New highs on a no news day

Thoughts of the Day

The US stock market indices (S&P500, Dow Jones, Nasdaq) all made new highs for 2023 yesterday and it was a slow news day. This coming ahead of the release of the CPI, a key US inflation data print, is especially telling of market positioning.

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Day Ahead

UK Labour (Claimant Count Change – no expectations given). 

The US Consumer Price Index is expected to show that prices rose +3.1% Year-on-Year in November, a tad lower from +3.2% previously. The core index is expected to show that prices rose +4% in November as it did in October.

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What Happened Yesterday

Market Movements as of New York Close 11 Dec 23
  • The US Treasury Yield curve inversion remained at 0.48% as both the US 2-year bond yield and the 10-year bond yield remained unchanged on the day.
  • The US stock futures traded slightly lower during the Asian and London trading hours with very minute movements intraday. The S&P 500 was down -0.11% before the New York trading session began.
  • The US stock market opened a tad lower from Friday. US stocks then continued to trade higher on momentum from last Friday. Consequently, the S&P 500 closed +0.39% higher (high: +0.42%, low: -0.24%), the Dow Jones rose +0.43% (high: +0.46%, low: -0.05%) while the Nasdaq gained +0.85% (high: +0.92%, low: -0.14%). All 3 indices closed at the highs of the year despite the lack of fresh news on the day. 
  • The crypto market experienced a correction with Bitcoin falling -5.81% and Ether falling -5.42%.
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Headlines & Market Impact

Occidental Petroleum to expand Permian ops with $12 billion deal for CrownRock

Notable Snippet: Occidental Petroleum (OXY.N) on Monday agreed to buy closely-held U.S. shale oil producer CrownRock in a cash-and-stock deal valued at $12 billion including debt, expanding its presence in the largest U.S. shale oilfield.

The deal comes amid a new wave of shale consolidation underpinned by Exxon Mobil’s (XOM.N) $60-billion proposed deal for Pioneer Natural Resources (PXD.N) and Chevron’s (CVX.N) $53-billion agreement for Hess (HES.N) in October.

Big producers are using the post-pandemic profit boom to prepare for a future with lower oil prices, as they look to gain scale in basins they already operate to cut costs.

“We found CrownRock to be a strategic fit,” said Chief Executive Vicki Hollub. “Where we are looking at oil prices being long term, that it would help us in (oil) downturns.”

If approved, the CrownRock takeover would make Occidental a bigger player in the U.S. shale than Chevron and Hess combined. The deal is expected to close in the first quarter of 2024 and would boost Occidental’s Permian production by 170,000 barrels of oil and gas per day in the Midland, to 750,000 boed (Barrels Of Oil Equivalent Per Day).

Occidental’s total production was 1.2 million boed at Sept. 30.

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China’s Xi visits Vietnam after Biden, seeks ‘shared future’ with Hanoi

Notable Snippet: China’s President Xi Jinping starts a two-day visit to Vietnam on Tuesday to build a “community with shared future”, three months after U.S. President Joe Biden travelled to Hanoi as the major powers vie for influence in the Southeast Asian nation.

The trip, Xi’s first in six years, has been months in planning and was even briefly considered to take place days before Biden’s visit, according to officials.

It aims to boost relations between the two Communist-ruled countries which have very close economic ties but are at odds over boundaries in the South China Sea and have a millennia-long history of frequent conflict.

The visit has been delayed also because of prolonged discussions over how to phrase the countries’ enhanced bilateral relations, which Beijing wants to be framed as “shared destiny,” a reference that Hanoi has resisted but is expected to have eventually accepted, according to officials and diplomats.

In an opinion article published in the newspaper of the Vietnamese Communist party ahead of his visit, Xi said a “community with a shared future” between the two countries would carry strategic significance.

Among the expected deals are Chinese investments to upgrade rail links between the two neighbours, which would include grants, although the volume of aid is not clear and neither is the amount and terms of possible loans.

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Michael Milken says the Fed won’t move too early and risk massive inflation like the 1970s

Notable Snippet: Famed investor Michael Milken expects the Federal Reserve will move slowly on monetary policy — if history is any guide.

In fact, the Milken Institute founder expects the central bank will be sure to tamp out inflation before starting to cut rates so as to avoid a repeat of the 1970s, when inflation ran high in the double digits, Milken said on CNBC’s “Last Call” on Monday. He was speaking from the Hope Global Forum in Atlanta.

“History, as you know, repeats in different ways,” Milken said. “In the ’70s, the Fed moved too early. And so yes, we came out of that ’74, ’75, ‘76 period. But we had massive inflation at the end of the ’70s once again, with overnight rates up to 21%.”

“And so I think my view right now is the Fed is probably going to err a little bit on discipline today to see what’s occurred,” Milken added.

Inflation and interest rates ran high in the early 1970s before the Federal Reserve dialled back policy. This stop-and-go approach ultimately did not quell rising prices, however.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord