Market 12/20: Risk of supply shock returning

Will the supply shock due to Red Sea tensions cause inflation to rise again?

• Tensions in the Red Sea are pushing up global commodity prices. Shipping costs from China to Europe are rising again.

• Most recently, shipments from Ikea, Abercrombie & Fitch have been disrupted:

  • Ikea may face shortages of some products due to rerouting ships away from the Red Sea.

  • Clothing retailer Abercrombie & Fitch Co. plans to switch to air freight (at much higher costs).

=> Is this a new supply shock that will cause inflation to rise again?

Number of homes for sale increases slightly from the 13-year low

Number of signed contracts reaches 3.82 million, slight increase +0.8% MoM but still near the lowest level since 2010.

Although borrowing costs have decreased, with 30-year mortgage rates dropping near below 7% recently, they are still double the rate from two years ago.

→ Homeowners with low interest rates do not want to list their properties.

Average price of existing homes in November is 387,600 USD, down from previous month but still up +4.0% YoY (up from 372,700 USD in November 2022).

Consumer confidence index surges the most since 2021

• Consumer confidence index rises to 110.7 (higher than estimated 104.5). Of which:

  • Current conditions index rises to 148.5 (vs. 136.5 in November).

  • Expectations index rises to 85.6 (vs. 77.4 in November).

Labor market sentiment improves and shopping intentions also rise due to expectations of lower inflation and interest rates soon:

• Average inflation expectations for the next 12 months drop to 5.6%, the lowest level since November 2020.

• The proportion of consumers saying there are plentiful jobs increases the most since early 2022.→ Positive labor market signals.

Expectations of economic recession in the next 12 months drop to the year's lowest level, however, still 2/3 of people believe there is a possibility of recession in 2024.

Nearly 40% of borrowers unable to repay student loans in October: Question mark over Americans' affordability.

• 8.8 million Americans with outstanding student loans did not make required payments in October after the Covid relief period ended.

  • Although this debt now reaches a record 1.6 trillion USD, on average, each person only has to pay ~500 USD per month.

    => Is Americans' affordability facing issues?

• Also in today's consumer confidence survey release:

  When asked about household financial situation: proportion answering “good” decreases slightly, while number saying “poor” increases.

  

→ Although the stock market is booming, affordability seems to be declining. Soft-landing still faces many challenges.

FedEx ER: Profits lower than expected, 2024 revenue forecast cut

• Revenue: 22.2 billion USD, down 3% YoY (0.2 billion USD below expectations).

• Non-GAAP EPS: 3.99 USD (0.21 USD below expectations).

• FY2024 Non-GAAP EPS guidance: 17.8 USD (below 18.2 USD expected).

The company says FedEx Express is facing difficulties due to reduced demand and customers switching to cheaper services

→ Expected to offset revenue with cost-cutting measures.

FedEx stock drops more than -10% right after the earnings report.

Other news:

• Global M&A deal values fall to a decade low (2.7 trillion USD) after interest rates rise sharply.

• UK inflation rises +3.9% YoY, lower than expected, reinforcing expectations of rate cuts.

  

  • UK stocks advance, FTSE at three-month high.

• Colorado Supreme Court bars Donald Trump from ballot for violating the Constitution due to role in inciting violence at the Capitol in 2021.

• Google plans to adjust ad reach using automation technologies to improve the sales process.

• Fear & Greed Index hits 80 (Extreme Greed) for the first time, indicating strong euphoria among investors in the market.