Round up of today's market news *

North American News

Market Rollercoaster Takes Investors on a Wild Ride, Ultimately Returning to Square One: A Tale of Twists and Turns

In today’s trading session, a prevailing negative sentiment dominated the markets, initially attempting a bullish move that saw the S&P 500 hitting resistance at its record high close of 4,796.56. The NYSE experienced a nearly 2-to-1 ratio of decliners to advancers, while the Nasdaq witnessed a 4-to-3 margin in favor of decliners. Despite an initial setback, the three major indices closed relatively unchanged from the previous day, recovering from session lows, thanks to positive movements in some mega-cap stocks. The Russell 2000, however, concluded with a 0.8% loss.

Notably, the Vanguard Mega Cap Growth ETF (MGK) faced a 0.9% decline near session lows but managed to close with a 0.2% gain, reflecting the resilience of mega-cap stocks in the market. Investors were closely scrutinizing the Consumer Price Index (CPI) report for December, which slightly exceeded market expectations. The total CPI rose by 3.4% year-over-year in December, up from 3.1% in November, while the core reading showed a slight deceleration to 3.9% from the previous month’s 4.0%. Additionally, weekly initial jobless claims remained below recession-like levels at 202,000, down from 203,000 in the previous week.

Despite data that may not entirely align with market hopes for significant rate cuts, the market’s expectations for rate cuts strengthened. Cleveland Fed President Mester, an FOMC voter, mentioned on BloombergTV that a rate cut in March is likely too early. However, the fed funds futures market still reflects anticipation of six rate cuts this year, with a 71.4% implied likelihood of a March cut, up from 67.4% seen yesterday, according to the CME FedWatch.

In the bond market, Treasuries experienced gains, with notable buying spurred by a robust $21 billion 30-year bond reopening, overshadowing the impact of the morning’s economic data. The 2-year note yield fell nine basis points to 4.27%, and the 10-year note yield declined five basis points to 3.98%. Despite these positive developments in the bond market, stocks faced persistent selling pressure, with nine out of the 11 S&P 500 sectors recording declines. The utilities sector emerged as the worst performer, experiencing a substantial 2.3% decline.

On a different note, significant attention surrounded the trading of spot Bitcoin ETFs today, following the SEC’s announcement yesterday approving 11 spot Bitcoin ETFs. This development injected notable excitement and interest into the market, potentially influencing trading dynamics in the days to come.

On the day:

S&P 500 -0.1%
Nasdaq Comp flat
DJIA flat
Russell 2000 -0.7%

U.S. Treasury auctions of $21 billion of 30 year bonds at a high yield of 4.229%

WI (when issued) level was 4.230% at the auction time.

High Yield 4.229 with a six-auction average of 4.399%.
WI level at the time of the auction was at 4.230%
Tail: Previous -0.1 basis points versus six-auction average +2.2 basis points.
Bid-to-Cover Ratio: 2.37X vs six-auction average at 2.39x.
Dealers’ Participation: 14.52% versus six-auction average at 16.0%.
Direct Bidders (a measure of domestic demand): 17.71% versus six-auction average of 18.1%.
Indirect Bidders (a measure of international demand): 67.77% versus six-auction average of 65.8%

US December core CPI 3.9% y/y versus 3.8% y/y expected

US December 2023 consumer price index data

CPI y/y +3.4% versus 3.2% expected
Prior y/y 3.1%
CPI m/m +0.3% versus +0.2% expected
Prior m/m 0.1%

Core measures:

Core CPI m/m +0.3% versus +0.3% expected. Prior 0.3%
Core CPI y/y 3.4% versus 3.8% expected. Prior 4.0%
Shelter +0.4% versus +0.4% prior
Shelter y/y +6.2% vs +6.5% prior
Services less rent of shelter +0.6% m/m vs +0.6% prior (y/y vs +3.5% y/y prior)
Core services ex housing +0.4% vs +0.44% m/m prior
Real weekly earnings -0.2% vs +0.5% prior
Food +0.2% m/m vs +0.2% m/m prior
Food +2.7% vs +2.9% y/y prior
Energy +0.4% m/m vs -2.3% m/m prior
Energy -2.8% vs -5.4% y/y prior
Rents +0.4% m/m vs +0.5% prior
Owner’s equivalent rent +0.5% vs +0.5% prior

US initial jobless claims 202K vs 210K estimate

The weekly initial and continuing jobless claims

Prior week 202K revised to 203K
Initial jobless claims 202K vs 210K estimate
4-week moving average initial jobless claims 207.75K vs 208.0K last week
Continuing claims 1.834M vs 1.871M estimate
Prior week continuing claims 1.855M revised to 1.868M
4-week MA continuing claims 1.863M vs 1.870M last week.

Fed’s Goolsbee: December services inflation was a little more favorable than expected

Comments from Goolsbee
2023 was a ‘hall of fame’ year on inflation reduction
Overall CPI inflation in Dec was pretty close to what was expected
Housing inflation was a little less favorable than expected
Persistently high shelter inflation CPI may have less implication for Fed’s personal consumption expenditures target
Inflation will be the primary determinant of when and how much interest rates should be cut
The Fed still has weeks and months of data to come
Can’t answer the question of what we’ll do at March meeting without data
Fed so far is on golden path, though it could be derailed
Unlike a year ago, the risks to golden path are on both sides
Risks include persistent housing inflation, potential supply shocks

Fed’s Mester: December CPI report shows the job is not done yet

Inflation today is in a much better place than a year ago
Today’s inflation report doesn’t change my view on where the Fed is headed
Forecasts that we will continue to see inflation fall this year
We will not get to 2% target this year
The Fed is in a good spot to assess as data comes in
This report doesn’t tell us that inflation progress has stalled out but it tells us we have more work to do
Contacts say labor market is still tight but not as tight as before
March is too early for rate cuts, in my estimation
We are not there yet to cut rates, we want more evidence the economy is progressing as expected

Fed’s Barkin: I’m looking to be convinced that inflation is headed to target

Comments from the Richmond Fed President

Improvement on inflation is still pretty narrow and focused on goods
Says he’s open to lowering rates once inflation is on track to 2%
Conceivable that banks want to hold more liquidity than they did before the pandemic
Today’s CPI was about ‘as expected’ still seeing a moderation overall
Still seeing moderation in overall level of inflation but still a ‘disconnect’ with services and shelter
Would have more confidence if improvement in inflation was broader
Progress on goods has been encouraging and could make the case that it could continue
Some businesses in service sector have found they have pricing power and will not give it up until there is pushback from consumers and competitors

Barclays view market expectations for Fed rate cuts as too aggressive

Expect equities to have only limited gains in 2024

Barclays with comments on the Federal Open Market Committee (FOMC) and equity markets for the year ahead.

Analysts at the banks say the market is correct in looking for rate cuts, but is too optimistic:

“Although the rate cuts priced in the US look too aggressive to us absent a deep recession, we agree that the direction of travel is towards lower rates”

Analysts look for equities to see some upside in 2024, but limited gains:

“We expect a higher, yet more sober, equity market in 2024.
Post an exceptional year-end rally, the bar for positive surprises has been raised
Cyclicals look toppish
it’ll be a “healthy consolidation”
better valuations and earnings could potentially add to some upside potential

US equites have overshot machine learning estimates , priced at 110%

Stocks are vulnerable to higher inflation and any hawkish signalling from the Federal Reserve

Via a note from HSBC, analysts at the bank expect equities to take a breather:

“we remain constructive on equities strategically”
“we expect a temporary pause in the rally”
“Global equities have overshot our machine learning (ML) model’s prediction by 10% over the last 3 months”

HSBC specifically mention stock pricing vulnerabilities:

any hawkish signalling from the Fed
upside surprises in inflation

ICYMI – US Treas Sec Yellen said more work is required to get inflation under control

Yellen promises to use all available tools to bring costs down

US Treasury Secretary Yellen spoke from Boston on Wednesday:

television prices are down by 28% from their peak
used cars and trucks are 11% cheaper
gasoline is down almost $2 a gallon since June 2022
the typical middle-class American household has “more wealth, higher earnings and more purchasing power than before the pandemic.”

Here’s the “but”, though:

“Despite how far we’ve come, we know significant work remains to be done. For too many families, prices for goods that matter — such as groceries, rents and prescription drugs, are high”
pledged to use “all tools at our disposal” to bring costs down

Biden backing legislation that’d let it seize some of $300bn in frozen Russian assets

Could drive further concerns about holding assets in US dollars

Bloomberg news with the report, citing information its seen from the US National Security Council (NSC)

President Joe Biden’s administration is backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for reconstruction of Ukraine
White House seeks to rally support in Congress to further fund the war against Putin’s forces
“The bill would provide the authority needed for the Executive branch to seize Russian sovereign assets for the benefit of Ukraine”

Commodities

Gold falls as bets supporting rate cuts in March ease after US CPI data

Gold price delivers wild moves as US price pressures remain high in December.
Investors seem confident about the Fed reducing interest rates in March.
Fed policymakers continue to favor a restrictive policy stance.

Gold turns volatile as United States Bureau of Labor Statistics (BLS) has reported hotter-than-projected Consumer Price Index (CPI) data for December.Annual headline inflation accelerated to 3.4% against expectations of 3.2% and the former reading of 3.1%.

In the same period, the core CPI that excludes volatile food and oil prices at 3.9% remained higher than expectations of 3.8% but was lower than the prior release of 4.0%. Monthly headline and core inflation grew by 0.3%.The impact of a slightly higher inflation data would be nominal on bets in favor of rate cuts from the Federal Reserve (Fed) in March.

The appeal for bullions may fade slightly as investors’ confidence over the Fed reducing interest rates in March has waned a bit after a higher inflation data. Investors have been ignoring that Fed policymakers continue to lean towards keeping a restrictive stance for a longer period, denying the likelihood of early rate cuts.

Silver falls below $23 after stubbornly higher US Inflation report

Silver price skids below $23.00 as US Inflation remains stubbornly higher-than-projected.
Monthly headline and core inflation grew by 0.3%.
The argue in favour of keeping a restrictive policy stance would get strengthen ahead.

Silver drops sharply as the United States Bureau of Labor Statistics (BLS) has reported a hotter-than-projected inflation report for December.

US crude oil futures settle at $72.02

Up $0.65 or 0.91%

The up and down price action in crude oil continued today with a gain of $0.65 or 0.91%. The price settled at $72.02.

The high-priced today reached $73.81. The low price was at $71.17.

The earlier rise came as geopolitical worries escalated after Iran seized an oil tanker in the Red Sea. Anxiety continues in the key shipping zone as Iranian-backed Houthis continue their terrorism in the shipping lanes.

After the price extended toward the highs from Wednesday at $73.59, sellers started to stick their toe in the water and a dip back lower started.

Natural Gas retreats off session’s low after slowdown in disinflation

Natural Gas trades near $2.67, continuing a steep decline from Wednesday.
Traders see ample amounts of supply, despite frost temperatures in Europe and China.
The US Dollar rallies as US CPI proves to point to a slowdown in disinflation

Natural Gas is paring back some earlier gains towards the US opening bell with the recent inflation report pointing to an uptick in energy prices. While Israel is facing tribunal repercussions from a possible genocide accusation out of South Africa, negative temperateres across Europe, China and other parts of the Northern hemisphere are eating into Gas reserves. Supply is flowing, however, and ships are still making ports, despite longer routes to circumvent the Red Sea passage.

Warren Buffett’s Berkshire Hathaway went on a buying frenzy of Occidental shares

Acquiring another 15mn+ shares of Occidental Petroleum at a cost of about $900mn

According to filings with the U.S. Securities and Exchange Commission (SEC) Warren Buffett’s Berkshire Hathaway has increased its holding of shares of Occidental Petroleum to 34%.

Berkshire went on a buying frenzy of Occidental shares last month, accumulating more than 15M shares at a total cost of about $900M over a series of transactions.
The purchases occurred on the heels of Occidental’s acquisition of CrownRock in a deal valued at $12bn.The acquisition expanded Occidental’s footprint in the prolific Permian Basin by more than 94K acres.
The Permian Basin is the most profitable oil and gas field in the country.
Occidental says many of its drilling locations remain profitable even if oil prices fall below $40/bbl

EU News

European equity close: A turn lower

Closing changes in Europe
Stoxx 600 -0.5%
German DAX -0.9%
UK FTSE 100 -0.9%
French CAC -0.6%
Italy MIB -0.6%
Spain IBEX -0.5%

Lagarde: We are winning a battle at the moment

Comments from the ECB President

I think we have passed the hardest and worst bit of inflation
That doesn’t mean we will have a smooth inflation decline
I see eurozone inflation at 1.9% in 2025
I cannot give a date when interest rates may go down
I think rates have reached their peak

ECB’s Villeroy reaffirms commitment to get inflation back to 2% by the end of 2025

Villeroy is speaking more in his capacity as Bank of France governor here

French economy is slowing but more robust than feared
Confirms 2024 growth estimate for French economy of 0.9%

ECB’s de Cos hints at sooner rate cuts – inflation slowdown will continue, growth slowing

Bank of Spain Governor Pablo Hernandez de Cos nods to data dependency for monetary policy

Bank of Spain Governor and thus a European Central Bank Governing Council member Pablo Hernandez de Cos spoke on Wednesday.

Slowing economy:

“Economic activity has continued to show clear weakness and is only expected to increase its degree of dynamism gradually”
“In the third quarter, GDP decreased by 0.1% and available indicators suggest stagnation in the fourth”
“risks to economic growth remain skewed to the downside.”

On inflation:

the recent “slowdown in prices is expected to continue in the coming quarters”
“Although in 2024 the decline will be slower due to upward base effects and the gradual withdrawal of fiscal measures adopted during the energy crisis”

And on policy ahead, he says the moves to higher rates so far have had a strong impact:

“In addition to geopolitical developments, the transmission of monetary policy has been surprising us for its strength, which, if extended in the coming years, would translate into lower growth”

But nods to data dependency:

“We’ll have to pay attention in the coming months to different developments that may condition the trajectory of inflation and, therefore, our monetary policy action”
“The high level of uncertainty means that we must remain very vigilant to avoid both insufficient tightening, which would prevent the achievement of our inflation target, and excessive tightening, which would unnecessarily harm activity and employment”

Asia-Pacific-World News

China confirms premier Li Qiang to attend WEF in Davos this month

The foreign ministry says Li will be in Davos on 14 to 17 January

This just confirms what we already know. For some context, Xi Jinping almost never attends this event with his last appearance having been all the way back in 2017.

China has banned the import of pigs, pig products, from Bangladesh

Although China may increase imports from other sources, the consequences remain uncertain

Due to African Swine Fever.

Australian December trade data: Exports +1.7% m/m while Imports -7.9%

The trade balance has shown a massive beat

While the jump in exports and the huge beat for the trade surplus is welcome, the collapse in imports is troubling.

Slowing imports are often taken as a sign of a weakening economy, with less demand for yummy imported goods and services.

Import values fell, driven by a decline across:

consumption goods by -14%,
capital goods -2.8%
intermediate goods -3.8%
motor vehicle imports dropped 26%

New Zealand building approvals data shows a huge drop on the month

New Zealand building approvals plunge.

Building permits data from New Zealand for November 2023 came in at -10.6% m/m

prior +8.5%

-24% y/y

prior +8.7%

“The annual number of new homes consented has continued to decrease from its peak of 51,015 in the year ended May 2022,”

BOJ maintains assessment for 6 of Japan’s 9 regions in latest Sakura report

2 regions’ assessment were raised while 1 region’s assessment was cut this time around

Here is the breakdown:

BOJ reportedly considers lowering price outlook for fiscal year 2024 to middle 2% range

Jiji Press reports on the matter

In the latest outlook report for October last year, the BOJ noted the projection for prices for the fiscal year 2024 to be at around 2.7% to 3.1%. So, to have it be brought lower back to around the 2.5% mark is not exactly a good show of confidence that they are seeing inflation to be more sticky in the year ahead.

OECD urges the Bank of Japan to gradually raise short-term interest rates

Advice for the BOJ from the Organisation for Economic Cooperation and Development (OECD), the OECD 2024 report on Japan.

Says that if inflation stays around its 2% target and is accompanied by sustained wage growth:

Bank of Japan should gradually raise short-term interest rates
should make its bond yield control policy more flexible (referring to BOJ yield curve control (YCC))
- such as by raising the 10-year bond yield target or moving to a short-term yield target

“Japan is at a turning point, with inflation more likely to settle durably around the 2% inflation target than at any time since its inception,”

“Greater flexibility in the conduct of yield curve control and a gradual modest increase in the short-term policy interest rate are warranted, based on projections of sustained inflation and wage dynamics,”
warned that uncertainty around Japan’s inflation outlook was “exceptionally large.”

OECD Sec Gen expects wage pressures will keep inflation around Bank of Japan target level

Follow-up comments from OECD Secretary-General Cormann:

Japan’s monetary policy can gradually and modestly begin tightening
Inflation is expected to slow over course of this year but wage pressure will keep it around BOJ’s target
In context ofseveral decades of very low inflation or deflation, I understand why BOJ is very keen to ensure it has all of data necessary to judge level of tightening of monetary policy
We are perhaps moreoptimistic that inflation will more durably settle around BOJ’starget
There is scope for BOJ to consequently consider level of tightening in monetary policy

Bank of Japan “is completely ready” to end negative rates in April 2024 – ex BOJ official

BOJ will proceed cautiously and take years to reach its terminal rate of 0.5%

Makoto Sakurai says the Bank of Japan “is completely ready” to end negative rates in April 2024. Sakurai is a former Bank of Japan policy board member.

“The BOJ is completely ready,”
“They are just waiting for one last push from one or two economic data.”
April is the most likely timing for a rate hike after authorities peruse initial results of spring wage talks due in March
“The BOJ will only go slowly. It’s completely different from” the Federal Reserve and European Central Bank
“What Japan’s economy needs is the continuation of an appropriate level of monetary easing.”
Sakurai expects the BOJ’s terminal rate will likely be around 0.5% for its short-term rate, and the bank will probably take three or four years to get there, meaning just one or two hikes in the first 12 months.

He was speaking in an interview on Wednesday. Bloomberg (gated) with the info.

Bank of Korea leaves interest rate unchanged at 3.5%, as expected

Bank of Korea’s Base Rate held at 3.50% for the eighth straight meeting

South Korea’s central bank has held its benchmark seven-day repurchase rate steady at 3.50%. Its been 3.5% now since January of 2023.

South Korea’s headline monthly inflation averaged 3.6% in 2023
down from 5.1% in 2022
The bank expects inflation to ease further and average 2.6% this year, still above its 2.0% target

Cryptocurrency News

How the race for volumes in bitcoin ETFs is shaping up

GBTC sees huge volumes as it converts to a proper ETF

Trading has been underway in the Great ETF Race of 2024 and it’s already clear who the winner will be.

The IBIT ETF from Blackrock has seen 21.65 million shares traded, far more than Fidelities FBTC at 9.01 million, though the dollar-value gap is considerably closer if you adjust for the relative prices of the ETFs.

The other one to watch is GBTC, which converted today from its closed-end structure to a proper ETF. Volumes are at 24 million shares, which is higher than any full day since July 2022. However this product is more of an arb trade as it was trading at a 7% discount to NAV yesterday. Given that it’s up 0.8% compared to the 1.0% rise in bitcoin, it doesn’t look like that arb is working and the discount to NAV will remain for now.

Bitcoin briefly hits $49,000 as it rides the ETF hype

$50K could act like a magnet

The bitcoin bulls are having their moment as it climbs 6% on the hype from the first day of trading. Market watchers will be seeing how much money flows into each of the bitcoin ETFs and how much stays in the Grayscale GBTC Trust now that it’s convered into a proper ETF. As for pricing, bitcoin touched $49,051 at the high but has since pulled back quite a bit.

Elon Musk open to using Bitcoin on X, fueling hope among market participants

Elon Musk shared his thoughts on the use of Bitcoin with Cathie Wood of Ark Invest.
In a Spaces conversation, Musk said he is open to using Bitcoin on X.
Musk revealed that SpaceX owns Bitcoin, while sharing his optimism on the asset.

Ark Invest CEO Cathie Wood hosted a Spaces discussion on the latest developments in Bitcoin. Elon Musk joined the conversation and shared his views on BTC. The X owner is not opposed to the idea of using Bitcoin on the platform, however he considers it similar to Gold.

SEC head Gensler says does not approve or endorse bitcoin; a speculative, volatile asset

U.S. Securities and Exchange Commission (SEC) head Gensler is following up on the approvals his agency affirmed.
says circumstances have changed; approving spot bitcoin exchange traded funds is “most sustaintable path forward”
says agency does not approve or endorse bitcoin; bitcoin is speculative, volatile asset

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Round up of today’s market news

ByBilals Tech