Traders Market Weekly: Treasury Debt and Central Bank Balancing Act

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    The October Trade Balance Report showed a widening in the deficit to -$64.3 billion (consensus -$64.4 billion) from an upwardly revised -$61.2 billion (from -$61.5 billion) in September. The widening was the result of exports being $2.6 billion less than September exports and imports being $0.5 billion more than September imports.

    The key takeaway from the report is the different paths taken by exports and imports, as that fits with a narrative that underscores weaker activity abroad versus what has been seen in the U.S.


    Q3 Productivity Report was revised up to 5.2% ( consensus 4.8%) from 4.7% and was paired with a downward revision for unit labor costs to -1.2% ( consensus -0.8%) from -0.8%.

    Treasury yields turned slightly lower in response to the data.

    The 2-yr note yield, at 4.59% just before the ADP data, sits at 4.57% now.
    The 10-yr note yield, at 4.18% just before the ADP data, sits at 4.14% now.


    Dow +82.71 at 36207.27, Nasdaq +23.90 at 14253.81, S&P +8.93 at 4576.11

    More mega caps are trading down now, leading the Nasdaq Composite to underperform other major indices. The Vanguard Mega Cap Growth ETF (MGK) is down 0.1%.


    Dow 36,054.43 -70.13 -0.19%
    S&P 500 4,549.34 -17.84 -0.39%
    Nasdaq 14,146.71 -83.20 -0.58%
    VIX 12.88 0.03 0.23%
    Gold 2,043.70 7.40 0.36%
    Oil 69.36 -2.96 -4.09%


    Google (NASDAQ:GOOG) (NASDAQ:GOOGL) unveiled its long-awaited Gemini large language model Wednesday

    JP Morgan said a “significant innovation”

    Analyst Doug Anmuth reiterated his overweight rating and $150 price target and noted that the three versions of Gemini —Ultra, Pro and Nano —will allow the LLM to do everything necessary, anywhere.

    “The different sizes allow Gemini to be used efficiently across different use cases & hardware capabilities, from data centers to mobile devices, which should enable better cost management,” Anmuth wrote in an investor note. “Model sizes and cost concerns came up frequently in our industry discussions last week at AWS re:Invent, w/our view that there is increasing demand for somewhat smaller, more cost-efficient models, in addition to demand for a wide range of models to avoid lock-in.”

    Anmuth said there is likely to be some pushback that Ultra will not be available until “early” 2024 and there are limited early use cases for Pro and Nano, along with “uncertainty” around monetization for search. However, he said he is encouraged that Gemini is going into consumer’s hands with Gemini Pro, which will power Google’s (GOOG) (GOOGL) Gen AI chatbot, Bard, which competes with ChatGPT, owned and operated by Microsoft (MSFT) backed OpenAI.

    Anmuth also said the company addressed some concerns about the high cost of running Gen AI models via the three versions of Gemini, the newly announced TPU v5p chip and early use cases via Bard, search generative experience and the Pixel 8 Pro.

    “While it remains early, the Gemini launch represents significant innovation for Google as we enter year 2 of commercialized and widely distributed availability of Generative AI,” Anmuth wrote.


    JetBlue Airways (JBLU 5.08, +0.35, +7.4%): raises Q4 guidance


    Equity indices in the Asia-Pacific region ended Thursday on a lower note.

    Japan’s Nikkei: -1.8%,
    Hong Kong’s Hang Seng: -0.7%,
    China’s Shanghai Composite: -0.1%,
    India’s Sensex: -0.2%,
    South Korea’s Kospi: -0.1%,
    Australia’s ASX All Ordinaries: UNCH.


    November trade surplus $68.39 bln (expected surplus of $58.00 bln; last surplus of $56.53 bln).
    November Imports -0.6% yr/yr (expected 3.3%; last 3.0%)
    Exports 0.5% yr/yr (expected -1.1%; last -6.4%)
    China reported a larger than expected trade surplus for November, but domestic demand appeared weak as imports fell 0.6% yr/yr against expectations for growth.

    October Leading Index 108.7 (expected 108.2; last 109.3)
    Coincident Indicator 0.2% m/m (last 0.3%)
    Japan sold 30-yr debt to weak demand with the sale drawing the lowest bid-to-cover ratio since 2015.
    Japan’s Ministry of Finance noted that primary dealers have suggested a reduction to 20-yr JGB sales.
    Separately, ongoing speculation about a quicker than expected end to negative rates in Japan sent the yen higher by nearly 1.5% against the dollar to a level not seen since early September.

    October Building Approvals 7.5% m/m, as expected (last -4.6%); -6.1% yr/yr, as expected (last -20.6%).
    October trade surplus AUD7.129 bln (expected surplus of AUD7.500 bln; last surplus of AUD6.184 bln).
    October Imports -1.9% m/m (last 8.0%) and Exports 0.4% m/m (last -1.8%)
    Standard & Poor’s said that it expects a soft landing for the Australian economy, warranting a continuation of the country’s AAA rating.
    The Reserve Bank of Australia appointed a new chief economist and assistant governor.


