Year: 2024

© Reuters.

Investing.com– Oil prices rose slightly in Asian trade on Thursday, extending strong gains from the prior session as the shutdown of Libya’s biggest oilfield fueled more concerns over tight supplies.

The shutdown came amid continued disruptions to shipping activity in the Red Sea, which markets feared could disrupt global oil supplies. The Israel-Hamas war also now appeared to have spilled over into Lebanon, marking an escalation in the conflict.

Disruptions to Middle Eastern crude supply were a key point of support for oil prices in recent sessions, particularly on the grounds that they could result in tighter global oil markets in 2024.

Expectations of tighter supplies were further fueled by industry data showing a substantially bigger-than-expected draw in U.S. inventories over the final week of 2023. But the data also showed an outsized build in gasoline and distillate stocks, indicating that U.S. fuel demand remained weak.

Brent oil futures expiring in March rose 0.3% to $78.47 a barrel, while West Texas Intermediate crude futures rose 0.5% to $73.20 a barrel by 20:10 ET (01:10 GMT).

Both contracts surged around 3% on Wednesday, following news of the Libyan shutdown. Protests over high fuel prices caused Libya’s El Sahara oil field to halt production, with the field producing about 300,000 barrels per day.

US inventories shrink more than expected, but fuel demand seen weak- API

Data from the American Petroleum Institute (API) showed that U.S. oil inventories fell by 7.4 million barrels in the week to December 29, far more than expectations for a draw of about 3 million barrels.

But the API data also showed an over 6 million barrel build in gasoline and distillate inventories, suggesting that demand in the world’s biggest fuel consumer remained weak at the end of 2023.

While a bulk of this slowdown can be attributed to weak seasonal trends- particularly the winter season dissuading road travel, a mix of high interest rates and cooling economic activity may also be weighing on fuel demand.

The API data usually heralds a similar reading from official U.S. inventory data, which is due later on Thursday.

Despite strong gains on Wednesday, oil prices were still nursing steep losses in 2023. Brent and WTI lost over 10% apiece in the past year on growing fears of a demand slowdown, particularly due to economic pressure from high interest rates.

Purchasing managers index (PMI) data released on Wednesday showed a sustained contraction in U.S. manufacturing activity. Crude prices had also marked a weak start to 2024 following dismal PMI data from top importer China.

Despite Wednesday’s bounce, further gains in oil were held back by a sharp recovery in the dollar, as markets awaited fresh cues on monetary policy from nonfarm payrolls data due this Friday. Some doubts over the timing of U.S. interest rates also appeared to be creeping into markets, with the minutes of the Fed’s December meeting providing few cues.

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© Reuters.

Updated at 23:27 ET (04:27 GMT) with more details on China.

Investing.com– Most Asian stocks fell on Thursday, extending declines after a weak start to the year on doubts over the timing of U.S. interest rate cuts, while Chinese markets were battered by Fitch downgrading four major state-owned asset managers.

Regional markets took a weak lead-in from Wall Street, with U.S. stock benchmarks falling for a second straight session on Wednesday as sentiment towards equities remained on edge. U.S. stocks also saw a heavy dose of profit-taking after a stellar melt-up through December.

Chinese stocks slide as Fitch downgrades 4 major asset managers

China’s bluechip Shanghai Shenzhen CSI 300 index was the worst performer in Asia on Thursday, losing 1.4% and hovering above a five-year low, while the Shanghai Composite index dropped 0.9%.

Fitch downgraded the ratings of four Chinese state-owned asset managers by one level, and put three of the four firms on watch for more potential downgrades.

The ratings agency cited increasing pressure on the four from an ongoing slump in the property market, as well as increased uncertainty over the government’s ability to support the finances of the asset managers. This in turn presented uncertainty over the ability of the state-backed firms to snap-up non-performing assets from the open market, which bodes poorly for China’s financial markets.

The downgrade presents another blow to sentiment towards China, and also comes a few weeks after Moody’s (NYSE:MCO) warned of a potential downgrade to China’s sovereign rating.

A positive private survey on the services sector did little to inspire confidence in the country, with the Caixin Services PMI showing that China’s service sector grew more than expected in December.

Chinese stocks were among the worst-performing major stock indexes in 2023, as a post-COVID economic rebound largely failed to materialize.

Among other Asian markets, Japan’s Nikkei 225 index fell 0.8% in catch-up trade after an extended new year’s holiday. Sentiment towards Japan was also rattled by a devastating earthquake earlier this week, which killed scores of people and caused widespread disruption in central Japan.

Purchasing managers index (PMI) data showed that Japanese manufacturing activity remained in contraction in December.

Losses in heavyweight technology stocks also weighed on the Nikkei, mirroring a trend seen across most stock markets.

Asian tech falls further as rate cut uncertainty persists

Technology-heavy indexes continued to bear heavy losses as markets second-guessed just when the Federal Reserve could begin trimming interest rates this year. South Korea’s KOSPI fell 0.9%, while Hong Kong’s Hang Seng index shed 0.4%.

The minutes of the Fed’s December meeting showed central bank officials acknowledging progress against inflation over the past year. But the minutes also offered few cues on when the bank could potentially begin trimming interest rates as signaled during the meeting.

The minutes showed policymakers concerned over a soft landing for the U.S. economy, and whether monetary policy was too restrictive.

While the Fed is still expected to trim rates by at least 75 basis points in 2024, markets remained uncertain over the timing of the potential cuts. This spurred a heavy dose of profit-taking in tech stocks, which had risen sharply through December on the prospect of rate cuts this year.

Markets were also cautious before nonfarm payrolls data due this Friday, which is expected to factor into monetary policy.

Broader Asian stocks extended recent losses, with Australia’s ASX 200 falling 0.3% and coming further off a recent 2-1/2-year high. PMI data showed Australia’s services sector remained in contraction through December.

India’s Nifty 50 index opened 0.4% higher, although the index still remained vulnerable to more profit-taking after hitting a series of record highs in December. PMI data on Wednesday showed Indian manufacturing activity grew less than expected in December.

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© Reuters Apple (AAPL) stock selloff extends on second rating downgrade this week

Apple (NASDAQ:AAPL) shares are down 4.3% in the first trading week of 2024 after Barclays cut the tech giant’s rating, citing weak demand for iPhone 15.

The stock is down a further 0.6% in pre-market Thursday after Piper Sandler analysts also lowered the rating as new checks showed a soft broader handset environment in 1H24.

“We are concerned about handset inventories entering into 1H24 and also feel that growth rates have peaked for unit sales. Handsets are ~51% of total revs,” analysts wrote in a note.

Moreover, Piper Sandler analysts flag the “deteriorating macro environment in China,” which could also weigh on the handset business.

Investors could also be distracted by “negative news around both the Watch and other ongoing legal battles.”

“Difficult comps from 2023 paired with constant currency headwinds are expected to continue in 1H24 with interest rates remaining elevated.”

Finally, analysts also flagged elevated valuation with the current NTM P/E at about 29x, which is above the 5-year historical average of 24x.

As a result, the rating was cut to Neutral with a price target of $205 per share.

© Reuters. ‘If Santa Claus should fail to call, bears may come to Broad and Wall’

Stock Trader’s Almanac analysts noted today that despite last year’s significant rally in the stock market, the anticipated Santa Claus Rally has failed to materialize this year.

The market is displaying signs of weakness, with this week’s selling prompting caution among investors. Profit-taking in January has become more common in the last 25 years, especially in election years like 2024.

“Some profit taking is understandable following the massive rally from the end of October ranging from just over 16% for DJIA and S&P 500 to 19.9% for NASDAQ and 26.2% for Russell 2000 at their respective recent highs just before yearend,” analysts said.

“But the selling over the past few days is notable and a warning sign.”

The Santa Claus Rally is traditionally defined as the S&P 500’s tendency to rally during the last five trading days of December and the first two of January, with an average gain of 1.3% since 1950, as per the analysis of Stock Trader’s Almanac.

