Financial Markets (Just2Trade)
US tech sell-off spills over
Major stock indices turned south on Friday, November 21, tracking Wall Street, where fears about an AI bubble
took hold, and stronger-than-expected US job growth bolstered expectations that the Federal Reserve will abstain from easing
policy in December.
US trading looked dramatic on Thursday. Kicking off sharply higher when the Dow Jones
Industrial Average and the Nasdaq Composite Index gained 1.3% and over 2%, respectively, equities reversed course to end the
trading session deep in the red. By the close, the DJIA shed 0.8%, the S&P 500 tumbled 1.5%, and the Nasdaq decreased
2.1% amid concerns about An AI bubble and conflicting labor market data.
US NFPs, the first major release
after the government shutdown, came in stronger than expected. September saw 119,000 jobs added, matching a downwardly revised
drop of 4,000 in August and beating the forecast of 50,000. The unemployment rate rose to 4.4%, the highest since October
2021, topping the 4.3% consensus, while wages grew 3.8%, slightly above expectations.
Unemployment
data were last available before the Fed’s December meeting, as the BLS said on Wednesday that the October jobs report
will not include the unemployment rate due to the lack of data collected during the government shutdown. The report cemented
expectations for the Federal Reserve to leave the federal funds rate unchanged next month, with the odds of a 25-bp cut remaining
below 40%.
Both the rally and the pullback were driven mainly by the performance of tech names following Nvidia’s
quarterly earnings and guidance. The graphics processor developer boosted adjusted earnings by 70% to USD 1.30 in fiscal Q3,
with revenue up 60% to USD 31.91 bn, with the latter again setting a record. According to Nvidia’s forecast, revenue
in the current fiscal quarter is projected around USD 65 bn, above the median consensus calling for USD 61.66 bn.
Nvidia’s better-than-expected results and upbeat guidance initially dispelled fears about overblown AI impact
valuations, driving the company itself, as well as its partners and rivals in the AI sector. However, sentiment flipped amid
doubts that a USD 100 bn deal with OpenAI will actually get off the ground. In its 10-Q filing, the company stated that there
is no assurance that the company will enter into definitive agreements with respect to the OpenAI opportunity or other potential
investments, or that any contemplated investment will be consummated on the terms expected.
Notably, this
is a formal clause in the risks section. However, Nvidia pulled back 3.1%, followed by Nebius (-10.9%), CoreWeave (-7.6%),
Super Micro Computer (-6.4%), Broadcom (-2.1%), Amkor (-3.9%), AMD (-7.8%), Cisco (-3.7%), Applied Materials (-6.3%), Oracle
(-6.5%), Intel (-4.2%), Microsoft (-1.7%), Tesla (-2.1%). Apple closed 0.8% in the red.
Cybersecurity
specialist Palo Alto Networks reported adjusted EPS of USD 0.93 in fiscal Q1, beating expectations, but issued guidance that
missed analyst estimates. In the upshot, the stock plunged 7.4%.
In individual stock movers, retail king
Walmart posted Q3 results that topped expectations. EPS came to USD 0.62, while revenue totaled USD 179.5 bn. The stock jumped
6.4%, topping the S&P 500 leaderboard. In addition, 2%+ gains were seen in Regeneron Pharma (+4.8%), GE HealthCare (+3.3%),
Solventum (+2.8%), Erie Indemnity (+2.8%), Brown Forman (+2.3%) and FactSet Research (+2.2%).
As of 9:00
GMT, S&P 500 futures were fractionally lower, the 10-year UST yield narrowed 3.2 bps to 4.073%, January Brent was down
1.8% at USD 62.23/bbl, and December gold was 0.9% lower at 4,025.40/oz.
Negative sentiment held sway across
Asia, with Australia’s ASX shedding 1.5%, India’s BSE Sensex easing 0.3%, South Korea’s KOSPI sinking 3.7%,
Japan’s Nikkei 225 dropping 2.3%, Hong Kong’s Hang Seng slipping 2.5%, and China’s CSI 300 giving up 2.4%.
In Hong Kong, nearly all Hang Seng components ended in the red. Heavy losses (over 5%) were seen in JD Health
(-8.1%), Link Real Estate (-7.3%), Xinyi Solar (-7.2%), SMIC (-5.7%), Baidu (-5.7%) and Sands China (-5.6%). The sole outperformers
were Longfor Properties (+1.6%), China Telecom (+0.6%), Xiaomi (+0.4%), CK Infrastructure (+0.1%) and CK Hutchison (+0.1%).
European benchmarks opened on a mixed note today, with the Stoxx Europe 600 shedding about 0.7% during the first
hour of trading. Early laggards included UK-based Tullow Oil (-30.9%), France’s Casino Guichard Perrachon (-7.1%), Switzerland’s
Osram (-6.4%), and Germany’s Adler (-5.5%). The frontrunners included Germany’s CTS Eventim (+6.2%), Belgium’s
Etablissementen Franz Colruyt (+3.5%), Britain’s Hammerson (+2.2%), and Belgium’s Royal Unibrew (+2.0%).
Technical analysis
S&P 500
The
S&P 500 broke out of a widening pattern to the downside. The last candlestick formed a bearish engulfing pattern, confirming
the market is bracing for a correction or at least a consolidation within a horizontal channel. Should the downtrend gain
momentum, the next support level could be 6,150.
Euro STOXX 600
The index broke out of an ascending channel to the downside. A sharp correction could bring it down to
530 where long-term strong support lies. The formation of a sideways trend is still likely.
CSI 300
The CSI 300 broke
out of an uptrend to halt around 4,450. At this point, the index still stands a chance of rebounding. Otherwise, the next
support level is much lower, around 4,200.
Commodities: oil extends downturn
Oil trends lower amid unsupportive news flow
Brent futures dipped 0.8% yesterday
and were last trading down by another 1% on Friday, November 21, or roughly 2% below Monday’s open. Crude prices have
taken a beating in recent days amid media reports that the Trump administration is working in consultation with Russia to
draft a new plan to end the war in Ukraine.
Based on reported leaks, the two warring sides still remain
far apart, making a peace agreement look highly unlikely at this stage. Going forward, the oil market faces two plausible
scenarios: a rebound as traders reassess risks if no progress is made in peace talks, or a pullback toward USD 60/bbl if some
form of an agreement is signed under pressure from the US.
In an industry-specific data point, the
Drewry World Container Index stood at USD 1,852 per 40-foot container in the week ended November 20. Interestingly, the index
rose in October through early November before steadying around the current level, although attacks on cargo ships have picked
up in recent weeks.
Meanwhile, the Baltic Dry Index continues to climb and
is currently testing local highs around 2,260 points. Experts point out that the average daily earnings for Capesize vessels
increased by USD 988 to USD 26,968.
In other news, South Sudan announced the resumption of oil supplies, with Bloomberg
quoting the country’s Petroleum Ministry undersecretary saying that “operations in all oil fields have returned
to a normal export.” Oil companies operating in South Sudan shuttered production earlier this week after attacks on
energy facilities in neighboring Sudan disrupted activity.
Technically, the Brent curve has been little
changed as the bulls are struggling to retake control and muster a reversal. The price action is currently in retreat toward
support between USD 62.3/bbl and USD 62.7/bbl, with either a breakdown or a rebound in the cards.
Gold steadies following official NFPs
Bullion barely budged yesterday, still trading above USD 4,000/oz but failing to retest the recent local
high at USD 4,245.2/oz.
Fundamentally, yesterday’s spotlight was on US labor market data for September
– the first official report after the federal government reopened. In a nutshell, the US economy added 119,000 nonfarm
payrolls on the month, while the unemployment rate ticked up to 4.4% from August’s 4.3%. The Department of Labor said
the October report, due out on December 16, will include only establishment surveys because household survey data was not
collected.
