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U.S. futures once again flirted between gains and losses on the last trading day of the year, but with the all-time high in the S&P just 0.3% away, it is virtually guaranteed that the script calls for a new record to close out 2023 because that's how centrally-planned markets work. And who knows, maybe this time BIden's approval rating will actually increase; after all that's what all of this is about.

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As of 8:00am, S&P futures traded unchanged after rising just a few points away from its all-time high on Thursday, extending its 2023 advance to nearly 25%. Nasdaq 100 futures, which just refuse to give dip buyers any opportunity to BTFD, were up about 0.1%, with the underlying index already posting its best year since 1999, the year before the first tech bubble burst. The Bloomberg Dollar index first dipped then rose amid thin liquidity in currency markets. It’s on track for the worst annual loss since the onset of the pandemic on expectations the Federal Reserve will cut interest rates aggressively in 2024. Treasuries extended to Thursday’s losses, with the 10-year yield rising three basis points. Global bonds, meanwhile, remained on track for their biggest two-month gain on record.

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In premarket trading, Fisker jumped 8.3% after the EV maker said it grew deliveries by over 300% from 3Q to 4Q. Lyft drops 2.8% after an insider sold shares in the company and as Nomura cut the stock to reduce from neutral. Bakkt Holdings rises 5.7% to lead an advance in crypto stock peers, with Bitcoin gaining.

The market is on pace for its second straight monthly gain of more than 3%, extending first annual gain since 2020, after Federal Reserve policymakers appeared to affirm that they’re unlikely to raise interest rates further and will pivot to easing in 2024.

The MSCI All Country World Index has rallied about 20% this year, despite concerns about a market that’s flashing overbought signals raising concern about a pullback, with some observers saying that traders have gone too far, too fast in pricing in a dovish Fed pivot. For now, however, the year-end meltup rally holds at least one more day... what happens on Tuesday is a different story.

"The notion that the major central banks have surely done enough to quell the inflationary surge of 2022-23 is powering the rally,” said Brian Barish, chief investment officer of Cambiar Investors LLC.

“It’s not hard to imagine new things for the markets to be concerned by, such as elections, the sizable bond funding requirements of the US government, and/or any notion that inflation resurges anew. But for now, there’s not much news and not a lot of sellers.”

“The market shows signs of fatigue and undoubtedly needs to consolidate,” said Quincy Krosby, chief global strategist for LPL Financial, on Thursday. “But as long as participation remains broad, the bullish sentiment should carry the indexes as they navigate geopolitical and domestic scenarios, and an overarching positive consensus that 2024 will be a similarly strong year.”

Europe's Stoxx 600 index climbed 0.3%, capping a 13% advance for the year. Trading volumes were low, with a number of regional markets including Germany and the UK closing early on Friday. Germany’s DAX Index ended the year 20% higher in its best performance since 2019, outpacing the wider European benchmark.The German index peaked at a record high on Dec. 11 this year. while the broader Stoxx 600 index is up 13% in 2023. The DAX’s biggest gainers by points were software firm SAP and industrial giant Siemens.Pharmaceutical giants Bayer and Merck KGaA were the biggest laggards.

Earlier in the session, Asian stocks fell in the last trading session of 2023, led by losses in Hong Kong, rounding out a year of underperformance for the region versus global shares amid trepidation over China’s economy. The MSCI Asia Pacific Index fell 0.4%, with Tencent and Xiaomi among the biggest drags. Key gauges were also down in Japan, Australia and India, while stocks advanced in Singapore. Markets in South Korea and Thailand were closed for holidays.

The Hang Seng China Enterprises Index slid as much as 0.6% after climbing over the previous two days. The measure of Hong Kong-listed Chinese stocks is on track for an unprecedented fourth straight year of declines as Beijing’s stimulus measures have yet to spur meaningful recovery. Chinese equities have been the biggest drags on the regional index this year. The MSCI Asian gauge has gained a bit more than 8% in 2023, while the MSCI AC World Index has jumped 20% with a boost from soaring US tech shares. US hedge funds have “almost unwound” their 2022 purchases of Chinese firms’ American depository receipts this year, Morgan Stanley strategists including Gilbert Wong wrote in a note. US-based long-only managers, meanwhile, have slowed their selling of Chinese ADRs “significantly” compared to the last two years, they added.

In FX, the Bloomberg Dollar Spot Index inched up 0.1% as the dollar gained against most Group-of-10 peers; Swedish krona and Australian dollar led losses, while the Swiss franc and Norwegian krone led gains. EUR/USD dropped 0.1% to as low as 1.1046 after the pace of Spanish inflation failed to slow in December; Euro remains on track for three straight weeks of gains against the dollar. USD/NOK fell as much as 0.7% and EUR/NOK as much as 0.8% before partially paring the drop, after Norway’s central bank announced a cut to foreign currency purchases in January.

In rates, treasuries were under pressure to begin the year’s last US session, paced by declines for most European bond markets. Treasuries bear-steepened with two-year yields up 1bp to 4.29% and 10-year yields up 4bps to 3.88% but still inside weekly ranges that included lowest levels since at least July for all tenors. Sifma has recommended a 2pm close for USD-denominated cash bonds; IG credit-issuance slate has been blank for several days, with January expected to bring around $160b in new high-grade bond supply.

In commodities, despite a much larger than expected inventory draw, oil extended its slump as CTAs closed out the market 100% net short. Oil was set for its biggest annual drop since 2020 as war and OPEC+ production cuts failed to lift prices. All that will change bigly in 2024.

Looking at the calendar, we only have the December MNI Chicago PMI at 9:45 am (3 minutes earlier to subscribers) to round out the year. No Fed speakers are scheduled for remainder of year

Market Snapshot

• S&P 500 futures up 0.1% to 4,837.25
• STOXX Europe 600 up 0.4% to 479.84
• German 10Y yield little changed at 1.99%
• Euro down 0.1% to $1.1046
• MXAP down 0.3% to 168.86
• MXAPJ down 0.2% to 527.76
• Nikkei down 0.2% to 33,464.17
• Topix up 0.2% to 2,366.39
• Hang Seng Index little changed at 17,047.39
• Shanghai Composite up 0.7% to 2,974.94
• Sensex down 0.3% to 72,229.27
• Australia S&P/ASX 200 down 0.3% to 7,590.82
• Kospi up 1.6% to 2,655.28
• Brent futures up 0.9% to $77.83/bbl
• Gold spot up 0.1% to $2,068.48
• US Dollar Index up 0.15% to 101.38

Top Overnight News

• Global aircraft leasing companies are reassessing their risk appetite for China amid heightened tensions with the US and in the wake of big losses following the grounding of planes in sanctions-hit Russia. FT
• China is set to overtake Japan as the world’s largest auto exporter (the last time Japan didn’t hold the #1 spot was 2016, when it fell to Germany). Nikkei  
• South Korea’s CPI for Dec eases by more than anticipated, with headline coming in at +3.2% (down from +3.3% in Nov and below the Street’s +3.3% forecast) and core at +2.8% (down from +3% in Nov and below the Street’s +2.9% forecast). RTRS
• Spain’s headline CPI holds steady in Dec vs. Nov at +3.3% (inline w/the Street consensus) while the core number cools to +3.8% (down from +4.5% in Nov). BBG
• Israel’s former PM (Naftali Bennett) says the true enemy in the Middle East is Iran, which backs a variety of proxy militant/terror groups without facing any real repercussions. WSJ
• Chase Coleman is taking over Tiger Global’s $34 billion VC arm. The move comes after some investors asked Coleman and other partners to get more involved in the wake of steep markdowns and has given many comfort that the firm is seeking to correct the biggest misstep in its history, according to clients. BBG
• NYC is set to experience an office construction drought that will last for years ("the next wave of large office towers may not open until the early 2030s, if not later"). NYT
• Maine barred Donald Trump from the primary ballot Thursday, becoming the second state to block the former president from running again because of his actions before and during the Jan. 6, 2021, attack on the U.S. Capitol. WaPo
• Applebee's, which has two locations in Times Square, sold tickets starting at $650 a pop for its New Year's Eve celebration. Ball Drop, the event's producer, said tickets have sold out as of Wednesday, but the priciest ticket was $850, as it uses a dynamic pricing model. The Times Square Olive Garden is selling $450 tickets that include a buffet, open bar, DJ, and champagne toast, though a view of the ball drop isn't guaranteed. A similar package at seafood restaurant Bubba Gump Shrimp Co., which also doesn't promise a view of the Times Square ball, costs $1,015 per person. Business Insider
• HFs have net sold mega cap tech stocks in the past few months, driven by long sales. Net exposure to the group, however, is still elevated at 18.1% of total US single stock Net market value (vs. record level of ~20% seen in July, currently in the 92ndpercentile on a 5-year lookback)...

US Event Calendar

• 09:45: Dec. MNI Chicago PMI, est. 50.0, prior 55.8

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