This indicator, discovered by Yale Hirsch and first published in the Almanac in 1973, is not unfolding as expected this year.

“The lack of a rally can be a preliminary indicator of tough times to come.”

Instances of a decline in the Santa Claus Rally have been notable precursors to significant market downturns.

The 4.0% decline in 2000 preceded the bursting of the tech bubble, while a 2.5% loss in 2008 foreshadowed the second worst bear market in history. Analysts also flagged flat years in 1994, 2005, and 2015 after a failed Santa Claus Rally, along with a mild bear market that concluded in February 2016.

Examining the 15 down SCRs since 1950 reveals a mixed outcome, with 10 up years and 5 down years, but the average gain is modest at 5.0%.

This historical pattern aligns with the cautionary saying from Yale Hirsch, stating, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

“If these seasonal indicators are negative and the market does not rally as it normally does during this time, we will likely shift to a less bullish posture – if not outright bearish,” the analysts concluded.

© Reuters.

Investing.com — U.S. stock futures edged up on Thursday, after a negative start to 2024 for equities on Wall Street carried over into a second straight session. Markets were little surprised by minutes from the Federal Reserve’s latest meeting, which dampened already ebbing hopes that the central bank would begin to cut interest early this year. Elsewhere, a U.S. labor agency accuses rocket company SpaceX of unlawfully dismissing workers who raised concerns over social media statements made by founder Elon Musk.

1. Futures inch higher

U.S. stock futures pointed into the green on Thursday, with investors looking ahead to fresh labor market data this week and digesting minutes from the Federal Reserve’s latest policy meeting.

By 04:57 ET (09:57 GMT), the Dow futures contract had added 37 points or 0.1%, S&P 500 futures had climbed by 5 points or 0.1%, and Nasdaq 100 futures had risen by 31 points or 0.2%.

The main averages on Wall Street all closed lower in the prior session, as a dismal start to the new year for equities extended into a second day. The benchmark S&P 500 and 30-stock Dow Jones Industrial Average both slipped by 0.8%, while the tech-heavy Nasdaq Composite dropped by 1.2% — its fourth straight negative session.

Stocks are coming off a solid 2023 performance, including a late-year rally that was driven in part by hopes that signs of easing inflation in the U.S. may persuade the Fed to soon begin stepping away from an aggressive series of rate hikes. The central bank’s December meeting, at which officials at the central bank unveiled a more dovish outlook than previous projections, helped feed this enthusiasm.

2. Fed minutes appear to temper early rate cut enthusiasm

Minutes from the Fed’s gathering last month has seemingly poured cold water on much of the optimism, although analysts noted that the release on Wednesday did not have a major impact on markets.

The account showed that while policymakers believed rates were “as likely at or near [their] peak,” there was still an “unusually elevated” amount of uncertainty lingering around the U.S. economy heading into 2024.

Officials at the rate-setting Federal Open Market Committee (FOMC) also suggested that more evidence would likely be necessary to confirm that inflation was sustainably moving down towards their stated 2% target. Quelling sticky price pressures has been the central focus of a long-standing tightening cycle by the Fed that has pushed borrowing costs up to more than two-decade highs.

“[T]here is a broad consensus that inflation will decline, but also that the FOMC will keep rates high in case of more persistent price pressures,” analysts at ING said in a note.

On Thursday, monthly private payrolls data may provide fresh insight into the U.S. jobs picture, which the Fed has identified as a possible fuel source for inflation. The figures will serve as a precursor to the publication of the all-important December non-farm payrolls report on Friday.

3. SpaceX illegally fired workers critical of Musk, U.S. labor agency says

SpaceX illegally fired eight workers for distributing a letter calling founder Elon Musk a “frequent source of distraction and embarrassment,” according to a complaint issued by a U.S. labor agency.

A regional official with the National Labor Relations Board said that the rocket and satellite company violated federal labor law protecting employees’ rights to call for better working conditions.

The letter, which was sent to SpaceX executives in 2022, argued that a series of tweets by Musk did not align with the firm’s diversity and workplace misconduct policies. They also encouraged SpaceX to speak out against the social media posts.

