Nasdaq on The Hunt for More UK Firms to List in US

Economic

Summary:

The trend of UK companies going to New York to raise funds will continue.

A boss at a leading US stock exchange says the trend of UK companies going to New York to raise funds will continue.

Karen Snow, global head of listings at Nasdaq, helped lure Cambridge-based chip designer Arm Holdings to float on that exchange and told the BBC that other UK tech firms will follow.

Arm raised $4.87bn (£3.8bn) on Nasdaq in September, despite heavy lobbying to list its shares in London instead.

The Nasdaq raised $13bn in 2023 while the London Stock Exchange raised $972m.

Although there has always been a significant gap between the two exchanges, this year looks set to be the first time the LSE has failed to hit the $1bn mark for money raised for companies floating on it since records began in 1995, according to data from Dealogic.

Mrs Snow agreed when asked if the Arm listing coup was indicative of a trend of her index luring UK companies away from their home financial capital market.

"We're having a lot of conversations with companies about listing in the US. We get a lot of inbound calls [from the UK] and we also make sure we're in front of the right CEOs," she said.

Mrs Snow said there were many conversations already underway to get more UK companies to cross the pond and raise money through a Nasdaq listing.

The LSE is seen as a pivotal part of London's position as financial capital, and the pipeline of initial public offerings (IPOs), the process where companies raise money by selling shares in their business, supports financial services jobs in the City of London and beyond.

The government has been implementing post-Brexit reforms aiming to overhaul financial regulation to improve London's attractiveness in comparison with other European rivals such as Paris and Frankfurt.

But earlier this month, MPs on the Treasury Committee branded these measures - dubbed the Edinburgh Reforms

When it comes to where companies choose to list their shares, in recent months several firms have moved their listings away from London or hinted that they will do so.

Travel giant Tui is considering quitting the LSE in favour of a single listing in Frankfurt.

Paddy Power and Betfair owner Flutter says it will list its shares in the US from 29 January. Although its primary listing will remain in the UK, there has been speculation that it could switch its main listing to the US at a later date.

And prior to Arm listing its shares in New York, building supplies firm CRH and plumbing company Ferguson also shifted their listings to the US.

The two rival financial capitals are also reportedly launching respective charm offensives to get Chinese fast-fashion company Shein to list its shares on their exchanges.

Helena Morrissey, a finance veteran with top roles at investment firms Newton Asset Management, Legal & General and AJ Bell, said that while London was still very innovative, "it feels less confident and energetic".

"It's hard to retain confidence in the face of well-publicised decisions to list elsewhere," she said

Baroness Morrissey said there was a long-held perception that international firms would get higher valuations when selling their shares on US stock exchanges, and that UK investors were relatively more risk-averse than their American counterparts.

"So we have an image problem, not helped by revelations about low levels of investment in domestic equities by UK asset owners - pension funds.

"We need to have the self-belief to invest in Britain - but it needs to be based on reality, not just a PR campaign."

Source: BBC

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Saif

Commodity

Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world’s biggest exporters try to support the global oil price.

Saudi Arabia and Russia, the world’s two biggest oil exporters, called in December for all OPEC+ members to join an agreement on output cuts after a meeting of the producers’ club.

Russian President Vladimir Putin visited Riyadh shortly after the meeting of OPEC+, which brings together the Organization of the Petroleum Exporting Countries (OPEC), Russia, and other allies.

Russian Deputy Prime Minister Alexander Novak, Putin’s top oil and gas point man, was quoted by Russia’s three main news agencies as saying that Russia would deepen cuts beyond the 300,000 barrels per day of cuts already agreed for this year.

“Already in December, we will add additional volumes,” Novak was quoted as saying by Interfax news agency. “By how much, we’ll see based on the results of December -- there may be an additional 50,000 bpd, maybe more.”

Russia had pledged to a cut of 300,000 bpd compared to the May-June exports -- and to keep at that level until the end of the year.

In December, Russia agreed to deepen those cuts to 500,000 bpd in the first quarter of 2024, the Russian agencies said.

Due to promises made to OPEC+, Russia’s oil exports in 2023 will total less than the 247 million tonnes used in Russia’s main macro-economic forecasts, Novak said.

Novak said he hoped that Gazprom and Chinese producer CNPC could soon agree on the contract conditions for gas sales through the Power of Siberia-2 pipeline.

Russia has been in talks for years about building the Power of Siberia-2 which will carry about 50 billion cubic meters of gas a year from Yamal in northern Russia to China via Mongolia.

“We expect that the company should reach an agreement as soon as possible,” Novak said.

Source: Alarabiya

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Saif

Economic

Financial Stability Oversight Council says emerging technology poses ‘safety-and-soundness risks’ and benefits.

While AI offers the promise of reducing costs, improving efficiency, identifying more complex relationships and improving performance and accuracy, it can also “introduce certain risks, including safety-and-soundness risks like cyber and model risks,” the FSOC said in its annual report released on Thursday.

The FSOC, which was established in the wake of the 2008 financial crisis to identify excessive risks in the financial system, said developments in AI should be monitored to ensure that oversight mechanisms “account for emerging risks” while facilitating “efficiency and innovation”.

Authorities must also “deepen expertise and capacity” to monitor the field, the FSOC said.

US Treasury Secretary Janet Yellen, who chairs the FSOC, said that the uptake of AI may increase as the financial industry adopts emerging technologies and the council will play a role in monitoring “emerging risks”.

“Supporting responsible innovation in this area can allow the financial system to reap benefits like increased efficiency, but there are also existing principles and rules for risk management that should be applied,” Yellen said.

US President Joe Biden in October issued a sweeping executive order on AI that focused largely on the technology’s potential implications for national security and discrimination.

Governments and academics worldwide have expressed concerns about the break-neck speed of AI development, amid ethical questions spanning individual privacy, national security and copyright infringement.

In a recent survey carried out by Stanford University researchers, tech workers involved in AI research warned that their employers were failing to put in place ethical safeguards despite their public pledges to prioritise safety.

Source: Al Jazeera

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FastBull Featured

Remarks of Officials

Bank of Canada (BOC) Governor Tiff Macklem delivered a speech on December 15.

The economy is no longer overheated, and that is relieving inflationary pressures. Prices of food and non-durable goods and shelter costs make up almost half of the consumer price index basket. Unless the pace of price increases in these big categories slows, it's going to be hard to get overall inflation down to the 2% target.

Looking ahead, 2024 is expected to be a year of transition. The effects of past interest rate increases will continue to work through the economy, restraining spending and limiting growth and employment. Economic growth is expected to remain weak through 2024 until the second half of next year when growth and employment will begin to pick up and inflation will approach the 2% target.

Inflation may rebound in the coming months, suggesting that the decline in inflation will not happen overnight. When it's clear that inflation is on a sustained downward track, we can begin discussing lowering our policy interest rate. We don't need to wait until inflation is all the way back to the 2% target to consider easing policy.

We will be watching the demand-supply balance, wage growth, corporate pricing behavior and inflation expectations closely as we assess where we are on the path to price stability.

Macklem's Speech

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Zi Cheng

Economic

A surge in U.S. government bonds has helped lift stocks and heightened investors’ appetite for risk. Now some are betting that further gains may be harder to come by unless the economy severely weakens, potentially upsetting the narrative of resilient growth that has propelled markets.

An unexpected dovish pivot from the Federal Reserve earlier this week turbocharged the rally in Treasuries, sending benchmark 10-year yields to their lowest level since July. Yields, which move inversely to bond prices, now stand at 3.93%, some 110 basis points from a 16-year high hit in October.

The tumble in Treasury yields has rippled far beyond the bond market as it pulled down rates on mortgages, eased financial conditions and pushed investors into stocks and other risky investments. The S&P 500 is up nearly 15% since its October lows and has risen nearly 23% this year, putting it within striking distance of a record high.

Some investors, however, believe much of the dovish shift from the Fed may already be reflected in Treasury prices. Deeper cuts, they say, would be more likely if a rapidly slowing economy forced the Fed to accelerate its easing - an outcome that would run counter to the “soft landing” outlook that has buoyed stocks in recent months.

