Market Overview - The market is experiencing a rotation away from high-flying technology stocks, with cyclical sectors such as financials, industrials, and discretionary goods benefiting from this shift [2][4][5] - The S&P 500 is down slightly over 1% month-to-date, while equal-weighted indices show positive performance, indicating a divergence in market dynamics [11] Bond Market Insights - The bond market is relatively quiet, but the steepening yield curve is a dominant trend, with expectations of potential Fed rate cuts continuing into 2026 [7][8] - Rising global yields and increasing supply due to deficits are contributing to the steepening yield curve, particularly as Japan approaches a 2% yield for the first time in decades [8] Economic Indicators - Recent labor market data indicates a softening trend, with wage growth easing, which may influence the Fed's decision on rate cuts [15][16] - Inflation remains sticky near the 3% mark, complicating the outlook for long-term yields and the potential for rapid Fed rate cuts [17][18] Technical Analysis - Current market technicals show a lack of strong trend strength, with the market consolidating around the 50-day moving average [13][14] - The volatility of bond yields is seen as a key factor that could provide a favorable backdrop for equities, potentially allowing for a rotation back into technology stocks if conditions stabilize [14]

This week's market focus will be on US economic news. On Thursday, weekly initial unemployment claims are expected to fall -11,000 to 225,000. Also, Nov CPI is expected to be +3.1% y/y, and Nov core CPI is expected to be +3.0% y/y. On Friday, Nov existing home sales are expected to be up +1.2% m/m to 4.15 million. Also, the University of Michigan Dec consumer sentiment index is expected to be revised upward by +0.2 to 53.5 from the previously reported 53.3.US MBA weekly mortgage applications fell -3.8% in t ...

Summary of Key Points from the Conference Call Industry Focus - **Global Foreign Exchange (FX) and Rates Strategy**: The conference call primarily discusses strategies and expectations related to foreign exchange markets, particularly in Asia, and interest rates in various regions including Singapore, Hong Kong, and India. Core Insights and Arguments 1. **Market Expectations for BOJ**: Anticipation of a 25 basis point hike at the December BOJ meeting, with a focus on Governor Ueda's communication regarding future rate hikes into 2026 [1][9][10] 2. **Top FX Trades**: - Long EUR/INR with a target of 110 by end-March 2026, conviction level 5/5 [2][19] - Short SGD/JPY targeting 115.8, conviction level 4/5 [2][21] - Long NZD/USD targeting 0.6000, conviction level 4/5 [2][17] - Pay 5Y HK IRS targeting 3.20% by end-Q1 2026, conviction level 4/5 [2][28] - Pay 2Y SGD targeting 1.90% by end-February, conviction level 4/5 [2][4] 3. **Diverse Client Views on USD**: Mixed expectations from clients in Singapore and Hong Kong regarding the USD's strength over the next six months, with Singapore clients leaning towards a stronger USD and Hong Kong clients expecting weakness [5][6] 4. **Optimism on CNH and TWD**: Clients express optimism for CNH and TWD, with expectations for USD/CNH to break below 7.0 in early Q1 2026 due to favorable fixing regimes and improved capital inflows [6][22] 5. **Potential Triggers for Weaker USD**: Factors include elevated foreign positioning in US assets, risks of USD selling for hedging, and geopolitical developments [7][20] 6. **Upcoming Economic Indicators**: Focus on US November NFP and ECB meeting, with expectations of market reactions based on these reports [8][9] Additional Important Insights 1. **India's Economic Outlook**: Concerns over INR depreciation due to trade deal difficulties with the US and significant foreign portfolio outflows totaling USD 2.2 billion in December [19][20] 2. **Singapore's Economic Uncertainty**: Despite a positive external outlook, economic uncertainties persist, affecting labor demand and market expectations for MAS's FX policy [21][26] 3. **Hong Kong's Liquidity Conditions**: Looser liquidity conditions than expected, with potential recovery in loan growth impacting long-end HK-US spreads [28] 4. **China's RMB Outlook**: Expectations for gradual RMB appreciation, supported by improved BOP dynamics and a stable US-China relationship [24][23] Conclusion The conference call provides a comprehensive overview of the current state and expectations in the global FX and rates markets, highlighting key trades, client sentiments, and macroeconomic factors influencing currency movements and interest rates across various regions.

Group 1: Dollar Index and Market Reactions - The dollar index (DXY00) is up by +0.17%, driven by weakness in GBP/USD and the yen, as UK consumer prices rose less than expected and Japanese fiscal concerns weigh on the yen [1] - The dollar is under pressure due to the Fed's liquidity boost, with the central bank purchasing $40 billion a month in T-bills starting last Friday [2] - Markets are concerned about President Trump's potential appointment of a dovish Fed Chair, which could negatively impact the dollar [2] Group 2: Federal Reserve Insights - Fed Governor Christopher Waller described the US labor market as "pretty soft" with close to zero job growth, while inflation remains "pretty well anchored" around 2% [3] - Interest rates are still 50-100 basis points above neutral, allowing the Fed to lower them steadily without urgency [3] - The market is pricing in a 24% chance that the FOMC will cut the fed funds target range by 25 basis points at the upcoming January 27-28 meeting [3] Group 3: Eurozone Economic Indicators - The euro (EUR/USD) is down by -0.04% due to a stronger dollar and negative Eurozone economic news, including a downward revision of November CPI and the smallest increase in Q3 labor costs in three years [4] - The unexpected decline in the German December IFO business conditions survey to a 7-month low is also bearish for the euro [4] - Divergent central bank policies support the euro, as the Fed is expected to continue cutting rates while the ECB is seen to have completed its rate-cutting campaign [5] - Eurozone November CPI was revised downward to +2.1% year-on-year from +2.2% year-on-year [5]

Core Insights - The markets in 2025 have shown volatility, with both bullish and bearish trends impacting investor strategies [1] - The Social Security Administration has projected a 2.8% Cost of Living Adjustment (COLA) for 2026, which may not keep pace with rising inflation at approximately 3% [2] High-Yield ETFs - Two high-yield ETFs are highlighted as potential alternatives for income-focused investors: the State Street Blackstone High Income ETF (HYBL) and the State Street SPDR Portfolio S&P 500 High Dividend ETF (SPYD) [3] - The State Street Blackstone High Income ETF (HYBL) has around $545 million in assets under management and offers a dividend yield of 7.2%, significantly higher than the projected COLA increase [5] - HYBL aims to generate strong total returns with high income while maintaining lower volatility compared to broader bond and credit markets, investing in high-yield corporate bonds, senior loans, equity, and U.S. CLO debt tranches [5][6] - The top holdings of HYBL include Fair Isaac Corp 4%, JetBlue Airways Corp / JetBlue Loyalty LP 9.875%, and Cloud Software Group/Balboa/Citrix, reflecting a diversified economic exposure [6] - The SPYD ETF tracks the 80 highest dividend-yielding S&P 500 stocks and has a low fee of 0.07% [7]

Economic Indicators - Weekly initial unemployment claims in the US are expected to decrease by 11,000 to 225,000 [1] - November CPI is projected to rise by 3.1% year-over-year, while core CPI is expected to increase by 3.0% year-over-year [1] - Existing home sales for November are anticipated to rise by 1.2% month-over-month to 4.15 million [1] - The University of Michigan's consumer sentiment index for December is expected to be revised upward by 0.2 to 53.5 [1] Mortgage Applications - US MBA weekly mortgage applications fell by 3.8% for the week ending December 12, with the purchase mortgage sub-index down by 2.8% and the refinancing mortgage sub-index down by 3.6% [2] - The average 30-year fixed mortgage rate increased by 5 basis points to 6.38% from 6.33% in the previous week [2] Stock Market Movements - Homebuilding stocks are experiencing declines, led by a 3% drop in Lennar after reporting weaker-than-expected Q4 EPS [4][13] - Energy producers are rising, with WTI crude oil increasing by over 1% following President Trump's announcement of an oil blockade on Venezuela [5][12] - Mixed performance in stock indexes: S&P 500 down by 0.05%, Dow Jones up by 0.43%, and Nasdaq down by 0.33% [6] International Markets - Overseas stock markets show mixed results, with the Euro Stoxx 50 down by 0.21%, Shanghai Composite up by 1.19%, and Nikkei Stock 225 up by 0.26% [7] Bond Market - The 10-year T-note yield increased by 2 basis points to 4.17%, influenced by rising bond yields in Japan [4][8] - The yield curve is steepening, which is generally bearish for T-note prices, as investors buy short-term government debt and sell long-term debt [9] Company-Specific News - Jabil Inc reported Q1 net revenue of $8.31 billion, exceeding consensus estimates, and raised its 2026 net revenue forecast to $32.4 billion [14] - Netflix shares rose by over 2% as Warner Bros. Discovery plans to reject a takeover bid from Paramount Skydance [16] - Progressive Corp's net premiums written fell by 12% month-over-month, leading to a decline of over 3% in its stock [17]