In the FX market, the DXY index retested its recent local high. As noted in yesterday’s
overview, the dollar has retraced to an upward trajectory, exerting downward pressure on the yellow metal.
Today’s US macro data agenda includes preliminary estimates for the S&P monthly manufacturing and services
PMIs.
As regards recent forecast revisions, commodity analysts at UBS lifted their gold price
target to USD 4,900/oz for Q2 2026, saying that they “expect gold demand to rise further in 2026, influenced by anticipated
Fed rate cuts, lower real yields, continued geopolitical uncertainties, and changes in the domestic US policy environment.”
From the TA standpoint, the 4-hour gold chart looks virtually unchanged. The price action is consolidating
a tad below USD 4,050/oz, which impthat the support range has formed between that bound and USD 4,020/oz.
DXY gains 0.8% WTD
The DXY index hovered around 100.1 on Friday
morning, although it has so far failed to breach resistance near 100.3, and then retreated. Against this backdrop, the EUR/USD
pair lapsed into consolidation near the 1.154 mark this morning, down 0.6% WTD. The British currency managed to halt its decline
against the dollar over the past 24 hours, rebounding slightly to 1.309 by the end of the week. A similar trend has been seen
in the Japanese yen lately. This morning, the USD/JPY pair firmed 0.3% to 156.85. The Chinese yuan also snapped its descent
vs. the greenback on Thursday, and this morning USD/CNY was lingering near 7.113.
The dollar experienced
a slight correction yesterday after mixed US labor market data came out.
In September, the US unemployment
rate ticked up to 4.4% from 4.3% in August, exceeding market expectations of 4.3% and marking the highest level since October
2021. The number of unemployed grew by 219,000 to 7.60 mn, while the number of employed people increased by 251,000 to 163.64
mn. The labor force expanded by 470,000 to 171.24 mn, pushing up the labor force participation rate by 0.1% to 62.4%.
The Bureau of Labor Statistics (BLS) said on Wednesday that the October jobs report will not include the unemployment
rate as no data was collected during the government shutdown. These unemployment data will therefore be the last available
batch before the Fed’s December meeting. The BLS noted that household survey data cannot be reconstructed or collected
retroactively.
News broke yesterday that September NFPs jumped 119,000, marking a rebound from a revised
decrease of 4,000 in August and surpassing market forecasts of 50,000. This was the steepest increase in five months, driven
by growth in healthcare and food services, as well as social assistance. Full October NFPs will be released only on December
16, i.e. after the Fed’s December 10 meeting.
As for the current US labor market information, initial
jobless claims amounted to 220,000 last week, below the 227,000 consensus. Meanwhile, continuing claims reached 1.97 mn, the
highest since 2021.
An ambiguous picture shaped up given initial and continuing claims. It points to different
aspects of the situation: initial claims suggest steady job growth or a slowdown in layoffs, while the rise in continuing
claims flags an increase in those facing difficulties in job search amid deteriorating quality of new vacancies, weaker demand
for workers or structural changes in the labor market due to automation and AI adoption. As a matter of fact, this signals
that the US economy is in an early slowdown phase, where aggressive layoffs are not yet recorded, but new jobs are created
less often, so laid-off people remain out of work longer. As a result, more Fed rate cuts may be necessary further down the
road.
Equity market media reported that Thursday’s data strengthened the view that the Fed will likely
refrain from cutting the federal funds rate in December. Meanwhile, in our view, mixed US labor market data and the rise in
the unemployment rate bolstered expectations that the Fed’s easing policy could continue. The probability of a rate
cut has at least increased, according to the CME Group tool, and, as a result, UST yields narrowed yesterday, dragging down
the greenback.
Vague US labor market data released on Thursday led to a local correction in the dollar
index. It cannot be ruled out that a technical factor played a role, since on Thursday afternoon the DXY approached 100.3,
a strong one-month resistance level, and since it failed to breach that level, the dollar bulls will likely be back in the
game going forward.
