Good Morning!
Yesterday S&P 500 closed down by 0.4%, settling at 6,050, while the Dow Jones Industrial Average dropped by 0.6% to 43,449, marking its ninth consecutive day of losses. The Nasdaq Composite also saw a decline of 0.33%, closing at 20,109.
We have an FOMC meeting today with an estimated 97% chance for a 25bps rate cut. U.S. stocks declined as traders prepared for the Federal Reserve's rate decision. The S&P 500 and Nasdaq both fell by 0.4%. The Dow Jones Industrial Average is experiencing its longest losing streak since 1978, driven by a sell-off in healthcare stocks. The index has fallen 3% over the past nine trading sessions, with UnitedHealth Group being the worst performer.
Stellantis is poised to slash MSRP on their vehicles by as much as 35%, potentially sending shockwaves through competitors like Ford, GM, and European automakers. Under Carlos Tavares, the company aggressively pushed into the premium sector, hiking prices at a pace exceeding inflation. However, with Tavares no longer at the helm, Stellantis is now pivoting to address the repercussions of his pro-EV and green policies, signaling a major strategic reset.
Nvidia's stock has been under pressure due to concerns about a potential slowdown in AI spending and increased competition. Despite a recent blowout earnings report, concerns over overheating in its latest AI servers and an antitrust probe by China's competition authority have weighed on the stock. The stock has fallen 6% from its November highs.
Crypto Highlights
Bitcoin Surges Above $108,000: Bitcoin reached a new all-time high, surpassing $108,000, driven by optimism surrounding President-elect Donald Trump's pro-crypto stance and discussions about establishing a U.S. strategic Bitcoin reserve. Investors.com
Ripple Launches RLUSD Stablecoin: Ripple announced the launch of its RLUSD stablecoin, fully backed by U.S. dollar reserves, aiming to offer a compliant and transparent digital asset. Barron's
UK's FCA Consults on Crypto Regulations: The UK's Financial Conduct Authority (FCA) initiated a consultation to refine crypto regulations, acknowledging the need for updated frameworks to keep pace with the rapidly evolving digital asset landscape. FN London
Upcoming Earnings
Micron (MU) is expected to report strong earnings today for Q1 2024, with sales projected to reach $8.71 billion, a significant increase from $4.73 billion in Q1 2023. The company is forecasted to achieve a net income of $1.87 billion, a notable turnaround from the $1.23 billion net loss a year earlier.
Nike (NKE) is expected to report a significant decline in both sales and profit tomorrow for Q2, with earnings per share projected to drop 37% to $0.64 and revenue forecasted at $12.14 billion, down from $13.39 billion last year. Challenges include customer disinterest due to a lack of innovation and criticism of the direct-to-consumer strategy.
Headlines
November Retail Sales Exceed Expectations
November retail sales rose 0.7%, surpassing Wall Street's forecast of 0.6%, signaling strong consumer spending as the holiday shopping season begins. October sales were revised up to 0.5%, highlighting consistent growth. Gains were driven by a 2.4% increase in auto sales and a 1.8% rise in online purchases.
Excluding autos and gas, sales grew 0.2%, below the expected 0.4%. However, the control group, contributing to GDP, rose 0.4%, meeting estimates. A 97% chance of a 25-basis-point cut is expected this week.
Dow Faces Worst Losing Streak in Over 40 Years Amid Fed and Economic Uncertainty
The Dow Jones Industrial Average fell for the ninth consecutive day on Tuesday, its longest losing streak since 1978, closing at 43,449.90. This drop follows investor concerns over reduced expectations for aggressive Federal Reserve rate cuts in 2025, as inflation remains at 2.7%, above the Fed’s 2% target.
The Fed is expected to announce a quarter-point rate cut this week, reducing rates to a range of 4.50%-4.75%, with projections to gradually lower them to 3.8% by late 2025. However, uncertainty lingers around inflationary risks tied to the incoming Trump administration's policies, including potential tariffs and tax cuts.
Economists warn of mixed inflation signals, strong economic momentum, and a rising $1.9 trillion budget deficit, elevating inflationary pressures.
Congress Unveils Bill to Avoid Holiday Government Shutdown
Congressional leaders introduced a bill to extend government funding until March 14, aiming to avoid a shutdown as the current funding expires on December 20. The legislation includes $100 billion in disaster relief, a one-year extension of the farm bill, restrictions on U.S. investments in China, and healthcare reforms.
The stopgap measure sets up a major funding debate in March, coinciding with the end of President-elect Trump's first 100 days in office.
Norway Considers Cutting Energy Links with the EU Amid High Electricity Prices
Norway faces soaring electricity prices, currently six times the EU average, prompting political debates about reducing energy exports. The ruling parties, particularly the Labour Party and Center Party, are pushing to end or renegotiate power interconnectors with Denmark, the UK, and Europe when contracts come up for renewal.
The price surge stems from low wind production in Europe, colder weather, and rising EU prices due to a failed energy policy spilling over to Norway. Prices in southern Norway reached €1.12 per kWh, far above the EU average of €0.1867. Meanwhile, northern regions with significant hydropower remain less affected.
Ukraine to End Russian Gas Transit Agreement by 2025
Prime Minister Denys Shmyhal announced that Ukraine will not extend its gas transit agreement with Russia beyond January 1, 2025. While Ukraine remains open to negotiating transit for non-Russian gas, the decision comes as European countries work to secure alternative energy supplies.
Slovakia, heavily reliant on Russian gas via Ukraine, is seeking solutions to avoid disruptions. Slovak Prime Minister Robert Fico emphasized the EU-wide impact of maintaining gas transit, while Economy Minister Denisa Sakova noted a collective need for 15 billion cubic meters of Russian gas in 2025.
The EU aims to phase out Russian fossil fuels by 2027, but Slovakia is negotiating transitional agreements for the next two to three years to mitigate costs from alternative routes.
Automakers Thrived in the Pandemic. Many Are Now Struggling
The auto industry, which once achieved record profits during the pandemic due to supply shortages and rising prices, now faces significant challenges. Automakers like Nissan, Volkswagen, Ford, and Stellantis are cutting jobs and closing factories amid declining sales and profitability. Key issues include the expensive shift to electric vehicles (EVs), political uncertainties, and increasing competition from Chinese carmakers like BYD and Chery, which offer high-quality vehicles at lower prices.
German brands like Volkswagen, BMW, and Mercedes-Benz have been hit particularly hard in China, the world’s largest car market, while American manufacturers like GM face mounting losses. Policy shifts, such as reduced EV incentives in Germany and potential tariff changes in the U.S., add to the pressures.
Honda and Nissan Explore Deeper Collaboration, Potential Merger
Honda and Nissan are in talks of a potential merger, as they face increasing competition from Tesla and Chinese automakers, creating the world’s third-largest auto group, especially if Mitsubishi Motors, where Nissan holds a 24% stake, is included.
The collaboration aims to boost technology sharing, cut costs, and accelerate development in the evolving electric vehicle (EV) market. Analysts view this partnership as a positive move to establish a strong domestic competitor to Toyota and counter the pressures of the global EV landscape.
Market reaction was mixed. Nissan’s shares spiked 22% in Tokyo trading, reflecting investor optimism, while Honda's stock declined 2.3%. Mitsubishi Motors saw a 13% uptick, likely driven by speculation of its inclusion in a broader alliance. A merger could rival the scale of Stellantis, formed by Fiat Chrysler and PSA in 2021, marking a significant reshaping of Japan's auto industry.
OpenAI CFO Suggests Businesses Could Pay Thousands for AI Tools
OpenAI CFO Sarah Friar envisions charging business users thousands of dollars monthly for AI software. Currently, OpenAI offers consumer subscriptions at $20 and $200 per month and charges businesses a flat rate per user. Friar hinted at a potential shift to value-based pricing.
The company is leaving the door open to a $2,000/month subscription to its AI product, which could serve as a "replacement" to hiring humans due to its PhD-level intelligence.
Intel Arc B580 GPU Sells Out After Stellar Reviews
Intel’s $250 Arc B580 "Battlemage" GPU has launched to widespread acclaim, earning titles like "The new $249 GPU champion" and "A New Mainstream King." Intel is targeting the budget segment of the market, whereas Nvidia has firmly established dominance in the high-end prosumer sector, outpacing all competitors.
China's Chip Manufacturing Lags Behind TSMC by Six Years: Chris Miller
Chris Miller, author of Chip War, highlighted in a recent Foreign Policy interview that China's chip manufacturing, led by SMIC, is six years behind Taiwan Semiconductor Manufacturing Co. (TSMC). TSMC's cutting-edge chips are eight times more efficient than China's. Taiwan's National Science and Technology Council estimates that bridging the gap could take up to a decade.
UMC Breaks TSMC Monopoly with Qualcomm Deal
United Microelectronics Corporation (UMC) has reportedly secured a major advanced packaging order from Qualcomm, signaling a significant shift in a sector historically dominated by TSMC. The deal focuses on high-performance computing (HPC) applications, including AI PCs, automotive electronics, AI servers, and High Bandwidth Memory (HBM) integration. Trial production of these chips is expected in late 2025, with mass production beginning in 2026.
