All-time highs but who’s bullish?

Thoughts of the Day

The Nasdaq, which got battered and fell more than 35% last year breached its all-time high yesterday. There are 100 stocks in the Nasdaq index but skeptics will say that most of the outperformance is because of the few major tech stocks that have been enjoying the AI boom. The S&P500 is also just 1% away from joining the party and there are 500 stocks in that index.
Many are still bearish, but we hold a different view! Read our insights in our full report.

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Day Ahead

UK Consumer Price Index is expected to show that prices rose +4.4% in November, down from +4.6% in October.

US Conference Board Consumer Confidence is expected to come in at 104.3 in December, higher than 102 in November.

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What Happened Yesterday

Market Movements as of New York Close 19 Dec 23
  • Fedspeak:
    Bostic (2024 voter, known dove):
    “Expects inflation to continue to come down slowly and unevenly. He also sees the “tight labour market” to continue moving forward. The Fed is in a good place, with a pathway to fixing inflation without much labour market pain. Central bank is not going to “jump at the first data point”. ”
    Barkin (2024 voter, slight hawk): “If inflation comes down as expected, the Fed will respond. Seeing signs of weakening in some parts of the consumer economy. Economy not as frothy as data had suggested. Demand and inflation are normalising.”
    (Bostic is still on the dovish side and Barkin is turning more dovish)
  • The Canadian Consumer Price Index showed that prices rose +3.1% in November (vs +2.9% expected) as it did in October. Core inflation bumped up to +2.8% YoY from +2.7% previously. The USD fell -0.28% against the CAD in immediate reaction to the data release.
  • The US Treasury Yield curve inversion remained at 0.48% as the US 2-year bond yield and the 10-year bond yield both fell -0.02% to 4.41 and 3.93%.
  • The US stock futures traded slightly higher through the Asian and London trading sessions with the S&P 500 futures up +0.15% before the New York session began.
  • The US stock market opened higher from Monday. The US stock market then continued to make its way higher through the New York session following more dovish Fedspeak. Consequently, the S&P 500 rose +0.59% on the day (high: +0.59%, low: +0.07%), the Dow Jones increased +0.68% (high: +0.69%, low: +0.02%) while the Nasdaq rose +0.49% (high: +0.50%, low: +0.02%). 
  • The crypto market seems to be taking a breather with Bitcoin and Ether down -0.86% and -1.84% respectively.
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Headlines & Market Impact

Online shopping for holidays exceeds 2020 pandemic high, CNBC economic survey shows

Notable Snippet: After a two-year slump below its pandemic high, online shopping made a comeback this holiday season. The CNBC All-America Economic Survey finds 57% of Americans naming online shopping as their top one or two destinations for Christmas gifts.

In 2006, online shopping accounted for just 18% of responses. It hit an all-time high in 2020, at the height of the pandemic, when 55% responded it was the top destination. It scaled back to 51% last year, holding on to some but not all of its pandemic gains. But this year, hit yet another all-time high.

The reason for the surge is unclear but a look at those spending more online this year suggests it could centre around a search for bargains to combat inflation. Among those groups spending more online are women 50 and older who as a group reported more frugal holiday spending plans than average and are more concerned about inflation and the overall condition of the economy. Still, the group shops less online than younger women aged 18-49. Also spending more online this year than last are those with incomes below $30,000 and those who plan to spend only $200 on gifts, far below the $1,300 average.

While groups differ over how much they spend online, where they spend is fairly uniform: Amazon. Once again — and continuously since the question was first asked six years ago — Amazon is the No. 1 destination for online shopping and no one else is really close. Back in 2017, just 35% of the public said Amazon was their top online destination. Today, that percentage has risen to a commanding 74%, unchanged from last year but below its 2019 high.

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US adds 13 companies in China to Unverified List

Notable Snippet: The United States has added 13 companies in China to a list of entities receiving U.S. exports that officials have been unable to inspect, according to a government notice posted on Tuesday.

Companies are placed on the “Unverified List” when U.S. export control officers cannot complete on-site visits to determine whether they can be trusted to receive U.S.-origin technology and other goods. U.S. inspections of Chinese companies require the approval of China’s commerce ministry.

U.S. exporters are required to conduct additional due diligence before sending items to companies on the list, which serves as a red flag, and may have to apply for more licences.

Additions to the list include PNC Systems in Jiangsu, Beijing Shengbo Xietong Technology, Guangzhou Xinwei Transportation and Plexus in Xiamen.

The list is one tool the U.S. is using to stop sensitive American goods and technology from falling into the wrong hands. It has also issued sweeping restrictions on shipping advanced semiconductors and chip making equipment to China to keep U.S. technology from China’s military modernization. The tech battle has escalated tensions between the countries.

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Shift in Chinese retailers’ strategy risks entrenching deflation

Notable Snippet: A shift in Chinese retailers’ strategy toward lower-priced goods and services to win cost-conscious consumers risks embedding the country’s recent deflationary trends more permanently into the world’s second-largest economy.

Price cuts, the proliferation of bargain stores and companies offering cheaper, scaled-down versions of their products may create a vicious cycle of lower profit margins that curtail wage and job growth and further depress consumer appetite. This stands to create more headwinds for China’s stuttering post-COVID recovery.

The fierce competition to draw the attention of thrifty Chinese consumers is reshaping the country’s retail landscape and the deflation concerns are drawing further comparisons with Japan’s “lost decades” of stagnation.

Falling income growth is normalising lower consumption in China, with some industries experiencing declining revenue, as “companies are lowering prices to maintain their market share and avoid being squeezed out,” said Wang Dan, a Shanghai-based economist at Hang Seng Bank.

“It is definitely a price decrease or low inflation environment now. Though it is hard to forecast how long the situation will last, but for sure it is bad for the economy,” she said.

Numerous examples of Chinese retailers offering lower-priced alternatives have appeared in response to consumer’s cost-cutting.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord