- Asian Stocks Retreat; Yen Falls as BOJ Stands Pat: Markets Wrap
Asian stocks slid on Thursday after the Federal Reserve forecast fewer interest-rate cuts next year. The yen
dropped as the Bank of Japan refrained from raising borrowing costs. Equity benchmarks in Japan, Australia,
South Korea and China declined, helping drag a gauge of regional equities down by as much as 1.7%. The
losses mirrored a slump in US shares in the previous session, with the S&P 500 suffering its biggest loss since
2001 for a Fed decision day. - Dow tanks by 1,100 points, posts first 10-day losing streak since 1974
The Dow Jones Industrial Average sank deeper into the history books on Wednesday, with the index posting
its 10th straight losing day as a disappointing rate outlook by the Federal Reserve rocked the stock market.
The Dow lost 1,123.03 points, or 2.58%, to 42,326.87, for its worst losing streak since an 11-day slide in 1974.
The Wednesday decline was its worst since August and only the second time it lost 1,000 points this year in
one session. The S&P 500 lost 2.95% to 5,872.16 and the Nasdaq Composite shed 3.56% to 19,392.69 with
losses intensifying into the close of trading. The central bank reduced its overnight borrowing rate by a
quarter point to a target range of 4.25% to 4.5%, as expected. However, the Fed indicated Wednesday
afternoon it would only cut rates twice in 2025, fewer than the four cuts given in its last forecast. Fed Chair
Jerome Powell said the central bank’s move to cut rates in recent months allows it to “be more cautious as
we consider more adjustments to our policy rate.” - Oil settles up after US crude stocks fall, Fed’s 2025 outlook curbs gains
Oil prices settled higher on Wednesday after U.S. crude inventories fell and the U.S. Federal Reserve cut
interest rates as expected, but gains were capped as the Fed signalled it would slow the pace of cuts. Brent
futures settled up 20 cents, or 0.27%, to $73.39 a barrel. U.S. West Texas Intermediate crude settled up 50
cents, or 0.71%, to $70.58. Both benchmarks retreated from gains of more than $1 a barrel at session highs.
U.S. crude stocks and distillate inventories fell while gasoline inventories rose in the week ending Dec. 13, the
Energy Information Administration said on Wednesday. Total product supplied, a proxy for demand, was 20.8
million barrels per day, up 662,000 bpd from the prior week. - Gold falls more than 2% after Fed signals rate-cut slowdown in 2025
Gold slipped more than 2% to a one-month low on Wednesday after the U.S. Federal Reserve lowered
interest rates as expected, but noted it will slow the pace at which borrowing costs fall any further, boosting
the dollar and bond yields. Spot gold was down 2.1% at $2,589.91 per ounce, its lowest level since Nov. 18.
U.S. gold futures settled 0.3% lower at $2,653.30. Markets are climbing a wall of worry into the close as (Fed
Chief Jerome) Powell nods to a period of slower rate cuts predicated on further progress in inflation. Core
PCE data later this week now takes on more importance, said Tai Wong, an independent metals trader. Gold
is slumping below $2,600, which will worry some nervous bulls, Wong added. U.S. central bankers issued
fresh projections indicating two quarter-percentage-point rate cuts next year amid rising inflation, a forecast
consistent with a wait-and-see approach as President-elect Donald Trump returns to the White House in
January. - Fed cuts by a quarter point, indicates fewer reductions ahead
The Federal Reserve on Wednesday lowered its key interest rate by a quarter percentage point, the third
consecutive reduction and one that came with a cautionary tone about additional reductions in coming years.
