The Overnight Report: Pre-Fed Hesitancy

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

Having enjoyed an unexpectedly positive session yesterday, SPI futures are indicating a rather hesitant opening ahead for the Australian bourse on Wednesday.

World Overnight
SPI Overnight	8320.00	– 4.00	– 0.05%
S&P ASX 200	8314.00	+ 64.50	0.78%
S&P500	6050.61	– 23.47	– 0.39%
Nasdaq Comp	20109.06	– 64.83	– 0.32%
DJIA	43449.90	– 267.58	– 0.61%
S&P500 VIX	15.59	+ 0.90	6.13%
US 10-year yield	4.39	– 0.01	– 0.27%
USD Index	106.68	+ 0.11	0.10%
FTSE100	8195.20	– 66.85	– 0.81%
DAX30	20246.37	– 67.44	– 0.33%

Good morning.

What is an investor to do when one of Wall Street’s biggest bulls is turning more cautious short term?

Yardeni Research yesterday: “As we have pointed out recently, several contrarian indicators are flashing orange, if not red, which could set the stage for a market pullback or correction early next year.

“We do not anticipate a protracted or deep stock market rout given that we view the economy as not only in good shape but improving.”

US equities dipped overnight as markets weighed up a mixed US retail sales report ahead of tomorrow’s FOMC decision.

Nigel Green, CEO of deVere Group, equally issued a warning last night:

Investors are being urged to act with caution and reassess their portfolios as mounting evidence suggests the Federal Reserve will not cut interest rates in the first half of 2025 even if it does so on Wednesday.

Persistent inflationary pressures, coupled with a resilient US labor market and fiscal policies expected from the incoming Trump administration, cast significant doubt over any near-term monetary easing.

Despite market hopes for a Fed rate cut as early as December, recent data reveals that inflation remains a major concern.

The US Consumer Price Index (CPI) for November rose to 2.7% on a 12-month basis, marking an uptick from October, while core inflation sits stubbornly at 3.3%. Such figures underscore that price pressures are far from subdued, despite earlier signs of cooling.

The Fed will be hard-pressed to justify loosening monetary policy while inflation regains momentum.

In addition to inflation, the robust US job market complicates matters further. Unemployment remains near historic lows, and labor market strength typically dissuades policymakers from cutting rates.

Wage growth, which fuels consumer spending, could keep inflation elevated well into 2025.

We’re entering a phase where inflation remains a persistent threat, and interest rates are unlikely to come down as quickly as markets had hoped.

This calls for a careful rebalancing of portfolios. Investors need to prioritize quality assets, build up inflation-resistant positions, and adopt a more defensive stance.

This comes amid growing market pressure on the Federal Reserve to ease monetary policy to sustain economic growth.

However, policymakers can’t risk further stoking inflation, especially as President-elect Trump’s proposed agenda of tax cuts, deregulation, and large-scale infrastructure spending is expected to drive inflation higher in the coming months.

There are four key considerations for investors:

First, bond market opportunities. While higher rates have battered bond prices over the past two years, fixed income assets are now presenting substantial value. Long-term government and corporate bonds, in particular, can offer stable returns as inflation expectations moderate and investors look for safer havens.

Second, quality equities. Investors should focus on companies with strong balance sheets, stable cash flows, and proven pricing power. These businesses are better positioned to weather an environment of higher borrowing costs and inflation.

Third, diversification into inflation hedges. Assets such as gold, Bitcoin and commodities remain essential tools for portfolio protection. In addition, dividend-paying stocks can provide consistent income streams to offset the erosion of purchasing power caused by inflation.

Minimizing overexposure to risky sectors: Sectors reliant on cheap borrowing, such as tech and growth stocks, could face increased headwinds if rates remain elevated. Investors should reassess their exposure and prioritize sectors that benefit from inflation and steady economic demand, such as energy, utilities, and healthcare.

Strategic investors will seize this moment to reposition themselves for the new realitya reality where caution, vigilance, and adaptability are paramount.

Economists at ANZ Bank report headline US retail sales growth was stronger than expected at 0.7% m/m (mkt: 0.6%), but core retail sales were somewhat softer at 0.2% m/m (mkt: 0.4%).

The control group (+0.4% m/m), which contributes to imputing real private consumption, was in line with median expectations.

The data signal consumption at the start of the holiday season was upbeat, suggesting the US economy is on track to finish 2024 on a strong note.

In terms of monetary policy implications, it is ANZ Bank’s view is the FOMC is on track to cut rates by -25bp tomorrow.

Resilience in the US economy supports the in-house view the FOMC will pivot to a slower and shallower easing cycle in 2025.

ANZ Bank is projecting a cumulative -75bp of easing next year in addition to a -25bp rate cut tomorrow.

The general risk-off tone across markets saw commodities come under pressure, with notable exception, yet again, from iron ore.

On the calendar today:

-New Zealand 3Q BoP

-Japan Nov Trade Balance

-Eurozone Nov CPI

-UK Nov CPI

-UK Nov PPI

-US 3Q C/A Balance

-US FOMC rate decision

-US Nov building permits

-US Nov housing starts

-National Australia Bank ((NAB)) AGM

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

Corporate news in Australia:

-ASIC is reportedly considering enforcement action against ANZ Bank ((ANZ)) for charging fees to dead customers’ accounts, reigniting scrutiny over the bank’s compliance failures and governance woes

-Market speculation suggests Ingenia Communities ((INA)) is interested in buying Lifestyle Communities ((LIC))

-Southern Cross Media ((SXL)) will sell regional TV licenses to Network 10, with completion expected by February 2025

-Novonix ((NVX)) receives US$1.2bn US loan commitment for EV battery graphite plant

-Qantas Airways ((QAN)) to pay -$120m to workers illegally sacked in 2020

Spot Metals,Minerals & Energy Futures
Gold (oz)	2660.19	– 9.17	– 0.34%
Silver (oz)	30.97	– 0.05	– 0.17%
Copper (lb)	4.15	– 0.05	– 1.11%
Aluminium (lb)	1.14	– 0.01	– 1.06%
Nickel (lb)	7.14	0.00	0.00%
Zinc (lb)	1.37	– 0.01	– 0.42%
West Texas Crude	69.77	– 0.43	– 0.61%
Brent Crude	73.27	– 0.54	– 0.73%
Iron Ore (t)	105.58	+ 0.17	0.16%

The Australian share market over the past thirty days

Index	17 Dec 2024	Week To Date	Month To Date (Dec)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8314.00	0.22%	-1.45%	0.53%	9.53%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
HPI	Hotel Property Investments	Downgrade to Hold from Add	Morgans
NST	Northern Star Resources	Upgrade to Equal-weight from Underweight	Morgan Stanley
PLS	Pilbara Minerals	Upgrade to Overweight from Equal-weight	Morgan Stanley
S32	South32	Upgrade to Overweight from Equal-weight	Morgan Stanley
SFR	Sandfire Resources	Downgrade to Underweight from Equal-weight	Morgan Stanley
SIG	Sigma Healthcare	Upgrade to Add from Hold	Morgans
SPK	Spark New Zealand	Downgrade to Equal-weight from Overweight	Morgan Stanley
TYR	Tyro Payments	Downgrade to Underweight from Equal-weight	Morgan Stanley
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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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