Futures, Oil Rise In Thin Post-Holiday Trading

The Santa rally grinds on, with US equity futures edging modestly higher in very thin volumes while interest yields were flat as trading resumed after the Christmas holiday amid growing expectations for earlier and deep interest rate cuts next year which supposedly will prevent a recession from materializing. As of 8:00am, S&P futures rose 0.1% while Nasdaq 100 futs gained 0.2%. Most European markets are closed, while Asian stocks are mixed in a thin trading session with markets including Hong Kong, New Zealand and Australia also shut. The dollar was little changed while bitcoin slumped during its now traditional Asian session meltdown.

A flurry of deal news around the holiday lifted shares of some US-listed companies, including English football club Manchester United, which rose 3.9% - trimming an earlier double-digit gain - after Jim Ratcliffe agreed to buy a 25% stake in the club, valuing it at about $5.4 billion.  Elsewhere in deal news, Hollysys Automation Technologies Ltd. climbed 6.6% in the US after a group led by Dazheng Group made an improved offer to acquire the company for $1.8 billion, seeking to thwart its sale to private equity firm Ascendent Capital Partners. And 3D printer maker Stratasys Ltd. jumped 11% after confirming it received unsolicited cash offer from Nano Dimensions Ltd. that values the company at $1.1 billion. Here are some other notable premarket movers:

• Gracell Biotechnologies ADRs climb 58% after the China-based developer of cell therapies said it’s to be acquired by AstraZeneca for $2 per ordinary share in cash plus non-tradable contingent value right, according to a statement.
• US-listed shares of Bilibili rise 2.1% while NetEase gains 2.5%, after China approved 105 domestic online games, according to a statement from the National Press and Publication Administration.
• ZIM Integrated Shipping (ZIM) falls 7.2% after Maersk said it’s preparing to resume shipping through the Red Sea, thanks to a new multinational maritime task force to protect vessels from attacks by Houthi rebels from Yemen.

Some on Wall Street are positioning for further stock gains ahead as the session kicked off the start of the “Santa Claus rally” — a seasonal trend where equities tend to climb into the first few days of the new year. The S&P 500 notched an eight-week winning run on Friday — the longest in more than five years on signs price pressures in the US were easing. The Nasdaq is up over 50%, its best year since...1999.

"As for emerging markets in Asia, ‘silent night’ says much, given that there isn’t particularly inspired trading, with Wall Street equivocating ahead of Christmas,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “It looks like a case of averting the China drag and hanging on to earlier Santa rallies being the best case for Boxing day - boxing in risks.”

Global markets have been buoyed in recent months as traders bet major central banks including the Federal Reserve will aggressively cut interest rates next year as inflation falls. Bond yields have tumbled while the S&P 500 is nearing a fresh record.

Data released last week showed signs of resilience in US growth while the Fed’s preferred underlying inflation metric barely rose in November. Additional reports Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track despite a bumpy housing market recovery. That helped cement investor expectations for earlier and deeper interest rate cuts next year, despite pushback from several Fed policymakers. Swaps traders are betting interest rates will be eased by more than 150 basis points in 2024, double the Fed’s forecast.

European markets were closed for the Christmas holiday while stocks in Asia were mixed in a thin trading session with markets including Hong Kong, New Zealand and Australia also shut. European markets were closed too. Stocks fell in mainland China, with the benchmark CSI 300 Index dropping for the first time in four sessions, as investor sentiment remains weak even after the authorities softened their stance following a move last week to tighten curbs on the videogame industry.

Japan’s auction of two-year sovereign debt saw tepid investor appetite, sending a gauge of demand to the weakest in a year, amid speculation the central bank will end negative interest rates in 2024. Its labor market remained relatively tight in November, keeping pressure on employers to boost wages in order to fill positions.

The benchmark Topix index traded in a tight range, finishing the day up less than 0.1%, after Bank of Japan Governor Kazuo Ueda’s speech on Monday that suggested he’s in no hurry to end the ultra-easy monetary policy.

“With the Nikkei 225 at high levels, year-end selling to lock in profits and losses is likely to weigh on the upside,” says Hideyuki Ishiguro, senior strategist at Nomura Asset Management.

