Tuesday's Markets Update (December 5, 2023)

05 Dec 2023 by rate3

On Tuesday, the Nasdaq rose as traders weighed new economic data showing job openings dropped below forecasts to the lowest since March 2021, signaling a cooling labor market. This was despite the PMI topping estimates, pointing to resilience in the services sector. Apple, Amazon, Nvidia, and Tesla grew 1-2%. Meanwhile, the crypto rally in major coins continued with BTC reaching over 44K and aiming at the 2-years-high as ETH came over 2.3K - the first time since May 2021.

Details

The ISM Services PMI rose to 52.7 in November from 51.8 in October, exceeding forecasts of 52. This indicates faster growth in the services sector, with quicker expansions in business activity, production, and employment. New orders stayed robust while inventories rebounded. Although price pressures eased slightly, there are ongoing concerns about inflation, interest rates, and geopolitical events.

The number of job openings dropped by 617K month-over-month to 8.7M in October, the lowest since March 2021 and below forecasts of 9.3M. Openings fell in healthcare, finance, insurance, real estate and leasing but rose in information. By region, openings declined in the South, Midwest, West and Northeast. The data indicates a cooling labor market compared to recent months, with fewer available jobs across most industries and regions in October.

World Economy

Germany

The DAX 40 closed at a record high above 16,530 after dovish ECB comments and signs of US labor market weakness suggested potential earlier rate cuts by the ECB and Fed. ECB officials indicated further hikes are "rather unlikely" given November's inflation slowdown.

Spain

The IBEX 35 reached 5-year highs at 10,249, driven by ECB policymakers softer stance on rate hikes and US economic data. Rate-sensitive property sector gains were led by Merlin Propeties and Inmobiliaria, while Banco Santander and Cellnex Tel advanced by around 1.9% each.

FYI: The IBEX 35, or Índice Bursátil Español, is the benchmark stock market index for Spain. It tracks the performance of the 35 most liquid Spanish stocks traded on the Continuous Market of the Bolsa de Madrid. The index is capitalization-weighted, meaning that the companies with the largest market capitalizations have a greater impact on the index's performance.

China

Moody's affirmed China's A1 rating but cut the outlook to negative over lower medium-term growth and property sector risks, plus increased government aid to strained local governments and state firms that threatens fiscal health, economic stability, and institutional robustness; 4% GDP growth forecast for 2024-2025.

Brazil

Brazil's economy grew 0.1% in Q3, defying a predicted 0.2% contraction. The industrial and services sectors expanded, while agriculture output decreased. Household and government spending rose, supported by income transfer programs and a better job market. Exports remained strong, imports declined, and gross fixed capital formation fell amid high interest rates.

India

The BSE Sensex closed at a record 69,296, driven by energy and financial stocks. Investors reacted positively to India's ruling party's state election victory and strong PMI data. Top gainers included Power Grid Corporation of India and NTPC, as oil prices declined.

FYI: The S&P BSE SENSEX, also known as the BSE SENSEX or simply SENSEX, is a stock market index that tracks the performance of 30 of the largest and most liquid publicly traded companies listed on the Bombay Stock Exchange (BSE) in India.

Comment

The recent surge in combined market indexes in the USA, Spain, Germany, and India, alongside the growth of the Brazilian GDP, has been largely attributed to traders' expectations of imminent rate cuts by world central banks in response to a decelerating inflationary trend. However, this buoyant market performance appears to be somewhat detached from a broader improvement in other key macroeconomic indicators.

Despite the optimistic market sentiment, concerns loom over the sluggish manufacturing activity, which continues to decelerate, and a concurrent rise in unemployment. The majority of banks have opted for over-hikes, with the noteworthy exception of Japan. This discrepancy in monetary policies raises questions about the sustainability of the current growth trajectory.

Furthermore, the geopolitical landscape remains relatively unchanged, with only superficial demonstrations of political goodwill, such as the non-binding meeting between Xi and Biden in San Francisco. While there may be symbolic gestures, the substantial improvement in geopolitical tensions is yet to materialize.

In light of these factors, it appears that the ongoing market rally is susceptible to a correction. The economic reality, with its inherent complexities and challenges, is likely to catch up sooner or later. Traders and investors should exercise caution and remain vigilant watching for the evolving economic landscape.