Stocks Extend Nearly Month-Long Rally

For the week ending 22 November 2023

As of midday Wednesday, global equities were higher on the week. The yield on the 10-year US Treasury note continued to decline, falling to 4.39% from 4.46% last Friday. The price of a barrel of West Texas Intermediate crude oil was little changed at $74.70 while volatility, as measured by the Cboe Volatility Index (VIX), inched down to 12.95 from 13.8.

MACRO NEWS

FOMC minutes show Fed will move cautiously

Minutes of the 1 November meeting of the Federal Open Market Committee show that the US Federal Reserve may not need to hike further (though a hike remains a possibility) but all the members of the FOMC agreed that rates will need to remain restrictive for some time and that they should proceed cautiously. Data arriving in coming months would help clarify the extent to which the disinflation process was progressing, the minutes showed. After the release, markets marginally lowered the odds of a rate cut in May, to about 60%.

Crypto CEO pleads guilty, steps down

Changpeng Zhao, the chief executive of Binance, the largest global cryptocurrency exchange, agreed on Tuesday to step down from his post and plead guilty to money laundering charges brought by the US Department of Justice. The firm agreed to pay fines totaling $4.3 billion but will be allowed to remain in operation. Binance remains under investigation by the Securities and Exchange Commission and may face additional charges.

Outsider wins in Argentina

Libertarian economist Javier Milei, a decidedly antiestablishment figure, won Argentina’s presidential election on Sunday by an 11-point margin over Finance Minister Sergio Massa. Amid 143% inflation and a 40% poverty rate, Milei ran on a platform of dollarizing the country’s economy, shutting down its central bank and privatizing as many state assets as possible. The president-elect, who describes himself as procapitalist and pro-West, said on Monday that he expects it will take between 18 months and two years to get inflation back under control. In the wake of Milei’s victory, local markets rallied strongly.

QUICK HITS

Israel and Hamas reached an agreement whereby 50 hostages held in Gaza will be released in exchange for a partial ceasefire and the release of 150 Palestinian prisoners held in Israeli jails. The exchange involves only women and children. A pause in fighting lasting at least four days was to begin on Thursday at 10 a.m. local time.

Demand for new credit in the United States has declined over the past year and will likely stay soft in the future, according to a survey released on Monday by the Federal Reserve Bank of New York. The regional Fed bank’s quarterly Survey of Consumer Expectations Credit Access shows there has been a notable drop in credit over the past year, with application rates at 41.2%, compared with 44.8% in 2022 and the prepandemic 2019 level of 45.8%.

According to the Financial Times, more than three-quarters of the foreign money that flowed into China’s stock market in the first seven months of the year has left, with global investors dumping more than $25 billion worth of shares despite Beijing’s efforts to restore confidence in the world’s second-largest economy.

US existing home sales fell 4.1% in October to a 3.79 million annual rate, a 13-year low. However, the median selling price climbed 3.4% from a year earlier to $391,800, the highest price for any October since 1999, when data were first compiled.

North Korea claims to have successfully launched a spy satellite into orbit on Tuesday despite a United Nations Security Council ban. The Security Council says the launches are a cover for secret missile testing. Japan vigorously protested the launch.

Shares of Chinese property developers rose on Tuesday after reports circulated that Chinese regulators have instructed state banks to accelerate lending to a select list of property developers to support the beleaguered domestic real estate market. However, bank support for the sector is encouraged but not mandatory.

Bank of England Governor Andrew Bailey said Monday that rates in the United Kingdom may need to rise again as food and energy remain major upside price risks.

The Conference Board’s US Leading Economic Index fell 0.8%, in October, to its lowest level since May 2020. That’s the 19^th consecutive monthly drop in the index, which has traditionally been a reliable recession indicator.

After a poor 30-year auction earlier in the month, markets were surprised when the much-maligned US 20-year Treasury bond found strong demand at auction on Monday, trading a basis point through its when-issued pricing by a basis point.

Canada’s inflation rate fell to 3.1% year over year in October from 3.8% in September.

Japan’s government downgraded its economic outlook for the first time in 10 months on Wednesday, noting weakening capital spending and consumer outlays.

OpenAI, the company behind ChatGPT, fired and then rehired its CEO, Sam Altman. The firing prompted hundreds of OpenAI employees to threaten to leave the firm if Altman was not rehired and the board of directors replaced. Altman returned to the helm late Tuesday, along with a new board.

US durable goods orders fell 5.4% in October. However, after stripping out transportation, orders were flat.

A meeting of the OPEC+ cartel schedule for the weekend has been delayed until next week amid disagreement among the delegates over production cuts. Oil prices weakened on the news.

The UK office of Budget Responsibility sees 2023 growth of 0.6%, an upward revision of its March forecast for a 0.2% decline. However, the 2024 growth forecast was cut to 0.7% from 1.8%. Inflation, which stands at 4.6% currently, is projected to fall to 2.8% at the end of 2024.

This week, a continued tech stock rally carried the Nasdaq 100 to a 22-month high.