U.S. Major Averages Advance Ahead of Inflation Reports and Fed Decision, Deflation Worries Grip China Stocks

Barry Adams
11 Dec, 2023
New York City

Stocks managed to advance after struggling to rise above the flatline in early trading on Wall Street, and investors awaited rate decisions and inflation reports later in the week.

The S&P 500 index and the Nasdaq Composite lacked direction in Monday's trading after both indexes advanced for the previous six consecutive weeks.

Merger Monday also lived up to its reputation, and three deals dominated market headlines.

Cigna abandoned its pursuit to acquire Humana; two private equity groups announced a deal to acquire the retailer Macy's; and Occidental Petroleum agreed to acquire the Permian Basin-based CastleRock energy producer.

Investors debated the future rate path and awaited the Fed's rate decision and inflation reports later in the week. 

Consumer price inflation in November is expected to match 3.2% rate in October, reflecting stable energy and food prices. 

The Federal Reserve is widely expected to hold the fed funds rate between 5.25% and 5.50% for the third time in a row, and investors are looking forward to the central bank's forecast on inflation and annual GDP growth.

Moreover, the European Central Bank and the Bank of England are also expected to leave their reference rates unchanged this week, and the Bank of Japan is expected to follow the trend next week.

Metals and mining stocks were under pressure after China's consumer prices fell 0.3% from a year ago in November and the producer price index declined 3% in the month.

The worries of deflation gripped trading in China, and the Hang Seng index rebounded from the 2% loss in Monday's trading to a decline of 0.8% at close, and the SSE Composite recovered from a loss of 0.7% to close up 0.8%.

Investors are worried that China's ongoing property market troubles are likely to linger for several years, and residential real estate prices are expected to fall between 10% and 30% before stabilizing in smaller cities.

On the earnings front, investors are looking ahead to earnings updates from Oracle on Monday, Adobe on Wednesday, and Costco Wholesale on Thursday.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.2% to 4,614.87, and the Nasdaq Composite increased 0.03% to 14,407.05.

The yield on 2-year Treasury notes increased to 4.76%, 10-year Treasury notes inched higher to 4.28%, and 30-year Treasury bonds increased to 4.36%.

Crude oil decreased $0.50 to $70.72 a barrel, and natural gas prices fell 20 cents to $2.37 a thermal unit.

Gold increased $8.84 to $1,994.55 an ounce after the U.S. economy added more than expected jobs in November, raising the prospect that the Federal Reserve is more likely to keep higher rates for longer to bring down inflation to the target rate of 2%.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged higher to 104.27.

 

U.S. Stock Movers

Cigna Group jumped 16% to $300.48 after the company announced its plan to repurchase $10 billion of its stock, and the company is still looking to sell its Medicare Advantage management business.

Cigna abandoned its plan to acquire Humana and return capital to shareholders after the two companies could not agree on price and deal terms.

The merger of the two would have created a company with a market value of more than $140 billion, but the merger deal also faced tall antitrust regulatory hurdles.

The news was first reported by the Wall Street Journal and independently verified by Ticker.com. 

Humana declined 1.8% to $473.06.

Macy's jumped 16.7% to $20.22 after the department store retailer received a buyout offer of $5.8 billion from Arkhouse Management and Brigade Capital Management.

Occidental Petroleum Corp. declined 0.8% to $56.0 after the company said it agreed to buy CrownRock for $12 billion.

The company said after the merger, free cash flow is expected to increase on a diluted share basis, including $1 billion in the first year based on the WTI crude oil price of $70 per barrel.

Occidental intends to finance the $12.0 billion purchase with the incurrence of $9.1 billion of new debt, the issuance of approximately $1.7 billion of common equity, and the assumption of CrownRock’s $1.2 billion of existing debt.

The deal will add approximately 170,000 barrels of oil equivalent per day and 1,700 undeveloped locations to Occidental's portfolio in the Permian Basin.