In a move widely anticipated by markets, the Federal Open Market Committee cut its overnight borrowing
rate to a target range of 4.25%-4.5%, back to the level where it was in December 2022 when rates were on
the move higher. - PBOC Offers Strongest Yuan Support Since July After Dollar Gains
China ramped up support for its currency via the daily reference rate after the Federal Reserve’s caution over
future interest rate cuts boosted the dollar and sent the offshore yuan to a one-year low. The People’s Bank
of China set the so-called fixing at the strongest bias since July versus the average estimate in a Bloomberg
survey on Thursday. That sent the offshore yuan 0.2% higher. The move is a sign authorities are ramping up
support for the yuan in the face of the dollar’s resilience and growing expectations that China will tolerate a
weaker currency to mitigate the impact of US tariffs on the nation’s exports. PBOC monetary department
head Zou Lan said on Friday that FX policy will aim to vigorously counter external impacts. - The Bank of Japan kept interest rates unchanged in a nearly unanimous decision on Thursday, as
policymakers remained cautious over Japan’s economic outlook and the path of inflation
The BOJ kept its benchmark short-term policy rate at 0.25%, in line with a Reuters poll. Eight of the BOJ’s nine
rate-setting board members voted in favor of the decision. BOJ member Naoki Tamura was the sole
dissenter, calling for a 25 basis point hike on concerns over rising inflation. - UK inflation rises to 2.6% in November, in line with expectations
U.K. inflation rose to 2.6% in November, the Office for National Statistics said Wednesday, in line with the
forecast of economists polled by Reuters. Core inflation, excluding energy, food, alcohol and tobacco, came in
at 3.5%, just under a Reuters forecast of 3.6%. This upwards trajectory looks set to continue over the next
few months, Joe Nellis, economic adviser at accountancy MHA, said in emailed comments on Wednesday,
citing the energy market and the long-term pressure of a tight domestic labor market. - Volkswagen nears deal with unions to keep car plants open, Bloomberg says
Volkswagen (VOWG_p.DE), opens new tab and labour unions are nearing an agreement to restructure the
brand without closing factories in Germany, Bloomberg reported on Thursday, citing people familiar with the
matter. The management is willing to keep plants running and restore job security agreements until 2030 in
exchange for workers foregoing bonus payments, the sources said. Additional cost-cutting measures include
moving production of the Golf hatchback from Germany’s Wolfsburg factory to Mexico, and ending the
production of VW-branded electric vehicles in Zwickau to trim capacity, according to the sources. - Honda-Nissan merger negotiations likely to begin next week, says Nikkei
Honda Motor Co. and Nissan Motor Co. will begin negotiations on a possible merger as soon as Dec. 23,
according to Japan’s Nikkei news service, bringing the two Japanese automakers a step closer together. The
start of formal discussions as soon as next week would accelerate momentum toward a potential
consolidation, the Nikkei reported Wednesday without citing sources. Bloomberg confirmed Tuesday a deal is
under consideration by the companies’ senior leadership, and could be widened to include Mitsubishi Motors
Corp. Representatives for Honda and Nissan in the US didn’t immediately reply to a request for comment on
the start-date for talks. Honda and Nissan’s move to strengthen ties comes after Hon Hai Precision Industry
Co., the Taiwan-based producer of iPhones known as Foxconn, approached Nissan about acquiring a stake in
the company, Bloomberg reported earlier Wednesday. Honda had threatened to either dissolve an existing
technology partnership with Nissan if the Yokohama-based carmaker pursued a partnership with Foxconn, or
become a white knight in the event of a hostile takeover attempt of Nissan by Foxconn, the Nikkei report
said. A merger of the Japanese companies would create a bulwark against the Toyota Motor Corp. group at
home and allow Honda and Nissan to pool resources to compete with Tesla Inc. and Chinese carmakers in
global markets. - UniCredit raises stake in Commerzbank to 28% as Orcel ups ante on pursuit
Italy’s UniCredit said on Wednesday it has raised its potential stake in Commerzbank to 28% using further
derivatives. Investors are watching whether UniCredit will take the leap with a buyout of the German lender
or pursue its simultaneous bid for Italy’s Banco BPM. The German government has so far opposed UniCredit’s
courtship of Commerzbank. - Nestle shares drop fell 1.5% to the lowest level since 2018 after Stifel analysts lowered their estimates
and price target on the Swiss food company, citing a “challenging” year ahead
Nestle’s strategy will probably take time to bear fruit, while volume growth recovery will be under pressure
amid “skyrocketing” input costs for raw materials such as cocoa, analyst Cedric Norest (hold) wrote. Stifel
cuts its FY25 organic sales growth estimate to +3.2% from +3.5%. PT lowered to CHF87 from CHF91. - Renault shares rose 5.2% as analysts say the news that Japanese carmakers Nissan and Honda are
exploring a possible merger is positive for the French company’s stock
Jefferies (buy): Analysts including Philippe Houchois see a number of benefits and strategic options for
Renault shares from a potential combination of Honda and Nissan, including higher share price and liquidity
for Nissan, a smaller minority stake in the new entity with better return prospects and swapping shares held
in cross shareholding, an effective 15% buyback for Renault at no cash cost. Say by their estimates, in a nil
premium merger, at last night’s closing prices, Renault’s 35.8% stake (€2.78bn) would be diluted to a 5.8%
stake. CIC Markets (buy): Analyst Dominique Descours writes that a merger between Nissan and Honda, if it
does not jeopardize existing projects, can only be seen as good news for Renault. Says it raises questions
around Renault’s shareholding in Nissan, as the former is seeking to monetize the stake and it could be
possible that it could sell to Honda or another shareholder. Notes question of Nissan’s planned stake in
Ampere, says “it is not out of the question that a partnership between Ampere and the potential new group
could emerge in the field of electric vehicles for Europe”. - Micron Technology, the largest US maker of computer-memory chips, tumbled 15.8% in afterhours
trading after its revenue forecast missed projections by about $1 billion, hurt by sluggish demand for
smartphones and personal computers
Sales will be roughly $7.9 billion in the fiscal second quarter, which runs through February, the company said.
