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Fundamental Analysis

Equities Decline, Ending a Five-Session Winning Streak

  • Fed minutes revealed caution about more rate hikes.
  • In October, US existing home sales reached their lowest point in over 13 years.
  • A Reuters poll forecasted a modest rise in European equities in 2024.

On Tuesday, US equities declined as the S&P 500 and Nasdaq ended their five-session winning streaks. Retailers faced losses due to disappointing outlooks, and technology shares also fell.

The decline continued as minutes from the latest Federal Reserve meeting revealed a consensus among officials to approach raising US interest rates cautiously. 

The central bank indicated that any rate hikes would only occur if progress in controlling inflation paused. The recent rally in stocks, fueled by the belief that the Fed might halt rate hikes, was interrupted. Meanwhile, Nvidia, a leader in artificial intelligence chips, saw its shares close down by 0.9%.

US home sales (National Association of Realtors)

US home sales (National Association of Realtors)

Data revealed that in October, US existing home sales reached their lowest point in over 13 years due to historically high mortgage rates and a shortage of houses in the market. The sales fell by 4.1% to an annual rate of 3.79 million units, marking the lowest level since August 2010.

Elsewhere, the pan-European STOXX 600 slipped by 0.1%, and Italy’s FTSE MIB index recorded its worst daily performance in a month, closing 1.3% lower. Monte dei Paschi di Siena experienced a 7.9% loss after Italy sold a 25% stake in the bailed-out bank. 

European Central Bank (ECB) officials actively opposed speculations of rate cuts while data indicated a sustained fall in inflation and a potential recession.

ECB policymaker Francois Villeroy de Galhau stated that rates would likely remain unchanged for the next few quarters. Pablo Hernandez de Cos mentioned that it was “premature” to discuss rate cuts.

Meanwhile, a Reuters poll forecasted a modest rise in European equities in 2024, balancing optimism that global interest rates had peaked with concerns about a possible recession. 

On Tuesday, the UK’s FTSE 100 dropped, with energy stocks falling due to lower crude prices. The pound strengthened after comments from Bank of England officials, adding pressure to the exporter-heavy index. 

Sterling rose by 0.2%, reaching a 10-week high against the US dollar as Bank of England Governor Andrew Bailey emphasized that there was no need to change the central bank’s stance on interest rates. 

Heavyweight energy stocks lost 1.0%, reflecting investor caution ahead of an OPEC+ meeting on Sunday. The producer group might discuss deepening supply cuts.