The transaction to acquire a Midland, Texas-based company is expected to close in the first quarter of 2024.

Occidental also announced its plan to increase its quarterly cash dividend by 4 cents to 22 cents in February 2024.

 

European Markets Edged Slightly Higher Ahead of Rate Decision 

Stocks lacked direction in trading across Europe, and investors awaited rate decisions from several central banks.

Market indexes rested after extending their gains for the third week in a row in the hopes that the European Central Bank is done raising rates for now.

The DAX index in Frankfurt touched a new high last week before edging lower in Friday's trading.

Moreover, stronger-than-expected U.S. job additions in November also raised hopes that the Federal Reserve will have more room to maneuver the economy to a soft landing while cooling inflation to its target rate of 2%.

Closer-to-home investors are awaiting interest rate decisions this week from the European Central Bank, the Bank of England, Norges Bank, and the Swiss National Bank.

The U.S. Federal Reserve, the ECB, the BoE, and the SNB are expected to leave rates unchanged.

Investors are looking forward to inflation, retail sales, and factory orders reports in the U.S., the Euro Area trade balance, and China’s industrial production, retail sales, and housing prices later in the week.

 

Europe Indexes and Yields

The DAX index increased 0.3% to 16,811.84, the CAC-40 index rose 0.4% to 7,553.69, and the FTSE 100 index fell 0.1% to 7,544.89.

In the previous week, the DAX index advanced 1.6%, the CAC-40 index gained 2.2%, and the FTSE 100 index gained 0.2%.

The yield on 10-year German bonds increased to 2.25%; French bonds traded higher to 2.81%; the UK gilts rose to 4.04%; and Italian bonds inched higher to 4.06%.

The euro traded lower to $1.076, the British pound inched lower to $1.255, and the U.S. dollar eased to 87.96 Swiss cents.

Brent crude decreased $0.15 to $75.66 a barrel, and the Dutch TTF natural gas increased by €2.50 to €36.10 per MWh.

 

Europe Stock Movers

Mining stocks traded mixed after China's consumer prices fell at the fastest pace in November and the U.S. dollar continued to drift lower against the euro and the pound.

Glencore declined 3.3% to 442.05 pence, Antofagasta increased 1.2% to 1,532.50 pence, and Anglo American gained 1.6% to 1,831.60 pence.

Encavis AG decreased 7.5% to €13.64 after the German renewable energy producer was downgraded to "underweight" from "equal-weight" by Morgan Stanley.

Schibsted ASA jumped 6.2% to €24.20 after the Norwegian company agreed to sell its news operations to Tinius Trust.

The total transaction value in the agreement is NOK 6.2 billion, consisting of NOK 5.4 billion for Schibsted’s News Media business area, Schibsted’s minority stakes in Norsk Telegrambyrå AS, Nyhetsbyrån AB, and Lokalavisene AS, and the stake in Polaris valued at NOK 0.8 billion based on the volume-weighted average price of Polaris the week prior to the agreement.

The company plans to use the proceeds of sales to return to shareholders.

Sandvik AB jumped 0.9% to kr213.0 after the company won an order worth 250 Swedish kronor from the Swedish mining company LKAB to supply automated loaders.

Domino's Pizza Group eased 0.1% to 393.20 pence after the pizza delivery company reiterated its fiscal year 2023 guidance.

Casino Guichard Perrachon SA increased 0.1% to €0.72 after the company said that Group Calleja has initiated the process in Colombia of acquiring the company's stake in Almacenes Exito S.A.

MorphoSys AG soared 9.2% to €27.06 after the German company announced positive results from a Phase III myelofibrosis trial.

Basilea Pharmaceutica AG added 5% to CHF 36.50 after the Swiss company's license partner Astellas Pharma received approval from the U.S. Food and Drug Administration to expand the use of the antifungal Cresemba (isavuconazole) in children with invasive aspergillosis and invasive mucormycosis.