That compares with an average analyst estimate of $8.99 billion. Profit will be no more than $1.53 a share,
minus certain items, well short of the $1.92 projection. Though Micron is seeing strong orders for
components used in artificial intelligence computing, it still faces lackluster demand from makers of phones
and PCs, two markets that consume the majority of its chip volume. While consumer-oriented markets are
weaker in the near term, we anticipate a return to growth in the second half of our fiscal year, Chief
Executive Officer Sanjay Mehrotra said. In the fiscal first quarter, which ended Nov. 28, sales rose 84% to
$8.71 billion. Excluding certain items, profit was $1.79 per share. Analysts had predicted a sales of $8.71
billion and profit of $1.76. The company said that data center-related revenue grew 400% in the quarter from
a year earlier. That unit now accounts for more than half of the company’s total sales. Still, the surge wasn’t
enough to offset weak orders from makers of devices aimed at consumers, Micron said. We are now seeing a
more pronounced impact of customer inventory reductions, Micron said. We expect this adjustment period
to be relatively brief and anticipate customer inventories reaching healthier levels by spring. The company
predicts that the PC market will grow around 5% in 2025, with most of the expansion coming in the second
half. Micron said that its mobile business unit suffered a 19% sequential decline, brought on by the inventory
reductions. Automotive and industrial sales also fell. For fiscal 2025, the chipmaker is budgeting spending on
new plants and equipment of $14 billion. That amount includes a reduction in its planned outlay on new
production for storage chips. - Lennar shares fell 8.8% in afterhours trading after the homebuilder forecast new orders for the first
quarter that missed the average analyst estimate
FOURTH QUARTER RESULTS: EPS $4.06 vs. $4.82 y/y, estimate $4.17. Revenue $9.95 billion, -9.3% y/y,
estimate $10.13 billion. Net new orders 16,895, -2.7% y/y, estimate 19,174. Gross Margin on Home Sales
22.1% vs. 24.2% y/y, estimate 22.4%. Backlog 11,633, -22% y/y, estimate 13,221. FIRST QUARTER FORECAST:
Sees new orders 17,500 to 18,000, estimate 20,110. Sees deliveries 17,000 to 17,500, estimate 16,298. Sees
Gross Margin on Home Sales 19% to 19.3%, estimate 21.6%. COMMENTARY: Accordingly, in our fourth
quarter, sales pace lagged expectations as interest rates climbed and our new orders fell short of
expectations to 16,895 homes vs the low end of our guidance of 19,000 homes. Vital Knowledge analyst
Adam Crisafulli: There’s not much good to say about this report, he writes. Rates clearly remain restrictive
and are weighing on the housing market. However, the fact that homebuilders are being forced to cut prices
will have a disinflationary effect on the CPI and PCE (Powell acknowledged during the Wed press conference
that housing services inflation was finally starting to cool). - Wayfair (W) Stock Declines Amid Fed Policy Signal
Wayfair (W US) shares fell significantly with a 9.18% decline, reflecting broader market conditions influenced
by the Federal Reserve’s announcement of fewer anticipated rate cuts at the December 2024 FOMC meeting.
As of the latest trading session, Wayfair’s stock price stands at $45.79. With a market capitalization of $5.74
billion, the company operates within the highly competitive internet retail sector. Despite its expansive
operations across the U.S., Canada, the U.K., Germany, and Ireland, Wayfair faces financial challenges.
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