Core Viewpoint - General Mills Inc. reported better-than-expected second-quarter earnings and revenue, reaffirming its fiscal 2026 outlook, indicating strong consumer demand and effective brand investments despite ongoing cost pressures [1][10]. Financial Performance - The company achieved second-quarter adjusted earnings per share of $1.10, surpassing the analyst consensus estimate of $1.03 [2]. - Quarterly sales reached $4.86 billion, a 7% decline year over year, but exceeded the expected $4.781 billion [3]. - Organic net sales decreased by 1%, attributed to unfavorable price realization and product mix [3]. Segment Performance - North America Retail segment net sales fell 13% to $2.9 billion [5]. - North America Pet segment sales increased by 11% to $660 million [5]. - North America Foodservice segment sales decreased by 8% to $582 million [5]. - International segment net sales rose by 6% to $729 million, with organic net sales up 4%, driven by growth in Brazil, China, India, and North Asia [5]. Operational Metrics - Constant-currency net sales at Cereal Partners Worldwide fell by 1%, while Häagen-Dazs Japan remained flat year over year [6]. - Joint ventures reported a $60 million after-tax loss, a shift from a $30 million profit last year, due to an $85 million non-cash goodwill impairment related to CPW Australia [6]. - Adjusted gross margin decreased by 150 basis points to 34.8% of net sales, primarily due to higher input costs [7]. Future Outlook - The company anticipates organic net sales to range from a 1% decline to 1% growth [10]. - Adjusted operating profit and adjusted diluted EPS are projected to decline by 10% to 15% in constant currency [10]. - General Mills plans to invest in brand initiatives to drive volume-led organic sales growth, expecting a 25% increase in sales from new products in fiscal 2026 [10]. - Management indicated that brand investments are expected to support long-term growth despite short-term profit and EPS pressures [11][12].

A finalist to replace Powell sees room for 100 basis points of rate cuts. ...

Labor Market Assessment - The labor market is currently soft, with recent job growth averaging around 50,000 to 60,000 jobs per month [3] - This level of job growth is considered too high and likely to be revised downwards based on unemployment insurance administrative data, potentially nearing zero job growth [3][4] - Uncertainty surrounding AI is causing companies to delay hiring decisions, impacting the labor market [7] Monetary Policy and Inflation - Preemptive rate cuts initiated in September were intended to soften the economic impact of tariff uncertainty [4] - The speaker is not particularly worried about inflation, believing it will come down in the next three to four months [5][6] - Inflation expectations are well-anchored around 2% based on market pricing and TIPS [6] - The speaker advocates for continued rate cuts, viewing inflation as under control and the labor market as needing support [11] - A moderate pace of rate cuts is preferred, as dramatic action suggests waiting too long [12] Future Outlook - 2026 could be a better year due to the resolution of tariff uncertainty and potential productivity gains from AI [4][5] - The effects of tariffs are considered a one-time price effect, not expected to cause persistent inflation [10]

The September inflation reading of 3% represents moderate price growth, which is above the Federal Reserve's long-term target of 2% but well below the elevated rates seen in 2022 and early 2023. ...