a key interest rate unchanged and guided the renminbi higher, just as exporters rushed to convert dollar receipts.

Japan's yen also surged as Tokyo stocks briefly hit their highest in 33 years, while speculation about a tightening of the Bank of Japan's monetary policy persisted and centred around accelerated wage growth.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 26, 2023. REUTERS/Brendan McDermid/File Photo

Currency markets were also in thrall to Argentina's weekend election result, in which right-wing libertarian Javier Milei become the new president on a radical ticket of how to fix an economy battered by triple-digit inflation and rising poverty.

Milei is pledging economic shock therapy. His plans include shutting the central bank, ditching the peso and dollarizing the economy and slashing spending with potentially painful reforms.

In Europe, the debt markets started the week with relief after Moody's late on Friday confirmed Italy's investment grade sovereign credit rating and surprised markets by upping the outlook to stable.

The risk premium between German and Italian 10-year yields tightened to 170 bps - the lowest since Sept. 21.

British stocks and sterling were firmer as UK finance minister Jeremy Hunt is due to present his Autumn government budget statement on Wednesday amid reports he was considering cutting income tax or national insurance and tweaking savings vehicle incentives to encourage more stock holdings.

In single stock moves, however, German chemicals giant Bayer lost 19% - on track for its worst day on record - after it aborted a large late-stage trial testing a new anti-clotting drug.

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

* U.S. Oct leading indicator, Canada Oct inflation

* Federal Reserve Bank of England Governor Andrew Bailey, Bank of France Governor Francois Villeroy de Galhau and Bank of Spain Governor Pablo Hernandez de Cos all speak

* U.S. Treasury auctions 20-year bonds and 3-, 6-month bills

* U.S. corporate earnings: Zoom, Agilent Technologies, Keysight Technologies, TechPrecision, Symbotic, Remark Holdings

(By Mike Dolan, editing by Ed Osmond, [e-mail]. Twitter: @reutersMikeD)

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