The Monday Report – 16 December 2024

This story features KOGAN.COM LIMITED, and other companies. For more info SHARE ANALYSIS: KGN

If SPI futures are anything to go by, the local market has lost its momentum and yet another week is poised to start on the back foot.

World Overnight
SPI Overnight	8267.00	– 39.00	– 0.47%
S&P ASX 200	8296.00	– 34.30	– 0.41%
S&P500	6051.09	– 0.16	– 0.00%
Nasdaq Comp	19926.72	+ 23.88	0.12%
DJIA	43828.06	– 86.06	– 0.20%
S&P500 VIX	13.81	– 0.11	– 0.79%
US 10-year yield	4.40	+ 0.08	1.73%
USD Index	106.68	– 0.03	– 0.03%
FTSE100	8300.33	– 11.43	– 0.14%
DAX30	20405.92	– 20.35	– 0.10%

By Chris Weston, Head of Research, Pepperstone

Good morning.

We head into a week which could well define if money managers square up positions and call it a year or conversely add risk for one final push into year-end.

The known tier 1 landmines come in on the heavy side this week, and the uncertainty this brings may initially result in further position squaring and limit buying activity in risk.

Coincidentally, it’s worth noting that over the past 10 years, the S&P500 has fallen -1% (on average) this week. That is, before historically kicking higher from next week and into year-end.

The risk from the FOMC meeting

Wednesday’s FOMC meeting is clearly the marquee event of the week, although the prospect of market players being overly surprised by what they hear seems low.

To quantify this call, I’ll note that S&P500 at-the-money options (expiring on FOMC day) are priced with a 9.2% implied volatility vs 7.9% the day before a premium, but nothing too striking, which suggests dealers are not seeing a marked probability of outsized moves in the S&P500 over the Fed meeting.

The market sees a -25bp cut from the Fed as a done deal and expects Jay Powell to stress that the Fed remains open to further easing, with the pace and magnitude of future cuts conditional on the incoming data flow.

Policy optionality as we head into an uncertain 1Q 2025 seems assured. A new set of quarterly economic projections and Dots’ will also be widely dissected and should offer some steer to current market pricing.

We can expect tweaks to the Fed’s 2025 and 2026 forecasts for unemployment, GDP and inflation, although these changes shouldn’t be overly market-moving.

The dots’ (each voting member’s estimate on where the Fed funds rate could be in the years ahead) could impact markets.

The consensus view from economists is the median dot for 2025 is likely to be raised to 3.625% (from 3.375%), and to 3.125% (from 2.875%) in 2026, highlighting a central tendency for three -25bp cuts next year and two -25 bp cuts in 2026.

The long-run neutral rate is expected to be taken up to 3%.

Other central bank meetings in play

Central bank meetings from the BoJ (hold), BoE (hold), Norges Bank (hold), Riksbank (-25bp cut) and Banxico (-25bp cut) are also due out through the week.

Again, while these are big events for traders to navigate, the prospect of hearing anything too left field that surprises the market seems low.

US data to have on the radar this week

On the data side, US PMI’s (today) could offer some small degree of vol risk for US equity and the USD, but we’d likely need to see an outlier print.

US retail sales (Tuesday) shouldn’t impact market sentiment to any great degree given it pre-dates the FOMC meeting and won’t affect their near-term thinking. 

US core PCE (Friday) is expected to come in at 0.2% m/m / 2.9% y/y, but, unless we see a significant deviation from the consensus estimates, the inflation data is also likely to be a low-impact event.

The US Treasury market is the central guide for risk this week

All eyes fall on the reaction in the US Treasury market.

With the US 10-year real rate back above 2%, and the 10-year (nominal) Treasury rising a punchy 24bp last week and fast approaching 4.50%, it feels as though the US bond market will play an increased role in shaping the volatility in equity, FX and gold this week.

Higher yields and a steeper yield curve, especially if not backed by a solid improvement in the US data flow, will likely become more of a headwind for equity risk.

We also get PMIs in Europe, with both services and manufacturing prints likely to remain weak and that could be a vol event for EUR traders.

A weaker-than-feared set of EU PMIs could see EURUSD break 1.0450 a level that has been well supported of late.

Yet another failed rally in China’s equity indices

In China, the focus today falls on the data dump in the early Asia afternoon, with new/used home prices, industrial production, retail sales, and property investment all due between 12:30 – 13:00 AEDT.

China may be seen by some as uninvestible’ in its current form, but it is certainly tradeable, and as we saw late last week there is no follow-through in the rallies and traders are quick to fade strength on disappointment.

So, there is plenty of risk to navigate this week, and while the options market suggests a low probability the event risk proves to light up the markets with volatility if we do move past the week without any major hiccups, then it could offer the green light to run risk hot into year-end.

On the calendar today

-Japan Oct Core Mach orders

-China Nov Industrial production

-China Nov Retail sales

-China Nov Unemployment rate

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia

-ASIC is investigating Kogan ((KGN)) over a potentially lucrative options deal involving its CEO and CFO

-Star Entertainment’s ((SGR)) second Gold Coast CEO in seven months has resigned

-ASIC has launched a legal action against HSBC Australia for allegedly failing to respond swiftly to almost 1000 reports of suspicious activity in bank accounts, resulting on to some customers reportedly  losing $90,000 to scammers

Spot Metals,Minerals & Energy Futures
Gold (oz)	2675.80	– 28.16	– 1.04%
Silver (oz)	31.03	– 0.55	– 1.73%
Copper (lb)	4.20	– 0.04	– 1.03%
Aluminium (lb)	1.18	+ 0.00	0.35%
Nickel (lb)	7.14	– 0.14	– 1.85%
Zinc (lb)	1.39	+ 0.00	0.32%
West Texas Crude	71.29	+ 1.16	1.65%
Brent Crude	74.49	+ 0.98	1.33%
Iron Ore (t)	105.31	– 0.18	– 0.17%

The Australian share market over the past thirty days

Index	13 Dec 2024	Week To Date	Month To Date (Dec)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8296.00	-1.48%	-1.66%	0.32%	9.29%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT	Beach Energy	Upgrade to Neutral from Sell	Citi
DMP	Domino’s Pizza Enterprises	Downgrade to Neutral from Buy	Citi
HPI	Hotel Property Investments	Downgrade to Hold from Add	Morgans
NHC	New Hope	Upgrade to Buy from Neutral	Citi
PLS	Pilbara Minerals	Upgrade to Buy from Hold	Bell Potter
S32	South32	Downgrade to Neutral from Buy	Citi
VNT	Ventia Services	Downgrade to Hold from Add	Morgans

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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