MARKET WRAPS
Watch For:
ISM Report on Business Services PMI for November
Today's Top Headlines/Must Reads:
- Signs of a Weakening Job Market, in Five Charts
- China's Colossal Hidden-Debt Problem Is Coming to a Head
- Green Investors Were Crushed. Now It's Time to Make Money.
Opening Call:
Stock futures fell early on Tuesday as traders awaited the first of a slew of labor data that in coming days will likely set the tone into next week's Federal Reserve meeting.
"Markets have lost a little of their recent poise over the last 24 hours, " Deutsche Bank said.
"There hasn't been a specific catalyst for the softness, but the astonishing rally in November and long positioning has led to some skepticism about how much further it's able to run, at least until we get some more data that's soft-landing friendly."
Investors will be keen to see if jobs reports coming over the next few days can support that narrative.
Asian Markets
Hong Kong's Hang Seng index fell 1.9% and the Shanghai Composite lost 1.7%, both to their lowest in more than 12 months.
Moody's downgraded its outlook on China's debt and highlighted the difficulties facing the world's second biggest economy.
Premarket Movers
GitLab rose 16% ahead of the opening bell after the company's quarterly revenue trumped analyst forecasts.
Palantir Technologies slipped more than 1%, having dropped more than 9% on Monday. Late last week, William Blair analysts said that a four-year army contract that is about to expire will likely be less lucrative after it is renewed.
Take-Two Interactive Software released a trailer of "Grand Theft Auto VI" a day early, following a leak. Shares fell more than 3%.
Monday's Post-Close Movers
Joann logged a wider loss in the three months ended Oct. 28, as sales sank over 4%. The company's adjusted loss of 21 cents a share was in line with expectations. Shares fell 6.7%.
Travere Therapeutics will slash its workforce by about 20% and will dedicate resources to two ongoing programs, a treatment for a Berger's disease and classical HCU. The company said Monday that the move would extend its cash runway into 2028. Shares rose 7.3%.
Forex:
The dollar should recover this week as its recent correction lower looks to have gone too far, TD Securities said.
Positioning and short-term valuations are stretched, increasing the risk that the dollar rallies if Friday's nonfarm payrolls data are strong, it added.
It also upgraded its view on the dollar until year-end and now expects EUR/USD to finish the year at 1.08.
Bonds:
Big downward moves in bond yields aren't imminent but there is scope for lower yields further out, with higher volatility along the way, Hargreaves Lansdown said.
"Investors should not be put off by this outlook--we think this could be the most interesting entry point for bond investors in decades."
There is potential that investors could be rewarded either with income from higher-for-longer yields, or growth, as yields fall, Hargreaves said.
"Volatility is hard to stomach but can offer opportunities for good quality active fund managers to take advantage of price fluctuations."
Lazard Asset Management Germany said the earnings power of bonds has been restored in both the eurozone and the U.S. and clearly exceeds the dividend yield of a global equity portfolio, with calculable risk.
Bonds again fulfill criteria that a basic investment must meet in asset allocation, such as calculable and secure returns, continuous liquidity and serving to diversify with a low correlation to risky assets, it said.
"We are experiencing a renaissance of this asset class."
Energy:
Oil prices edged higher amid demand concerns, market skepticism following OPEC+ output cuts and tensions in the Middle East.
Prices declined on Monday after OPEC+'s voluntary curbs announcement left traders disappointed, raising questions over compliance and future supply policy.
Meanwhile, the Israel-Hamas conflict and a series of attacks in Middle-Eastern waters fueled supply concerns, and falling U.S. factory orders in October contributed to investor fears of a broader economic slowdown.
Capital Economics said crude prices should decline by the end of next year as a result of less constrained global supply and modest demand.
It assumes OPEC+ production will gradually rise starting from April, likely driving supply growth at a time of only moderate growth in demand.
"We think that the oil market will be in a slight deficit on average over most of 2024 but with a surplus in the final quarter."
Capital Economics forecasts Brent at $75 a barrel and WTI at $70 a barrel by the end of 2024, from previous expectations of $85 a barrel and $80 a barrel, respectively.
Metals:
Base metals were weaker on worries about the economy and demand for industrial goods, while gold edged up.
"The macroeconomic environment is on the bearish side of the ledger," Peak Trading Research said, citing weakness in crude oil and commodity currencies like the Australian dollar and Brazilian real.
Peak added that markets will be looking ahead to Friday's nonfarm payrolls figure in the and in turn how that affects Fed policy, though said it's unlikely the Fed will hike rates again.
