ASX 200 to rise, S&P 500 exits correction territory, Microsoft shares hit all-time high

ASX 200 futures are trading 19 points higher, up 0.26% as of 8:20 am AEST.

S&P 500 SESSION CHART

MARKETS

• S&P 500 rallied intraday, closed at best levels and near a 3-month high
• S&P 500 now 10% off the recent low, marking an exit from the textbook definition of a 'correction'
• Markets continue to rally off the back of peak Fed and soft-landing narratives
• Positioning and sentiment indicators remain supportive, with Goldman Sachs noting CTAs have ~US$40bn in S&P to buy over the next month in either a flat or up tape
• Fed minutes due tomorrow at 6:00 am – No major surprises are expected by analysts are interested in the tone of Powell’s commentary, which is expected to take a dovish lean and reference the follow-on effects of past hikes
• Bonds set for positive November, risks remain ahead of 20-year auction (Bloomberg)

STOCKS

• Bayer stock slumps to record lows after drug trial failure rattles investors (Reuters)
• Citigroup eliminates over 300 senior manager roles (Bloomberg)
• McDonald's to buy Carlyle's stake in its China business (CNBC)
• Paramount Global completes sale of Bellator to PFL (CNBC)

OPENAI & MICROSOFT

• OpenAI board ousted CEO Sam Altman due to ‘breakdown in communications’ amid thoughts of him pushing OpenAI and ChatGPT too far and too fast (Bloomberg)
• OpenAI hires former Twitch CEO Emmett Shear to replace Altman (CNBC)
• Microsoft – Also owns 49% of OpenAI – taps Altman and OpenAI co-founder Greg Brockman to lead a new advanced AI research team (Reuters)
• More than 500 of OpenAI's 700 employees threaten to quit if company's board does not resign (Axios)

CENTRAL BANKS

• Fed's Barkin positive on recent inflation signals but warns it is stubborn (Bloomberg)
• ECB's Wunsch warns rate cuts risks could prompt rate increases if it undermines current policy stance (Bloomberg)

GEOPOLITICS

• Israeli tanks spotted near hospital in North Gaza amid hostage deal talks (Reuters)
• Officials caution Israel against long, bloody insurgency in Gaza (Reuters)
• Arab nations urge China to back ceasefire in Gaza as Beijing intensifies Middle East influence efforts (Reuters)
• Argentina's Milei vows political transformation after surprise win (Bloomberg)
• Janet Yellen says Biden and Xi are still far apart on Taiwan's independence (CNBC)

CHINA

• China financial regulators and PBOC pledge to support property sector (Reuters)
• Analysts say China needs to pull 'multiple levers' for property turnaround (Reuters)
• PBOC pauses rate cuts amid shift to stabilise pace of credit extension (Bloomberg)

ECONOMY

• Japan workers set for second year of wage hikes (Reuters)
  
  

The Microsoft Heist

Microsoft managed to bring on board OpenAI's ousted CEO Sam Altman and co-founder Greg Brockman (who left on his own terms) to head a new AI team.

At the same time, more than 600 of OpenAI's 700 employees have demanded the resignation of the board and said they may walk out if Altman is not brought back.

If all goes to plan, Microsoft may have just hired Sam Altman, Greg Brockman and a majority of OpenAI's team without spending a single dollar. (It's worth noting that Microsoft own 49% of OpenAI via a US$10bn investment back in January)

It goes to show that startups are worthless without the right people. As for Microsoft, this is a gamechanging opportunity to become a leader in the AI space. Microsoft shares finished the overnight session 2.1% higher (or added around US$56bn in market cap), up 57% year-to-date.

The State of Play

A few interesting tidbits about recent macro developments and market movements:

• Yardeni Research: "We remain bullish on the S&P 500, which we expect will consolidate ... for a few more days before resuming the Santa Claus rally ... We are still forecasting ... 4600 by the end of the year. A solid break above 4550 could signal a very good start for stocks in 2024.”
• Goldman Sachs: "Our baseline macro forecasts point to a roughly unchanged equal-weight S&P 500 P/E of 14x at year-end 2024 that would rank in the 65th percentile since 1976. In contrast, the aggregate S&P 500 P/E of 18x will rank in the 83rd percentile versus history."
• Goldman Sachs: “We expect the FOMC to begin considering changes to the speed of runoff around Q3 2024 ... and to finish runoff in Q1 2025 ... The key risk ... is that the increased supply of debt ... causes intermediation bottlenecks ... that lead the Fed to stop runoff earlier.”
• Bank of America: It's 2024 forecasts include a "soft landing in US and global economy, lower inflation, easier monetary policy, higher oil prices, lower US dollar, modest decline in bond yields, modest but broader upside in global equities.”

Milei Wins in Argentina

The Global X MSCI Argentina ETF rallied 11.4% overnight after Javier Milei's presidential victory. His policies and views include:

• Believes the government should have very little power over the economy
• Seeks to abolish the Central Bank of Argentina
• Seeks to dollarise the Argentina economy
• Promote free-market economics including tax cuts, reducing government spending and privatising state-owned enterprises

Why does this matter for ASX investors: There are quite a few ASX-listed lithium stocks based in Argentina, including AGY, AKE, GLN, LEL and LKE.

His campaign has been heavily skewed towards farming and scrapping taxes on farm exports (to make exports such as soybeans, corn and wheat more competitive). But it also mentions promoting investments in oil and lithium.

He seeks to re-privatise state-run driller YPF SA, which rallied 39.9% overnight on the news.

Milei's stance on lithium is unclear, but he has expressed opposition to nationalising the metal or forming a cartel with South American neighbors to control its supply and price.