Week commencing January 15th 2024
TradeDay Macro Matters
Macroeconomic / Geopolitical developments
- Stocks Rally, Reverse Start of 2024 Correction Sell Off
- US CPI Slightly Hotter Than Expected
- US Earnings Season Kicks Off
- Oil Rallies as Middle Eastern Tensions Stay Raised, Rejects Saudi Price Cut
- European Central Bank Dovish Tone
- SEC Approves Bitcoin ETFs
- Davos 2024 World Economic Forum in the Spotlight
- MLK US Holiday Monday
- What's Ahead
Stocks Rally, Reverses Start of 2024 Correction Sell Off
The S&P 500, after a nine-week winning streak, hit a stumbling block at the start of 2024. Traders, re-evaluating their enthusiasm for the timing and extent of US interest-rate cuts, contributed to this pause. At the start of this week Wall Street stocks rebounded, recovering from the sluggish start to the year that investors viewed as a buying opportunity. The S&P 500, Nasdaq and Dow Jones Industrial Average all posted significant rises. The positive momentum followed a week of losses in the first week of 2024, interrupting a more than two-month rally driven by easing inflation concerns and expectations of Federal Reserve interest rate cuts in 2024. We believe the early week rally was due to investors engaging in bargain hunting.
Japanese stocks, led by the Nikkei 225, surged this week with the largest weekly gain since March 2022. The blue-chip gauge rose 1.5% on Friday, closing the week with a remarkable 6% advance. The Topix, reflecting a diverse market, climbed for the seventh consecutive session, with both indices reaching 34-year highs. Fueled by a weakening yen, foreign investments, and optimism about deflation lasting decades nearing an end.
US CPI Slightly Hotter Than Expected
The recent Consumer Price Index (CPI) report, disclosed on Thursday, indicates a gradual rise in inflation, with the annual CPI increasing by 3.4% and a monthly uptick of 0.3% in December. Surpassing both November's figures of 3.1% and 0.1%, and economist expectations of 3.2%. This report suggests elevated shelter costs as a significant contributor to monthly gains. Despite these slow falling numbers, the Federal Reserve is still anticipated to implement interest rate cuts in 2024, potentially as soon as March.
US headline CPI YoY
The Core CPI, excluding volatile food and energy prices, displayed a 3.9% annual increase and a 0.3% monthly rise in December, slightly exceeding economist predictions.
While headline inflation significantly decreased from 6.4% in January to 3.4% in December 2023, the data suggests that the Fed's battle against inflation might face a slower and more erratic pace in the final stretch to reach the 2% target than observed in the preceding year.
US Earnings Season Kicks Off
In the initial phase of the US Earnings Season on January 12th, major companies unveiled their Q4 performance. This overview focuses on financial corporations that kicked off the season:
JPMorgan
- JPMorgan reported a 15% profit decline to $9.31 billion, impacted by a $2.9 billion fee related to government seizures.
- Earnings, excluding charges, would have been $3.97 per share, surpassing expectations.
- Despite challenges, JPMorgan's resilience led to a 12% revenue increase to $39.94 billion.
Bank of America
- Bank of America experienced a Q4 profit decline, attributing it to one-time charges and rate challenges.
- Net income fell to $3.1 billion, with adjusted earnings at 70 cents per share, beating expectations.
- However, revenue at $22.1 billion fell short, reflecting the bank's underperformance compared to peers.
Wells Fargo
- Wells Fargo reported robust Q4 net income of $3.45 billion, beating expectations.
- Adjusted earnings of $1.29 per share and solid revenue figures, $30.55 billion, contributed to a strong overall performance.
BlackRock
- BlackRock exceeded Q4 earnings expectations, reporting $1.38 billion or $9.15 per share.
- Adjusted earnings at $9.66 per share outperformed estimates, showcasing the investment firm's resilience.
Citigroup
- Citigroup posted a $1.8 billion Q4 loss due to significant charges tied to various factors, including CEO Jane Fraser's overhaul initiatives.
- Adjusted earnings at 84 cents per share marginally beat expectations, reflecting progress in simplifying the bank.
Bank of NY Mellon
- Bank of NY Mellon reported Q4 earnings of $1.28 per share, surpassing estimates.
- The company's resilience is evident in its consistent trend of beating estimates over the last four quarters.