In FX, the Bloomberg Dollar Spot Index dropped 0.1% in thin trading. The EUR/USD rises to hold above 1.10 while GBP/USD fluctuates around 1.27. USD/JPY consolidates above 142.  Emerging Asian currencies rose, with South Korea’s won and Taiwan dollar leading gains against a dollar that fell to its lowest level in almost five months.  The dollar is likely to remain “under pressure” this week amid a lack of major economic data, according to Win Thin, global head of currency strategy at Brown Brothers Harriman. “Early January will bring a slew of key economic data that calls the pivot into question."  Elsewhere, the Singapore dollar was little changed after core inflation edged lower in November, giving the central bank room to extend its monetary-policy pause next month to support the economy.

In rates, treasuries are mixed in early US trading with many European bond markets closed. Treasury 2-year yields rise 1bp to 4.33% while 10-year yield reversed an earlier drop of 2bps to trade unchanged at 3.90%. Yields remain within about 2bp of Friday’s closing levels on first day of holiday-shortened week, with 10-year at 3.89%; it reached 3.827% last week, lowest since July, following downward revision to 3Q GDP. The yield curve is flatter as short end cheapens ahead of $57b 2-year note auction at 1pm New York time. The When Issued 2-year yield of 4.29% is lower than 2-year auction results since April and more than 50bp lower than November’s sale following past month’s collapse in yields unleashed by signals from Fed that no further rate hikes likely.

In commodities, iron ore futures hit $140 a ton, highest in 18 months as traders keep a close eye on China’s steel outlook for the next year. Oil rose again after posting the largest weekly gain in more than two months, with shipping disruptions in the Red Sea in focus after a spate of Houthi attacks against vessels in the vital waterway.

Geopolitical tensions still remain front of investors minds into the new year as tensions in the Middle East look set to increase. Iranian President Ebrahim Raisi said Israel will pay a price for killing a senior commander of its Revolutionary Guard in air strike in Damascus on Monday. The US accused Iran at the weekend of an attack on a tanker in the Indian Ocean.

On the US calendar today, we get data including November Chicago Fed National Activity Index and December Philadelphia Fed Non-Manufacturing Activity (8:30am), October FHFA House Price Index and S&P CoreLogic CS home price gauges (9am) and December Dallas Fed Manufacturing Activity (10:30am). No Fed speakers are scheduled for remainder of year

Market Snapshot

• S&P 500 futures up 0.1% to 4,812.00
• MXAP up 0.3% to 165.27
• MXAPJ up 0.4% to 515.04
• Nikkei up 0.2% to 33,305.85
• Topix little changed at 2,338.86
• Shanghai Composite down 0.7% to 2,898.88
• Sensex up 0.2% to 71,272.82
• Kospi up 0.1% to 2,602.59
• Brent Futures little changed at $79.04/bbl
• Gold spot up 0.4% to $2,061.82
• U.S. Dollar Index little changed at 101.75
• Euro little changed at $1.1012
• Brent Futures little changed at $79.04/bbl

Top Overnight News

• Japan’s auction of two-year sovereign debt saw tepid investor appetite, sending a gauge of demand to the weakest in a year, amid speculation the central bank will end negative interest rates in 2024.
• Japan’s labor market remained relatively tight in November, keeping pressure on employers to boost pay in order to fill positions as companies prepare to engage in annual wage negotiations with unions.
• Israeli Prime Minister Benjamin Netanyahu outlined three prerequisites to achieving peace in its war with Hamas: the destruction of the group, the demilitarization of Gaza and for Palestinian society to be “deradicalized.”
• Iron ore rallied to its highest since June 2022, showing Beijing’s efforts to stem the property market’s decline in recent months may be paying dividends.
• Gold ticked higher as the final week of the year got under way, with traders looking ahead to interest rate cuts from the Federal Reserve in 2024 and a weaker US currency.
• An abrupt surge in foreign buying of Chinese bonds has raised hopes that pessimism about the nation’s assets may be overdone. But it may be too early to celebrate.

US Event Calendar

• 08:30: Dec. Philadelphia Fed Non-Manufactu, prior -11.0
• 08:30: Nov. Chicago Fed Nat Activity Index, prior -0.49
• 09:00: Oct. S&P/Case-Shiller US HPI YoY, prior 3.93%
• 09:00: Oct. S&P CS Composite-20 YoY, est. 4.85%, prior 3.92%
• 09:00: Oct. S&P/CS 20 City MoM SA, est. 0.60%, prior 0.67%
• 09:00: Oct. FHFA House Price Index MoM, est. 0.5%, prior 0.6%
• 10:30: Dec. Dallas Fed Manf. Activity, prior -19.9