Is the economy really slowing?

Thoughts of the Day

US GDP growth exceeded expectations at +5.2% QoQ last week, yet factory orders shrank -3.6% MoM. This is showing mixed economic signals. USD FED officials are in the media blackout ahead of next week’s policy meeting. It is important to see the bigger picture, upcoming job market and inflation data.

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Day Ahead

The Reserve Bank of Australia is expected to keep interest rates at 4.35% in its monetary policy meeting.

The US JOLTS job openings are expected to contract to 9.35M in October from 9.553M previously.

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What Happened Yesterday

Market Movements as of New York Close 4 Dec 23
  • The US Treasury Yield curve inversion widened to 0.36% as the US 2-year bond yield rose +0.08% to 4.64% while the 10-year bond yield increased +0.06% to 4.28%.
  • The US stock futures drifted slightly lower during the Asian and London trading sessions following the attack on commercial vessels in the Red Sea by Yemen’s Houthi group. The S&P 500 futures were down -0.81% before the New York session began.
  • The US stock market opened lower from Friday. It then fell following the dismal factory orders data from the US (see headline 2). However, risk sentiment started to improve, causing some  of the losses made earlier in the US session to be erased. Consequently, the S&P 500 closed -0.54% lower (high: -0.48%, low: -1.04%), the Dow Jones slipped -0.11% (high: -0.02%, low: -0.60%) while the Nasdaq dropped -0.99% (high: -0.91%, low: -1.89%).
  • Gold (intraday high: +3.72%) and Silver  (intraday high: +1.70%) spiked in the early morning yesterday due to safe haven flows arising from the rising geopolitical tensions in the Middle East. However, the prices eventually waned with Gold down -2.07% on the day and Silver falling -3.83% on the day possibly due to higher US yields and profit-taking sales. 
  • The crypto market remains strong with Bitcoin rising +5.10% and Ether rising +2.25% due to optimism in the space as well as some safe haven flows driven by the rising geopolitical instability in the Middle East.
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Headlines & Market Impact

U.S. leads coalition to triple nuclear power by 2050 in effort to address climate change

Notable Snippet: The United States and more than 20 other countries plan to triple nuclear power by 2050 to achieve net-zero carbon emissions and limit climate change.

“Nuclear power that adheres to the highest standards of safety, sustainability, security, and non-proliferation has a key role to play in keeping 1.5 C within reach,” U.S. climate envoy John Kerry said in a statement issued over the weekend at the U.N. climate conference in Dubai, United Arab Emirates.

Other major economies that signed on to the agreement include Canada, the world’s second-largest uranium producer; France, a global leader in nuclear energy; the United Kingdom; and Japan, which suffered a devastating nuclear accident in 2011 triggered by an earthquake and tsunami.

The declaration is the most concrete step taken yet by major nations to place nuclear power at the centre of the push to transition to clean energy.

Interest in nuclear power is booming worldwide amid growing recognition that a more dependable source of clean electricity will be needed to support the rapidly growing role of wind and solar in power grids. Nuclear is one of the few clean energy sources that can provide power without interruption when wind and solar are not available due to weather conditions.

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US factory orders fall 3.6% in October

Notable Snippet: New orders for U.S.-made goods fell more than expected in October, marking the biggest monthly drop in roughly three and a half years, constrained by weakening demand for durable goods and transportation equipment and bolstering the view that high interest rates are beginning to bite into spending.

Factory orders fell 3.6% after a downwardly revised 2.3% in September, the Commerce Department’s Census Bureau said on Monday, the biggest monthly drop since April 2020. Economists polled by Reuters had forecast orders would decline 2.8%. Orders advanced 0.5% on an annual basis in October.

The manufacturing sector, buoyed by a jump in spending on goods in the third quarter, is increasingly feeling the strain of higher interest rates and adds to signs the economy will more meaningfully slow in the fourth quarter. The sector accounts for 11.1% of the economy.

Orders for durable goods fell 5.4%, with orders for transportation equipment slumping 14.7%. Machinery orders decreased 0.3%. Electrical equipment, appliances and components orders fell 1.1%. Manufacturing non-durables declined 1.9%.

Shipments of manufactured goods fell 1.4%. Manufactured goods inventories edged up 0.1%, while unfilled orders rose 0.3%.

The government also reported that orders for nondefense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, declined 0.3% instead of 0.1% as reported in last month’s estimate.

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Uber shares pop as company is slated to join S&P 500

Notable Snippet: Shares of Uber closed up more than 2% on Monday after S&P Dow Jones Indices announced Friday that the ride-hailing company has been selected to join the S&P 500.

Uber’s spot in the benchmark index is not official until Dec. 18, according to a press release, but it is common for the stock to rise, since investors know that managers of index funds that track the S&P 500 will add it to their portfolios. Uber will replace Sealed Air Corp. in the S&P 500.

Analysts at Oppenheimer reiterated their outperform rating on the stock and raised their price target to $75 per share from $65. They said Uber’s ticket into the S&P 500 will likely help improve investors’ sentiment about returns.

“Following the inclusion, we expect UBER to lean into growth and share buybacks, which should increase investor sentiment for growth/return in 2024,” the analysts wrote in a note Sunday.

Members of the index must have positive earnings in the most recent quarter and over the prior four quarters in total, according to S&P’s rules. Uber reported net income of $221 million on $9.29 billion in revenue for its third quarter, and in the past four quarters altogether, it generated more than $1 billion in profit.

Uber also has a market cap of about $118 billion, which surpasses the S&P’s criteria that companies must have an adjusted market cap of at least $14.5 billion.

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Phan Vee Leung
CIO & Founder, TrackRecord