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Futures

Stock Futures Steady After Wall Street's November Surge

2024-12-02

Trading activity today shows a lackluster trend as it follows Wall Street's remarkable month of 2024. Despite the strong finish in November, stock futures are now facing challenges in determining a clear direction to commence December. The Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) futures are hovering near the break-even point in the latest check. These two benchmarks had an outstanding month and closed at new record highs. Meanwhile, the Nasdaq-100 Index (NDX) futures are gradually moving upward as traders anticipate the release of construction spending and manufacturing data later today, prior to this week's batch of labor readings.

Unraveling Today's Market Trends After a Stellar November on Wall Street

Trading Activity After a Strong November

Trading activity today has taken a sluggish turn after the remarkable performance of Wall Street in November. The Dow Jones Industrial Average (DJIA) and S&P 500 Index (SPX) futures, which had closed at fresh record highs in November, are now struggling to find a clear direction. This lack of direction is evident as they are near breakeven at the moment. It shows the uncertainty that prevails in the market despite the previous month's success.

Nasdaq-100 Index (NDX) futures, on the other hand, are inching higher. Traders are looking ahead to the economic data releases scheduled for today and this week. This data is expected to provide more insights into the market's direction and help traders make more informed decisions.

Cboe Options Exchange Activity

The Cboe Options Exchange (CBOE) witnessed a significant trading volume on Friday. Over 1.3 million call contracts and more than 779,464 put contracts were exchanged. This indicates the level of activity and interest in the options market. The single-session equity put/call ratio rose to 0.56, while the 21-day moving average remained at 0.62. These ratios provide valuable insights into the market sentiment and the balance between bullish and bearish positions.

The trading activity at the CBOE reflects the overall market dynamics and the expectations of traders. It shows the ebb and flow of market sentiment and the various strategies being employed by traders.

Stock Performance of Gap Inc

Gap Inc (NYSE:GAP) stock is showing an upward trend in premarket trading. The stock has received an upgrade from J.P. Morgan Securities from "neutral" to "overweight" and a price target hike from $28 to $30. The analyst cited multiple catalysts for this upgrade and noted that the retailer could see more than 20% upside. This positive news has boosted the confidence of investors and led to an increase in the stock price.

GAP's performance this year has also been impressive, with a 16% increase. This shows the potential of the company and its ability to generate value for shareholders. The upgrade and price target hike are likely to attract more attention and interest from investors.

Electric Vehicle Stock Tesla Inc

Electric vehicle (EV) stock Tesla Inc (NASDAQ:TSLA) is also performing well in electronic trading. Its vice president of AI software shared on social media that version 13 of the company's "Full Self-Driving" software is being rolled out to some customers. This news has given a boost to the stock price, with a 2.1% increase in premarket trading.

Roth MKM also upgraded the stock from "neutral" to "buy". This shows the positive sentiment towards Tesla and its growth prospects. TSLA has had a strong year in 2024, with a 38.9% increase. The company's leadership in the EV market and its continuous innovation have been key factors driving its stock performance.

Toymaker Hasbro Inc's Performance

Shares of toymaker Hasbro Inc (NASDAQ:HAS) are up 1.5% before the bell. Traders are closely monitoring the Black Friday sales results as they expect this to have an impact on the company's performance. Stifel noted that the company's board games seemed to be popular among consumers. HAS has already shown a 40.4% year-over-year lead, indicating its strong market position.

The performance of Hasbro Inc reflects the trends in the toy market and the consumer demand for toys. The company's ability to meet consumer expectations and offer popular products is likely to contribute to its continued success.

Asian and European Market Responses to Economic Data

Asian markets closed mostly in the green, with a heavy schedule of economic data for the week. China's manufacturing purchasing managers index (PMI) for November reached its highest level since April, at 50.3. New home prices also showed a 2.4% year-over-year increase. In South Korea, preliminary trade data came in at its slowest pace since September 2023, while exports saw a 1.4% year-over-year growth. In response, China's Shanghai Composite rose 1.1%, Japan's Nikkei added 0.8%, Hong Kong's Hang Seng gained 0.7%, and South Korea's Kospi ended flat.

Across the Atlantic, indexes are moving higher. France's CAC 40 is up 0.4% as the region awaits budget updates. Euro zone and U.K. manufacturing sector activity data showed a decline in October, while the European Union (EU) maintained a steady pace of 6.3%. At the latest glance, London's FTSE 100 is up 0.4% and Germany's DAX is 1.3% higher.

The responses of Asian and European markets to the economic data highlight the global nature of the market and the interconnectedness of different economies. The data releases will provide important insights into the economic health and future prospects of these regions.

The S&P 500 is a benchmark that holds significant importance in the global financial markets. /ES and SPX, both representing this index, often exhibit price differences due to various factors. Understanding these differences is crucial for investors seeking to make informed decisions.

Demystifying the /ES and SPX Price Gap

Understanding the Basics

/ES and SPX both track the S&P 500, but futures trading costs lead to slight price variations. The gap between them is influenced by the interplay of interest rates and dividend yields. These factors are already incorporated into the pricing, thus not necessarily presenting arbitrage opportunities.Investors worldwide closely follow the S&P 500, and several instruments like SPX, SPY, and /ES are used to track it. SPX is a cash index that can't be directly traded, while /ES represents E-mini S&P 500 futures, which can be traded. As of Nov. 19, /ES was trading at a premium of about 23 points over SPX, raising questions about its consistency and the reasons for the difference.

The Role of Cost of Carry

The difference between /ES and SPX reflects the cost of carry in futures. This includes dividends from S&P 500 stocks and interest rate costs over the futures contract's duration. Since /ES trades close to the expected SPX forward value at settlement, its formula is based on factors like the risk-free rate (r), dividend yield (q), and time until maturity (t).Whether /ES trades at a discount or premium to SPX depends on the relationship between the interest rate and dividend yield. If the interest rate is higher than the dividend yield, /ES is likely to trade at a premium. Conversely, if the dividend yield exceeds the interest rate, /ES will trade at a discount.Over the past 30 years, /ES has been priced higher than SPX during four significant periods, which coincided with when the Federal Reserve raised interest rates. This highlights the significant influence of interest rate changes on the /ES and SPX price gap.For example, in June 2022, the Federal Reserve's 75-basis point interest rate hike widened the /ES to SPX spread immediately. This shows how interest rate movements can have a direct impact on the price differential between these two indices.

Implications for Investors

Investors need to be aware of these price differences and their underlying causes. By understanding the relationship between interest rates, dividend yields, and futures trading costs, investors can better assess the market conditions and make more informed investment decisions.For instance, during periods when interest rates are expected to rise, /ES may trade at a premium to SPX. This provides an opportunity for investors to take advantage of the price differential through various trading strategies.On the other hand, when the dividend yield is higher than the interest rate, /ES may trade at a discount. Investors should consider these factors when constructing their portfolios and managing their risks.In conclusion, analyzing the premiums between /ES and SPX provides valuable insights into the market dynamics and helps investors navigate the complex world of financial markets. By staying informed and understanding these relationships, investors can make more informed decisions and potentially enhance their investment returns.Kai Zeng, the director of the research team and head of Chinese content at tastylive, with 20 years of experience in markets and derivatives trading, cohosts several live shows like "From Theory to Practice" and "Building Blocks". For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders) and tastyliveTrending for stocks, futures, forex & macro. Trade with a better broker and open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.

In an ever-evolving global economic landscape, analysts have pointed out that China might need to adopt a more cautious approach in promoting the overseas usage of the yuan over the next four years. This comes as US President-elect Donald Trump seems determined to prioritize the preservation of the US dollar's status during his second term. As the yuan currently holds a certain share in international payments, foreign exchange reserves, and commodity pricing, yet fails to fully align with China's significant position as a producer of 17% of global economic output, some argue that US policies will have limited impact on Beijing's long-term plans for the internationalization of its currency.

Trump's Stance on the US Dollar

On Sunday, through an unsparing social media post, Trump made a firm vow to impose 100% tariffs on the BRICS bloc of emerging economies. This bloc includes prominent members such as China, Brazil, India, Russia, and South Africa. If these countries attempt to undermine the US dollar by creating a new common banknote, Trump's aggressive move is seen as a preview of how his administration will strive to maintain the currency's status as the global reserve. His fierce defense of the "mighty US dollar" clearly indicates his determination in this regard.

Zhu Feng's Perspective

Dean Zhu Feng from the Institute of International Relations at Nanjing University believes that the use of local currencies among developing nations is not part of a broad de-dollarization campaign. He emphasizes that the use of the yuan and local currencies to settle among BRICS countries is mainly for trade facilitation purposes and has minimal impact on the US dollar's unrivaled dominance. He strongly advises Beijing to send a clear message to Washington, highlighting the significance and independence of China's currency policies.

Impact and Future Outlook

Despite Trump's assertive stance on the US dollar, the current situation does not necessarily mean a setback for China's yuan internationalization efforts. China's economic strength and growing global influence continue to provide a solid foundation for the yuan's gradual expansion in international markets. While the US may try to maintain its dominance, the increasing demand for diversified currencies and the evolving trade patterns among different regions will likely lead to a more balanced global currency system in the long run. China will need to carefully navigate these challenges and opportunities, leveraging its economic advantages to further promote the international use of the yuan while also maintaining stable economic development at home.