The employees were subsequently interrogated over the letter, the complaint claimed, while other workers were threatened with dismissals if they voiced similar concerns. The NLRB, which is tasked with protecting collective bargaining rights, said it would seek a settlement prior to a scheduled court hearing on March 5.

SpaceX did not immediately respond to a request for comment from Reuters, the news agency reported.

4. Fitch downgrades four Chinese national asset managers

Fitch said on Thursday it had downgraded the issuer default ratings (IDRs) of four Chinese national asset management companies and flagged more potential downgrades on expectations of weaker government support and headwinds from a property market slump.

The ratings agency lowered the IDRs of China Cinda Asset Management and China Orient Asset Management to ‘A-’ from ‘A’, and the ratings of China Huarong Asset Management and China Great Wall Asset Management were cut to ‘BBB’ from ‘BBB+’.

Fitch also left China Cinda’s outlook at ‘stable’, while the other three asset managers were placed on Rating Watch Negative, a move that potentially heralds a further downgrade to their IDRs. The ratings agency said it was awaiting financial results for end-2023 to gauge whether there was any further deterioration.

Fitch noted that the downgrade was driven by increased uncertainty over possible government support for China’s major national asset managers, along with a change in the criteria under which it viewed their standalone credit profiles.

5. Oil rises amid Middle East supply worries

Oil prices rose Thursday, adding to the previous session’s sharp gains on continued concerns over supply from the Middle East.

By 09:58 ET, the U.S. crude futures traded 1.0% higher at $73.44 per barrel, while the Brent contract climbed 0.8% to $78.85 a barrel.

Both contracts surged around 3% on Wednesday after protests over high fuel prices caused Libya’s El Sahara oil field to halt production, with the field producing about 300,000 barrels per day. The news came as worries persist over Yemen’s Iran-backed Houthis targeting shipping in the Red Sea.

The market was also supported by data from the American Petroleum Institute, which showed that U.S. crude stocks fell by a bigger-than-expected 7.4 million barrels last week. Official numbers from the Energy Information Administration are due later Thursday.

© Reuters

Investing.com — U.S. private employers added far more roles than expected in December, pointing to lingering resilience in the labor market that may impact how Federal Reserve policymakers approach potential interest rate reductions this year.

Private payrolls came in at 164,000 last month, rising from a downwardly revised mark of 101,000 in November, according to data from payrolls processor ADP. Economists had predicted a reading of 115,000.

The leisure and hospitality industries led the gains in private sector roles, ADP noted. Hiring at construction businesses also “held strong” despite headwinds from elevated borrowing costs, offsetting losses in the manufacturing sector.

Pay growth, meanwhile, eased to 5.4% from a rate of 5.6% a month earlier, extending a deceleration that started in September 2022.

“We’re returning to a labor market that’s very much aligned with pre-pandemic hiring,” said ADP Chief Economist Nela Richardson in a statement. “While wages didn’t drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared.”

On Wednesday, separate date from the Labor Department showed that the number of people quitting their jobs fell to its lowest level since 2021 in November. A slowdown in job-hopping could help defuse wage growth, which in turn may contribute to easing price pressures. U.S. job openings also dropped to an almost three-year low.

The ADP numbers serve as a precursor to the all-important non-farm payrolls report due out on Friday, which could offer further insight into the U.S. jobs picture. Cooling labor demand has been a key focus for the Fed, with officials arguing that such a trend may alleviate some upward pressure on inflation.

Markets have been on the lookout for signs of slackening price gains in the U.S., which may persuade the Fed to soon begin stepping away from an aggressive series of rate hikes. The Fed’s December meeting, at which the central bank unveiled a more dovish outlook than previous projections, fed this optimism late last year.

But minutes from the gathering seemingly poured cold water on the notion. The account showed that while policymakers believed rates were “as likely at or near [their] peak,” there was still an “unusually elevated” amount of uncertainty lingering around the U.S. economy heading into 2024. Rate-setters also suggested that more evidence would likely be necessary to confirm that inflation was sustainably moving down towards their stated 2% target.