TODAY'S TOP HEADLINES
Meta and IBM Launch AI Alliance
Meta Platforms and International Business Machines launched a coalition of more than 50 artificial intelligence companies and research institutions that are pushing a so-called open model of AI, hoping to gain traction in a fast-growing market.
The AI Alliance, whose members include Intel, Oracle, Cornell University and the National Science Foundation, said it is pooling resources to stand behind "open innovation and open science" in AI. Its members largely support open source, an approach in which technology is shared free and draws on a history of collaboration among Big Tech, academics and a fervent movement of independent programmers.
CVS Plans to Overhaul How Much Drugs Cost
CVS Health, the nation's largest drugstore chain, will move away from the complex formulas used to set the prices of the prescription drugs it sells, shifting to a simpler model that could upend how American pharmacies are paid.
Under the plan, CVS's roughly 9,500 retail pharmacies will get reimbursed by pharmacy-benefit managers and other payers based on the amount that CVS paid for the drugs, in addition to a limited markup and a flat fee to cover the services involved in handling and dispensing the prescriptions. Today, pharmacies are generally paid using complex measures that aren't directly based on what they spent to purchase specific drugs.
'The pivot is in.' Key ECB official doesn't rule out interest-rate cuts next year
Isabel Schnabel, a European Central Bank board member, declined to rule out interest-rate cuts next year in an interview published Tuesday.
Her remarks helped to further cement market odds the ECB will cut rates next year, to 69% in March and 90% in April.
Short Sellers Are More Bearish Than They've Been in Two Decades
Short sellers recently turned more bearish than they have been since the bursting of the dot-com bubble more than 20 years ago. That bodes ill for the stock market's prospects over the coming year.
Contrarians will disagree with this assessment, since they believe it's bullish when bearish sentiment reaches extreme levels. But the contrarians are wrong, at least when it comes to what aggregate shorting means for the overall market, according to Matthew Ringgenberg, a finance professor at the University of Utah.
Israel, Hamas Engage in Some of Fiercest Fighting of War
TEL AVIV-Israel and Hamas are locked in some of their fiercest fighting of the two-month-old war, including at close quarters, as Israel launched its offensive in the south while trying to finish its operations in and around Gaza City.
The Israeli military has essentially cornered Hamas fighters in two of their last strongholds in the northern Gaza Strip-the Shajaiya neighborhood of Gaza City and the city of Jabalia, immediately to the north.
Write to ina.kreutz@wsj.com
TODAY IN CANADA
Earnings:
D2L 3Q
Descartes Syss Grp 3Q
Economic Calendar (ET):
0815 Nov Official International Reserves
0930 Nov Services PMI
Stocks to Watch:
Atlas Lithium Achieves Fully Funded Status With First Production Expected in 2024
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Buhler Industries: Still Working With Origin Merchant Partners to Identify Long-Term Investment Partner; Lenders Extend Maturity Date of Credit Facilities to Dec. 8 From Dec. 4
Expected Major Events for Tuesday
00:01/UK: Nov BRC-KPMG Retail Sales Monitor
00:30/JPN: Nov Japan Services PMI
06:00/RUS: Nov Russian Services PMI
07:45/FRA: Oct Industrial production index
08:45/ITA: Nov Italy Services PMI
08:50/FRA: Nov France Services PMI
08:55/GER: Nov Germany Services PMI
09:00/UK: Nov UK monthly car registrations figures
09:30/UK: Nov S&P Global / CIPS UK Services PMI
09:30/UK: Nov UK Official Reserves
11:00/FRA: Oct OECD CPI
13:15/CAN: Nov Official International Reserves
13:55/US: 12/02 Johnson Redbook Retail Sales Index
14:30/CAN: Nov Canada Services PMI
14:45/US: Nov US Services PMI
15:00/US: Oct Job Openings & Labor Turnover Survey
15:00/US: Nov ISM Report On Business Services PMI
15:00/US: Dec RCM/TIPP Economic Optimism Index
16:00/US: Nov Global Services PMI
21:30/US: 12/01 API Weekly Statistical Bulletin
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Tuesday
AeroVironment Inc (AVAV) is expected to report $0.59 for 2Q.
America's Car-Mart (CRMT) is expected to report $0.79 for 2Q.
Asana Inc (ASAN) is expected to report for 3Q.
AutoZone Inc (AZO) is expected to report $31.64 for 1Q.
Axcella Health Inc (AXLA) is expected to report for 3Q.
Box Inc (BOX) is expected to report $0.05 for 3Q.
Broadway Financial Corp (BYFC) is expected to report for 3Q.
(MORE TO FOLLOW) Dow Jones Newswires
12-05-23 0613ET