    Major European indices trade near their flat lines while Spain’s IBEX (-1.1%) lags amid weakness in financials.

    STOXX Europe 600: -0.2%,
    Germany’s DAX: -0.2%,
    U.K.’s FTSE 100: UNCH,
    France’s CAC 40: -0.1%,
    Italy’s FTSE MIB: -0.4%,
    Spain’s IBEX 35: -1.1%.

    Airline stocks are among regional laggards after JPMorgan downgraded several carriers.


    Q3 GDP -0.1% qtr/qtr, as expected (last 0.1%); 0.0% yr/yr (expected 0.1%; last 0.6%).
    Q3 Employment Change 0.2% qtr/qtr (expected 0.3%; last 0.1%); 1.3% yr/yr (expected 1.4%; last 1.3%)
    Eurozone’s Q3 GDP was left unrevised at -0.1% qtr/qtr.
    European Central Bank policymaker Villeroy de Galhau said that disinflation is occurring quicker than expected, which could invite rate cuts in 2024.

    October Industrial Production -0.4% m/m (expected 0.2%; last -1.3%); -3.4% yr/yr (last -3.8%)

    November Halifax House Price Index 0.5% m/m (expected 0.3%; last 1.2%); -1.0% yr/yr (last -3.1%)
    British Chamber of Commerce expects domestic growth of 0.6% in 2023 followed by a 0.4% contraction in 2024.

    October trade deficit EUR8.6 bln (expected deficit of EUR8.5 bln; last deficit of EUR8.9 bln)
    October Industrial Production -0.2% m/m (expected -0.3%; last 0.1%); -1.1% yr/yr (last -2.0%).
    October Retail Sales 0.4% m/m (expected 0.1%; last -0.4%); 0.3% yr/yr (last 1.2%)

    November Unemployment Rate 2.1%, as expected (last 2.1%)


    AbbVie (ABBV 145.70, -0.68, -0.5%): confirms it will acquire Cerevel Therapeutics (CERE) for $45.00/share in cash; total equity value of approximately $8.7 bln; to be accretive to EPS in 2030

    Participant (AI 25.86, -3.30, -11.3%): beats by $0.05, misses on revs; guides Q3 revs in-line; guides FY24 revs in-line

    GameStop (GME 13.68, -1.16, -7.8%): beats by $0.08, misses on revs

    Braze (BRZE 60.78, +4.66, +8.3%): beats by $0.08, beats on revs; guides Q4 EPS above consensus, revs above consensus; guides FY24 EPS above consensus, revs above consensus

    The Duckhorn Portfolio (NAPA 9.30, -0.91, -8.9%): misses by $0.01, misses on revs; guides FY24 EPS in-line, revs below consensus

    Chewy (CHWY 17.08, -2.27, -11.7%): misses by $0.02, reports revs in-line; guides Q4 revs below consensus; guides FY24 revs below consensus

    Veeva Systems (VEEV 173.99, -4.40, -2.5%): beats by $0.05, reports revs in-line; guides Q4 EPS above consensus, revs below consensus; reaffirms FY25 revs guidance

    Dollar General (DG 138.25, +4.33, +3.2%): beats by $0.06, reports revs in-line; reaffirms FY24 EPS guidance, revs guidance


    Initial jobless claims for the week ending December 2 increased by 1,000 to 220,000 (consensus 223,000) and continuing jobless claims for the week ending November 25 decreased by 64,000 to 1.861 million.

    The key takeaway from the report is that it isn’t producing any major shockwaves as it relates to the labor market. It fits the narrative of the labor market loosening a bit, but not coming undone amid a stream of layoff announcements. Therefore, the market is viewing it through a soft-landing lens.

    Treasury yields have backed off their post-data highs.

    The 2-yr note yield, which hit 4.63% immediately after 8:30 ET, is down two basis points from yesterday at 4.59%.
    The 10-yr note yield, which hit 4.18% in response to the data, sits at 4.16% now.


    In other news, Venezuela has renewed its push to annex a portion of oil-rich Guyana, according to The Washington Post. WTI crude oil futures are up 0.8% from yesterday’s settlement at $69.90/bbl.


    The S&P 500(+0.4%) and Nasdaq Composite (+0.6%)

    Relative strength in some mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK) is up 0.7%.

    The Russell 2000 is down 0.2%, driven by continued consolidation efforts, while the Dow Jones Industrial Average trades around yesterday’s closing level.

    A loss in NIKE (NKE 115.32, -0.79, -115.58) following news that it could be headed for breakup with Tiger Woods, according to Sports Illustrated, has contributed to the muted action for the DJIA.

    The equal-weighted S&P 500 is up 0.4% and nine of the 11 S&P 500 sectors trade up. The communication services sector (+2.7%) leads by a wide margin while the health care sector (-0.5%) sports the largest decline.

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