"The market is pretty perfectly priced for a soft landing," said Stephen Bartolini, said lead portfolio manager of the U.S. Core Bond Strategy at T. Rowe Price. "The bulk of the move lower is complete and if we were to push yields from here it would have to be due to expectations that the economy is slipping into recession."

The Fed’s new projections - published on Wednesday - pencil in a median 75 basis points of cuts next year, taking the fed funds rate to between 4.50% and 4.75%. Traders, by contrast, are betting rates will fall by 150 basis points, according to data from LSEG.

Technical factors may also make it more difficult for the bond rally to sustain itself. The swift move will likely prompt some profit-taking on the part of investors due to concerns that the trade is overcrowded, strategists at BofA Global Research said in a note Friday.

Some Fed officials have begun pushing back against the view that a pivot is imminent. New York Fed President John Williams on Friday said the U.S. central bank is still focused on whether it has monetary policy on the right path to continue bringing inflation back to its 2% target.

“We have seen the easy money on this Fed pivot already made," said James Koutoulas, chief executive officer at Typhon Capital management, who believes further gains in Treasuries may require a growth scare that sparks a scramble for safe assets. "We expect to chop around a bit in the front of the curve until the economy materially weakens further.”

Investors will be watching economic data next week, including personal consumption expenditures and initial jobless claims that may sway the Fed's outlook for inflation.

A soft landing, in which growth remains resilient while inflation slows towards the Fed’s target rate, has become the base case scenario for Wall Street firms, including BMO Capital Markets and Oppenheimer Asset Management. The firms see the S&P 500 at 5,100 and 5,200 next year, respectively, compared to its current level of 4719.

Some investors believe yields will continue to fall. Jack McIntyre, portfolio manager for Brandywine Global, said the week’s rapid drop in yields was likely aided by bearish investors unwinding their bets after being caught off guard by the Fed’s pivot.

Short bets against two-year Treasuries hit record levels earlier this month, data from the Commodity Futures Trading Commission showed.

Though yields might pare some of that move in the near-term, McIntyre expects the decline to resume as inflation cools, with the 10-year settling between 3.5% and 3.7% in the middle of next year.

Arthur Laffer Jr., president of Laffer Tengler Investments, is less bullish on government bonds. The swift decline in yields is already loosening financial conditions, potentially making it more difficult for the Fed to cut rates next year without risking a snapback in inflation, he said.

Laffer pointed to data such as the Atlanta Fed's GDPNow estimate, which shows fourth quarter GDP rising by 2.6%, more than one percentage point higher than in mid-November.

The rally "is overdone and the market has moved too fast," he said.

Source: Investing.com

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Commodity

Energy

Fed rate cut expectations fuel gold

After a dull 2022, gold staged a decent comeback in 2023, entering uncharted territories twice and appearing to be headed for a more than 10% yearly gain. The only period where the precious metal trended lower was between May and early October, but after hitting a six-month low of $1,810 on October 6, the bulls took charge and drove the metal to a new record of around $2,145 in early December, although it corrected lower thereafter.

The May-October slide was the result of stronger-than-expected US data triggering a rally in both Treasury yields and the US dollar. That said, the conflict between Israel and Hamas put a floor to the slide, with the rebound evolving into a strong short-term uptrend as US data began to soften, suggesting an economic slowdown ahead. Combined with inflation cooling faster than expected and the Fed revising its dot plot lower in December, this allowed investors to pencil in sharp rate cuts, which reduced the opportunity cost for holding the precious metal.

Record buying by central banks also helps

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_1

Another supportive factor for the yellow metal was that central banks have expanded their bullion reserves by 337 tons in Q3, resulting in a net 800 tons of gold during the first three quarters of 2023, which constitutes a record for a Q1-Q3 period. Surging consumer prices may have triggered a rush to gold by central banks as a store of value. However, even with inflation cooling down, the trend may continue due to concerns about a global economic slowdown that may require monetary easing, which could result in currency devaluation. Thereby, gold can be used as a hedge against depreciating currencies.

Rally could continue in 2024, but downside risks may intensify in H2

With that in mind, expectations of massive rate cuts by the Fed next year and solid central bank purchases are likely to allow gold to continue shining in 2024 as Treasury yields and the dollar stay pressured, with geopolitical uncertainty perhaps still permitting some safe haven flows periodically.

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_3

Nonetheless, there are downside risks to that outlook and the most recognizable may be the market getting proved wrong about penciling in so many rate reductions. Even if the Fed starts cutting during the first half of the year, data may begin to suggest that the economy is not doing as bad as initially feared, and thus policymakers may not proceed with as steep a rate-cut path as the market currently implies for the rest of the year. Thus, as they face reality, investors may begin to lift their implied path, which could prove positive for the US dollar and Treasury yields, and thereby result in a correction in gold. Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_4

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_4

Another risk towards the end of 2024 may be the US presidential election in November. Eleven months is too distant a horizon for the markets to start focusing on this event, but as time goes by, it may be difficult to ignore the risk of a possible impact the outcome may have. Opinion polls are showing former Republican President Donald Trump neck and neck with incumbent Democrat Joe Biden, with the former favoring spending cuts, but also aggressive tax cuts, which is an inflationary measure. This may increase the risk for the Fed to opt for a higher interest-rate path than the market currently anticipates, thereby exerting more pressure on gold towards the end of the year.

Industrial metals to stay closely linked to China

Iron-ore has been the best-performing industrial metal in 2023, but it was not a smooth sail north throughout the year, with the metal falling sharply during the second quarter on concerns surrounding the Chinese economy, the metal's largest importer. Nonetheless, Chinese authorities have implemented a series of stimulus measures to heal their wounded economy, with the positive effect being reflected in some of the recent data sets. This may have been the main driver behind the rally in iron ore prices from August onwards. Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_5

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_5

Copper did not feel to the same extent the heat of concerns surrounding the performance of the world's second largest economy, although China imports over 60% of the metal's global traded volume. That said, this metal did not stage as strong a recovery as iron ore did during the last quarter of 2023, only returning slightly above the levels it began the year. Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_6

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_6

Looking ahead, if some optimism around China's recovery is maintained, both metals may continue to benefit, with monetary policy easing around the globe providing a helping hand. The main risks are a continued slowdown in China, perhaps driven by its battered property sector, and central banks not loosening monetary policy as much as currently anticipated by the market.

Oil slides as global demand fizzles

Despite the ups and downs, crude oil prices retained a sideways trajectory, slumping back to their 2023 lows in the final quarter of the year.

Israel's invasion in Gaza distracted the world's attention away from the war in Ukraine, evoking memories of the oil crises in the 1970s. But its impact on energy markets has been relatively feeble and temporary as Israel is not an important global oil player and Iran's direct involvement has not occurred yet despite ongoing tensions in the Middle East.

Instead, declines in crude stocks, OPEC's production cuts, and hopes for growing oil consumption in China had been a dynamic bullish cocktail throughout the year, lifting WTI crude up to a one-year high of $95 at the end of September.

The oil rally, however, did not last long as recession fears became more pronounced, squeezing prices back to the 2023 floor of $64-$70. Following a year of rate increases and high prices, analysts are still wary of lagged rate hike effects, having revised their demand projections downwards a couple of times recently considering that consumers could adopt more careful spending habits in 2024. Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_7

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_7

Presently, the downtrend in the US house sales and the moderate increase in aggregate delinquency rates in the third quarter is a warning sign of fizzling economic growth. Testifying before the Senate, big US banks protested against the proposed new capital requirements (known as Bassel III endgame), arguing the measures could unjustifiably create more risks to the financial system while calling the lack of economic analysis for consumer regulations alarming even though there is no evidence banks are undercapitalized.

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_8

Nevertheless, the growth jitters may not necessarily sink the US economy if the unemployment rate stays near record low levels and the falling inflation boosts real wage growth. Potential rate cuts by global central banks could further enhance consumers' and businesses' purchasing power, preventing a hard landing.

Energy demand from China not encouraging

China, the world's oil demand engine, could also be an important card for the energy market although its consumption has been less impressive than expected this year and Moody's negative outlook revision cast a pall over its 2024 picture.

Top officials have pledged to step up fiscal stimulus amid the persisting property slack and flagging consumer confidence, though they dropped the word "forceful" when mentioning monetary easing, backing a more flexible and targeted approach instead. That created some concerns about whether the government can restate its 5.0% GDP target in 2024 given that the reopening boost and the weak comparisons have already run their course.

OPEC+ could be the main driver

OPEC, the US Energy Information administration, and the International Energy Agency share the same view of slower demand growth next year, with the former setting its forecast higher at 2.25mln bpd versus the 1.34mln bpd and 1.1mln increase set by the other two respectively. According to forecasts the oil market could shift into a small surplus early next year due to weakening demand, and OPEC+ exporters have already agreed to voluntary output cuts that lifted total curbs up to 2.2 mln bpd for the March quarter.

Year Ahead 2024: Fed Policy to Drive Gold, Oil to Dance to Rhythm of OPEC+_10

However, investors are not convinced OPEC and its allies can stay committed to the supply cut plans. The most recent virtual ministerial meeting was initially postponed as some African exporters pushed back against supply reductions following a year of underinvestment. Then, OPEC officials said that output cuts will be announced by individual members rather than the secretariat, making deviations likely, especially as forecasts for higher US supply threaten the oil cartel's market share.

A price competition through a war of production could be possible between OPEC+ members and the US ahead of the US election. Biden would ideally want to keep fuel prices cheap to balance inflation pressures and fix his damaged political profile. On the other hand, Russia is facing a fiscal breakeven oil price of $114bbl according to the S&P Global commodity insights in the face of its military activities and heightened tariffs. Saudi Arabia's equivalent is around $85/bbl based on IMF estimates, while any prices below $40/bbl could increase the odds of a debt crisis in regions such as Iran and Angola.

That said, the US might be relatively more vulnerable in such a battle as Biden's administration sold more than 40% of the nation's strategic petroleum reserves to keep a lid on fuel prices during the post-pandemic period. Efforts to refill the nation's reserves could create adverse effects, creating more demand for oil and therefore new tailwinds for crude prices.

Geopolitics to keep investors on toes

Last but not least, geopolitical risks in the Middle East cannot be underestimated. Although investors have downgraded the tensions to a regional issue, there is no breakthrough in the Israel-Hamas war so far, and Iran's support to militant extremist groups such as Hezbollah and Hamas and its uncertain nuclear program leaves the energy market exposed to a broader conflict that could consequently create new tailwinds.

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Owen Li

Economic

Energy

Oil prices rose nearly 1% in early Asian trade on Monday, supported by lower exports from Russia and as attacks by the Houthis on ships in the Red Sea raised concerns of oil supply disruption.

Brent crude futuresclimbed 69 cents, or 0.9%, to $77.24 a barrel by 0037 GMT, while U.S. West Texas Intermediate crude was at $72.08 a barrel, up 65 cents, or 0.9%.

"The bad weather in Russia has played a part in the stronger open this morning as has the Houthis attack on ships close to Yemen," IG analyst Tony Sycamore said.

Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world's biggest exporters try to support global oil prices.

This comes after Moscow suspended about two-thirds of loadings of its main export grade Urals crude from ports due to a storm and scheduled maintenance on Friday.

Shipping firms, including the world's biggest container shipping lines MSC and A.P. Moller-Maersk, said over weekend that they would avoid the Suez Canal as Houthi militants in Yemen stepped up their assaults on commercial vessels in the Red Sea.

Bab al-Mandab is one of the world's most important routes for global seaborne commodity shipments, particularly crude oil and fuel from the Gulf bound westward for the Mediterranean via the Suez Canal or the nearby SUMED pipeline, as well as commodities heading eastward for Asia, including Russian oil.

Both Brent and WTI ended their longest streak of weekly declines in half a decade with a small gain last week after a U.S. Federal Reserve meeting last week raised hopes that interest rate hikes are over and cuts are on their way.

"I think just as importantly however is last week's dovish Fed meeting which removes the tail risks of a hard landing for the U.S. economy and for crude oil demand going forward," Sycamore said.

"Not to mention the technical picture in crude oil supports a recovery into the $76/78 area," he added, referring to WTI prices.