In Europe, Germany’s PPI declined 1.8% y-o-y in October vs. a projected 1.9%
y-o-y contraction after falling 1.7% in the previous month. Producer deflation in Germany has persisted for eight straight
months. These PPI figures pointed to weak demand or falling costs due to stagnant commodity and energy prices. Weaker PPI
readings ease inflationary pressure on the CPI, thus limiting inflation risks and solidifying arguments for the ECB to hold
rates steady.
In Asia, the Japanese yen strengthened slightly today, with the USD/JPY pair coming
0.4% off its 10-month high of 157.9. The yen found some support as Japanese officials ratcheted up their rhetoric to halt
yen losses. Finance Minister Satsuki Katayama said intervention is one way to tackle excessive volatility and speculative
moves. As in the past, the Ministry of Finance and the BoJ could step in if the dollar exceeds the JPY 159-160 threshold.
Last time Tokyo spent JPY 5.53 tn (USD 37 bn) on FX interventions in July 2024. This amount was enough to push USD/JPY down
11.5% over two weeks. Japan’s annual inflation rate inched up to 3.0% in October from 2.9% in September, the highest
since July, boosting the odds of a BoJ rate hike.
On Thursday, the dollar gauge again failed to overcome
strong resistance near 100.3. A breakout would open the door to more upside around the next resistance level near 102.0. The
DXY is backed by the next sloped support near 99.5.
Home Depot Cuts Outlook as Home Improvements Slow Down
Home Depot reported
lower third-quarter profit and trimmed its full-year outlook as an extended downturn in home-improvement activity shows little
sign of ending.
Broad economic uncertainty, high interest rates and a stagnant housing market are causing
homeowners to delay remodeling projects and cut their spending on kitchen upgrades, bath remodels and roof replacements.
“Our customers tell us that they remain on the sidelines due to uncertainty and perhaps the hesitation to
make larger financial commitments amid an uncertain economic environment,” Chief Financial Officer Richard McPhail said.
For the third quarter, Home Depot’s comparable sales rose 0.2%, missing analysts’ forecast of 1.3%,
according to FactSet.
The company lowered its full-year comparable sales growth outlook to be slightly positive,
down from its previous forecast of up 1%.
It also cut its adjusted earnings-per-share guidance to be
down 5% from the previous year. It had previously expected adjusted earnings per share to be down 2%.
Chief Executive
Ted Decker said on the company’s earnings call that drivers of home-improvement demand, including home-price appreciation,
household formation and housing turnover, are all under pressure currently.
Home Depot has said that an aging
housing stock and a surge in home-equity values in recent years will eventually lead to a turnaround in home-improvement demand.
But so far, the market has shown few signs of picking up even as mortgage rates have crept lower. According to Placer.ai,
foot traffic at Home Depot in the third quarter slipped 0.4% from the previous year.
The company has raised
prices in some categories to help offset tariffs, but McPhail said those price increases weren’t hurting demand.
“Tariff costs are flowing through our business and, as expected, there’s been modest price movement
in some of our categories, but it hasn’t been broad-based,” McPhail said, adding that customers were continuing
to trade up.
Home Depot has been able to offset weakened home-improvement demand by expanding its business targeting
professional builders and contractors. The company has grown its offerings of bulk supply, custom orders and support services
to gain share of the professional market, including through acquisitions of building suppliers.
“While
we think that the market for those larger projects that are typically completed by a professional contractor is significantly
pressured, we feel great about our momentum with the pro customer,” McPhail said.
For the third
quarter, the home-improvement retailer reported net income of $3.6 billion, or $3.62 a share, down from $3.65 billion, or
$3.67 a share, the year prior.
Adjusted earnings were $3.74 a share. Analysts had expected $3.84 a share, according
to FactSet.
Sales rose 2.8% to $41.35 billion. Wall Street had expected $41.15 billion.
The company
added that lack of storms weighed on its sales for roofing, power generation and plywood compared with the previous year,
during which multiple strong fall storms led to greater home preparation and repair activity.
Source: The Wall Street Journal
