Will the market rip higher?

Thoughts of the Day

The US stock market remains strong despite repeated sell-off attempts. The upcoming release of the PCE Price Index could boost confidence further. If it suggests inflation is nearing the Fed’s 2% target, the S&P 500 may join the Dow Jones and Nasdaq in hitting new all-time highs soon.

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Day Ahead

The US PCE Price Index is expected to show that prices rose +2.8% in November, down from +3.0% in October. The core index is expected to show that prices rose +3.4%, compared to +3.5% previously.

US UoM Consumer Sentiment is expected to come in at 69.4 in December vs 61.3 previously. The inflation expectations for the year ahead is expected to dip to 3.1% from 4.5% previously.

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What Happened Yesterday

Market Movements as of New York Close 20 Dec 2023
  • The Consumer Price Index in Japan showed that prices rose +2.8% in November, compared to +3.3% previously. The core CPI showed that prices rose +2.5% as expected (lowest reading since July 2022) in November, compared to +2.9% previously.
  • US GDP grew +4.9% QoQ in Q3 (vs +5.2% expected), higher than +2.1% in Q2. Although it fell short of expectations, It still marks the strongest growth since Q4 2021.
  • The weekly jobless claims for the week ending on 16 Dec rose to 205k (vs 215k expected) from 203k the week before (revised from 202k). Continuing claims for the week ending on 9 Dec slid to 1,865k (vs 1,888k expected) from 1,866k (revised from 1,876k).
  • The US Treasury Yield curve inversion narrowed to 0.44% as the US 2-year bond yield fell -0.10% to 4.33% while the 10-year bond yield rose +0.03% to 3.89%.
  • Following the weakness in the US stock market on Wednesday, US stock futures gradually made its way higher through the Asian and early London trading sessions with the S&P 500 futures gaining +0.42% before the release of the US GDP data. The US GDP data then sent the S&P 500 futures higher by another +0.28%.
  • The US stock market opened higher from Wednesday. It then started to face some weakness in the early New York session. However, the market eventually started to make its way higher in the middle of the session. Consequently, the S&P 500 closed +1.03% on the day (high: +1.07%, low: +0.21%), the Dow Jones rose +0.87% (high: +0.91%, low: +0.12%) while the Nasdaq increased +1.23% (high: +1.29%, low: +0.41%).
  • The sudden boost in risk sentiment is likely due to a stronger revenue forecast from Micron (+8.63%) for the next quarter which boosted other chip makers as well. Intel: +2.88%, AMD: +3.28%, Nvidia: +1.83%.
  • The crypto market rose on the day because of the stronger risk sentiment. Bitcoin is up +0.47% while Ether rose +1.72%.
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Headlines & Market Impact

China bans export of rare earths processing tech over national security

Notable Snippet: China, the world’s top processor of rare earths, banned the export of technology to extract and separate the critical materials on Thursday, the country’s latest step to protect its dominance over several strategic metals.

Rare earths are a group of 17 metals used to make magnets that turn power into motion for use in electric vehicles, wind turbines and electronics.

While Western countries are trying to launch their own rare earth processing operations, the ban is expected to have the biggest impact in so-called “heavy rare earths,” used in EV motors, medical devices and weaponry, where China has a virtual monopoly on refining.

“This should be a clarion call that dependence on China in any part of the value chain is not sustainable,” said Nathan Picarsic, co-founder of the geopolitical consulting firm Horizon Advisory.

China’s commerce ministry sought public opinion last December on the potential move to add the technology to its “Catalogue of Technologies Prohibited and Restricted from Export.”

It also banned the export of production technology for rare earth metals and alloy materials as well as technology to prepare some rare earth magnets.

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Angola leaves OPEC in blow to oil producer group

Notable Snippet: Angola said on Thursday it would leave OPEC in a blow to the Saudi-led oil producer group that has sought in recent months to rally support for further output cuts to prop up oil prices.

Angola’s Oil Minister Diamantino Azevedo said the Organization of the Petroleum Exporting Countries no longer served the country’s interests. It joins other mid-sized producers Ecuador and Qatar that have left OPEC in the last decade.

“We feel that … Angola currently gains nothing by remaining in the organisation and, in defence of its interests, decided to leave,” Azevedo was quoted as saying in a presidency statement.

Angola’s announced departure follows a protest from Angola about OPEC+’s decision to cut its output quota for 2024. The dispute helped to delay OPEC+’s last policy meeting in November and its agreement on new output curbs.

Nigeria is another African OPEC member that has been trying to boost output and has been struggling to meet its quota. At the November meeting, it received a higher OPEC+ target for 2024, although lower than it had sought, restricting its ability to increase production should it be able to do so.

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China revokes Taiwan tariff concessions, piles on pressure ahead of elections in the island

Notable Snippet: China suspended tax concessions on 12 chemical compound imports from Taiwan in retaliation for what Beijing deems to be a violation of a trade agreement, just weeks ahead of key elections in the democratically-run island.

“Taiwan has unilaterally adopted discriminatory bans, restrictions and other measures on the export of mainland products, violating the provisions of the Cross-Strait Economic Cooperation Framework Agreement,” China’s Finance Ministry said in a statement Thursday.

The Chinese Commerce Ministry last Friday accused Taiwan of violating World Trade Organization rules and the terms of a 2010 trade accord between both parties, extending its probe into Taiwan’s alleged restrictions on trade with the mainland to Jan. 12, just a day before the island’s presidential and parliamentary elections.

The timing of China’s probe is intentional and suggests its aims are more political than economic, said Lin Tze-luen, a spokesperson for Taiwan’s legislative Executive Yuan, at a press conference in Taipei after a regular cabinet meeting. He also said China’s investigation process was opaque.

China’s Thursday announcement means chemical compounds, including vinyl chloride, dodecylbenzene and primary forms of the ethylene propylene copolymer, will now be subjected to tariffs from Jan 1.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord