Market Outlook for the Week Ahead
- U.S. Non-Farm Payrolls: A Strong Report Could Pressure Markets
- Powell and Other Fed Officials Speak
- Tariff Threats Escalate, Impacting U.S. Auto Industry
- OECD Economic Outlook
- OPEC+ Meeting on Oil Production Cuts
US Prepares Targeted Chip Restrictions on China, Spares Some Firms
The Biden administration is set to announce new restrictions on semiconductor equipment and AI memory chip sales to China, targeting Beijing’s tech ambitions. The measures, expected next week, are less severe than earlier proposals and focus on sanctioning some suppliers to Huawei Technologies, though notable firms like ChangXin Memory Technologies are excluded. Additionally, two Semiconductor Manufacturing International Corp. (SMIC) factories are under scrutiny. The curbs also extend to over 100 Chinese companies involved in semiconductor equipment, rather than chip fabrication. American chipmakers such as Lam Research and Applied Materials see the plan as a partial win, as Japan and the Netherlands have resisted tighter US-aligned restrictions. Asian and European chip stocks surged on the news, with analysts noting the measures are less harsh than feared. The new rules will impact high-bandwidth memory chips, affecting Samsung, SK Hynix, and Micron.
FTC Launches Antitrust Probe into Microsoft Over Cloud, AI, and Cybersecurity Practices
The US Federal Trade Commission (FTC) has initiated a broad antitrust investigation into Microsoft Corp., focusing on its cloud computing, software licensing, cybersecurity, and AI operations. Following over a year of informal interviews, the FTC has issued a detailed information request, reportedly spanning hundreds of pages. The probe examines Microsoft’s bundling practices, particularly the integration of productivity and security software with its cloud offerings, and potential anticompetitive impacts. Concerns over Microsoft’s cybersecurity incidents, such as the CrowdStrike crash, and its dominance as a government contractor are central to the investigation. Competitors, including Salesforce’s Slack and Zoom, have criticized Microsoft’s bundled services like Teams, claiming they undermine competition. This probe marks a renewed scrutiny of the company’s practices, decades after its historic antitrust case involving Windows.
Iranian Oil Trader-Linked Hedge Fund Ocean Leonid to Shut London Office
Ocean Leonid Investments Ltd., reportedly linked to Iranian oil trader Hossein Shamkhani, has informed its London staff of impending liquidation due to licensing restrictions. Most of the firm’s assets are concentrated in the UAE, but some funds had been shifted to London for trading. The UK Financial Conduct Authority’s registry shows that employee licenses expired on Nov. 26. The hedge fund is under scrutiny, recently suspended by Dubai’s financial free zone and investigated by the US Treasury. Ocean Leonid denies Shamkhani’s involvement, while Shamkhani also refutes any connection. Ocean Leonid had been seeking capital from investors globally and explored establishing a Cayman Islands entity, but these plans are now on hold. The firm declined to comment on the closures or ongoing investigations.
Canadian Premiers Push Trudeau for Stronger Border Security Amid Trump Tariff Threats
Canadian premiers are urging Prime Minister Justin Trudeau to strengthen border security and increase defense spending in response to US President-elect Donald Trump’s tariff threats. Ontario Premier Doug Ford criticized the federal government for being “slow to react,” warning of potential “economic chaos” from tariffs. Other premiers, including Quebec’s Francois Legault and Alberta’s Danielle Smith, echoed the call for immediate action. Deputy Prime Minister Chrystia Freeland and Public Safety Minister Dominic LeBlanc pledged investments in law enforcement and border security but did not provide specifics. Premiers also urged Trudeau to boost military spending to NATO’s 2% GDP target by 2032 and consider bilateral trade agreements with the US, sidelining Mexico. Trump’s tariffs, tied to concerns about fentanyl and migration, primarily focus on Mexico, but Canadian leaders aim to prevent fallout on their economy. Trudeau called for unity under a “Team Canada” approach.
Foreign Investment in Canada Holds Steady Despite Trump-Era Uncertainty
Foreign direct investment (FDI) into Canada totaled C$27.1 billion in Q3 2024, supported by manufacturing and merger and acquisition activity, according to Statistics Canada. While this represents a drop from the record C$41.6 billion in Q2, the past year’s FDI reached C$58.4 billion, slightly above the decade’s historical average. The data signals resilience in Canada’s investment climate, but uncertainty looms as US President-elect Donald Trump threatens 25% tariffs on Canadian goods and pledges to lower US taxes, potentially undermining Canada’s attractiveness for foreign capital. Shelly Kaushik, an economist at the Bank of Montreal, emphasized the risks tied to Canada’s interconnected investment flows with the US, which remains its largest trading partner. The Bank of Canada’s business outlook survey identified trade protectionism, tax policy, and cost pressures as key concerns for businesses.
FTC Investigates Uber One Subscription Over Consumer Protection Concerns
The US Federal Trade Commission (FTC) is investigating Uber Technologies Inc. for potential consumer protection violations related to its Uber One subscription service, which offers discounts on rides and deliveries for an annual fee. The probe, initiated earlier this year, focuses on Uber One’s enrollment and cancellation processes. Uber stated it is cooperating with the investigation and emphasized the ease of canceling subscriptions via its app. The FTC has increasingly targeted companies over challenging subscription cancellation practices, recently suing Amazon and Adobe. Uber criticized the agency’s rushed settlement negotiations, alleging the FTC sought “enormous monetary” penalties shortly after opening the case. The agency’s push comes ahead of a potential leadership change under President-elect Donald Trump. Uber’s counteroffer to resolve the case was rejected by FTC staff, raising internal concerns about undue haste.
Germany Plans €2 Billion in Chip Subsidies to Boost Semiconductor Industry
The German government is allocating approximately €2 billion to support its semiconductor industry, aiming to enhance local chip production and build resilience within Europe. The funds will subsidize 10 to 15 projects, including raw wafer production and microchip assembly, as part of broader efforts under the European Chips Act to double the EU’s global semiconductor market share to 20% by 2030. This announcement follows setbacks, including Intel’s postponement of a €30 billion chip factory in Magdeburg and the withdrawal of a Wolfspeed-ZF project. Germany’s economic ministry seeks to foster a sustainable microelectronics ecosystem, addressing supply chain vulnerabilities exacerbated by the Covid-19 pandemic and geopolitical tensions. While the subsidies provide immediate relief, uncertainties remain as a new government, set to be elected in February, may revise the funding plans.
Trump’s Tariff Plan Could Spike US Gasoline Prices
President-elect Donald Trump’s proposed 25% tariff on imports from Canada and Mexico could raise US gasoline prices by up to 50 cents per gallon, especially in the Midwest, during peak driving season. Canada and Mexico provide 70% of US crude oil imports, vital for refiners reliant on heavy crude to produce gasoline and diesel. The tariffs clash with Trump’s goal of reducing domestic energy costs and could strain US refiners already facing narrow profit margins. Despite record US oil production, heavy crude imports remain essential for fuelmakers. Experts warn tariffs may trigger inflation, lower Canadian and Mexican oil output, and tighten the global oil market. Industry leaders stress the importance of North American energy trade for regional energy security. However, analysts see a low likelihood of the tariffs being implemented.
Le Pen Pushes for More Budget Concessions as Barnier Backs Down on Electricity Tax Hike
French Prime Minister Michel Barnier has dropped plans to raise electricity taxes, a key concession in negotiations over the 2025 budget bill. The move, announced during a speech in Paris, was hailed as a “victory” by National Rally President Jordan Bardella, who pressed for additional demands, including maintaining drug reimbursements, halting new taxes, boosting small business competitiveness, indexing pensions to inflation, and tougher migration policies. The National Rally holds significant influence as the government faces potential no-confidence votes from opposition lawmakers, threatening its stability. Finance Minister Antoine Armand signaled willingness for further compromises to prevent the government from collapsing. Barnier’s concession will reduce electricity prices by 14% starting February. The news slightly eased investor concerns, with France’s 10-year yield premium over Germany narrowing, though borrowing costs remain elevated.
Vancity Plans Revamp After Posting Loss, Eyes Digital Expansion
Vancity, Canada’s largest credit union outside Quebec, is undergoing a strategic overhaul under new CEO Wellington Holbrook following a C$3.3 million loss in 2023, its worst financial result in years. Holbrook’s “Vancity 2.0” strategy includes a review of Vancity Community Investment Bank, aiming to expand its role beyond niche business-to-business lending and explore national digital banking to challenge Canada’s dominant Big Six banks. Holbrook also plans to increase Vancity’s focus on financing affordable housing and insured mortgages. Staff reductions, comprising 7% of the workforce, were implemented to fund digital upgrades and modernize the credit union’s outdated digital experience. While seeking national growth, Holbrook emphasized supporting small businesses in British Columbia to strengthen community ties and improve margins. Vancity is rebuilding profitability and expects steady improvements over the next 18 months.
*The viewpoints are attributed by Wallis Zeng.
Market Momentum Slows, But Long-Term Outlook Remains Positive: AimStar’s Take on Diversification Opportunities
Uptrend Still in Place, but Some Short-Term Caution Needed:
AimStar remain positive on the stock market over the next 12 months, supported by the Federal Reserve’s easing cycle. However, momentum is starting to slow down. We’re seeing signs such as fewer stocks making new highs and defensive sectors (like utilities and healthcare) showing strong performance, which usually signals potential market weakness. The current sentiment suggests that the market could experience a short-term pullback. Despite this, we recommend using any dips as a chance to accumulate stocks as the broader uptrend is still intact.
Rising Concerns on the Horizon:
There are a few growing concerns impacting the market. Recently, East Coast port closures and escalating tensions in the Middle East have spooked investors. These events could disrupt supply chains, particularly in the retail industry, which depends heavily on these ports. On the flip side, geopolitical risks have boosted defense stocks, as we’ve seen a breakout in the Aerospace & Defense sector.
Strong September Performance Defies Expectations, but Election Year Could Add Volatility:
September is usually a weak month for stocks, but this year, the S&P 500 posted a 2.02% gain, defying its usual negative trend. However, with the upcoming election, October might see some volatility or consolidation. Still, any market dips should be viewed as buying opportunities, as the long-term outlook for stocks remains strong.
Market Signals Remain Positive:
In the medium to long term, things are looking good for equities. Around 76% of stocks in the S&P 500 are trading above their 50-day and 200-day moving averages, which is a positive sign. Additionally, riskier sectors like consumer discretionary are outperforming defensive sectors, indicating that the market is positioning itself for more upside over the next 12-18 months.
Focus on Diversification:
For the past year and a half, concentrated bets on a few large stocks have worked well. However, the market is now broadening out, and we believe a diversified approach will be more effective. Historically, when markets become highly concentrated, it often sets the stage for more average stocks to catch up, which is good news for diversified portfolios.
*The viewpoints are attributed by Tony Yuan
As U.S. stock markets hit record highs, investors are closely watching the Non-Farm Payrolls (NFP) report on Friday (Dec. 6) for insights into the economy ahead of the Federal Reserve’s December meeting. Federal Reserve Chair Jerome Powell’s speech this week will also be key to understanding the global economic outlook amid rising tariff concerns.
Five Key Market Events to Watch This Week:
U.S. Non-Farm Payrolls: A Strong Report Could Pressure Markets
November’s NFP report is expected to show 202,000 job additions, rebounding from October’s strike- and hurricane-related slowdown. A repeat of September’s robust performance could dampen expectations for further Fed rate cuts, a critical factor behind the stock market rally. Recent Fed minutes reveal divided opinions on future rate paths, with concerns about inflation resurfacing if rate cuts go too far.Powell and Other Fed Officials Speak
Chair Powell’s comments on Wednesday will shed light on labor market trends, inflation, and the potential scope of December rate cuts. Additional speeches from Fed officials, including Christopher Waller, Michelle Bowman, and regional Fed presidents, will offer further insights into monetary policy direction.Tariff Threats Escalate, Impacting U.S. Auto Industry
President-elect Trump’s pledge to impose tariffs on Mexican, Canadian, and Chinese goods has heightened fears of trade wars. The auto sector, heavily reliant on integrated North American supply chains, is particularly vulnerable. Analysts expect China to implement stimulus measures to mitigate trade tensions, potentially accelerating its push for technological self-sufficiency.OECD Economic Outlook
On Wednesday (Dec. 4), the OECD will release its updated Economic Outlook, with projections for global growth and inflation. In its September report, the OECD forecasted 2024 global growth at 3.2%, with U.S. and European central bank rates projected to decline modestly by 2025.OPEC+ Meeting on Oil Production Cuts
OPEC+ will convene on Thursday (Dec. 5) to discuss extending production cuts. Despite easing Middle East supply risks, oil prices fell 3% last week amid concerns about sluggish demand from China and India. The IEA predicts global supply will outpace demand in 2025, even if production cuts continue.
The most anticipated earnings releases for the week of December 2, 2024 are Zscaler #ZS, Salesforce #CRM, Okta #OKTA, lululemon athletica #LULU, Marvell Technology #MRVL, Chewy #CHWY, UiPath #PATH, ULTA Beauty #ULTA, SentinelOne #S, and Foot Locker #FL.
Published by Vikki Zhao
December 02, 2024, 10:00 AM EST. 6 min read
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