Oil Rallies as Middle Eastern Tensions Stay Raised, Rejects Saudi Price Cut
Amid rising tensions in the Middle East, triggered by US and UK strikes on Houthi targets in Yemen, oil prices surged on Friday. The international oil benchmark Brent crude reached $79.03 per barrel, up 2.09%, while the US benchmark West Texas Intermediate rose to $73.54 per barrel, a 2.11% increase. The escalation, fueled by Houthi retaliation for Israel's actions, and recent strikes by the US and UK, adds to concerns about trade disruptions in the region.
This comes after oil prices saw a sharp decline on Monday 8th, as Saudi Arabia decided to lower its official selling prices for February exports. Brent crude fell 3.9% to $75.70, and the US benchmark dropped 4.7% to $70.37. The move, including a $2 cut for exports to Asia, raised concerns about Saudi struggles to sell its production and suggested a focus on maintaining market share. This adjustment reflects expectations of softened global demand and robust growth in US oil supply.
European Central Bank Dovish Tone
European Central Bank (ECB) President Christine Lagarde expressed optimism on Thursday, stating that the most challenging phase of the battle against inflation is likely behind us. Lagarde indicated that interest rates have reached their peak and would consider cutting them if inflation stabilizes at the 2% level. She emphasized that, under the condition of certainty regarding the achievement of the 2% inflation target, rates could start to decline. Lagarde, however, refrained from specifying a date for potential rate cuts in 2024.
The ECB anticipates inflation fluctuating between 2.5% and 3% throughout the year, with policymakers cautioning against premature rate cut discussions before crucial first-quarter wage data in May. Despite investors anticipating multiple rate cuts in 2024, some ECB officials find this timeline overly aggressive, given lingering inflationary pressures. In December, euro zone inflation rose to 2.9%, and Lagarde foresees a decline to 1.9% in 2025.
SEC Approves Bitcoin ETFs
The US Securities and Exchange Commission (SEC) has granted approval for exchange-traded funds (ETFs) directly investing in Bitcoin, likely ushering in a new wave of investors to the cryptocurrency market. These spot Bitcoin ETFs, which physically hold Bitcoin rather than trading in futures contracts, are expected to attract investors who had previously kept a distance from cryptocurrencies.
ETFs, valued at $7 trillion globally, offer a convenient way to invest in various assets, and the approval of spot Bitcoin ETFs marks a significant shift after a decade of regulatory resistance. These ETFs, facilitated by companies like Fidelity Investments and BlackRock, will purchase and hold Bitcoin to back the shares they issue, providing investors exposure to Bitcoin's price movements without directly holding the cryptocurrency.
The SEC's concerns about liquidity, manipulation, and Bitcoin's volatility delayed the approval, but efforts to address these concerns, such as surveillance-sharing agreements, have paved the way for the recent decision. The approval opens discussions on potential approvals for spot ETFs for other cryptocurrencies like Ether and XRP in the future.
Davos 2024 World Economic Forum in the Spotlight
Amidst a complex geopolitical landscape marked by war, monetary policy shifts, climate change, and an uncertain election year, global leaders gather in Davos for the 54th World Economic Forum (WEF) annual meeting from 15th-19th January 2024. As the global economy appears to sidestep an immediate recession, attention turns to China's crucial GDP figures and U.S. retail sales data for insights into 2024.
The overarching theme, 'Rebuilding Trust,' guides discussions on security, growth, AI, and climate. The event emphasizes the disruptive power of AI, with WEF highlighting the risks of misinformation. India's active role, led by Smriti Irani, aligns with 'Credible India,' contributing to shaping strategies in key global discussions.
MLK US Holiday Monday
Established as a federal holiday in 1983 by President Ronald Reagan, Martin Luther King Jr. Day falls on the third Monday of January, celebrating the civil rights leader's birthday. While this year coincides with Dr. King's actual birthday, the holiday doesn't always align with the date.
In 2024, the holiday occurs on January 15, marking the second stock market closure of the year after New Year's Day. Both equity and bond markets will be closed in observance of MLK Day. Additionally, banks will be closed, making it one of the 11 bank holidays in 2024.
What's Ahead
Central Bank Watch: Nothing of note from Central banks this coming week, but as ever we will be watching Fed speakers in the final week before they enter their blackout period.
Macro Data Watch: The World Economic Forum in Davos runs all week from 15th-19th January. Monday is the US MLK Holiday, US equity and bond cash markets are closed, futures markets are shortened hours/ Standout data will be German, Canadian, EU, UK and Japanese inflation reports, and from the US the Retail Sales data on Wednesday.
Earnings Watch: US earnings season gets into full swing, with standouts this coming week Morgan Stanley, Goldman Sachs, Prologis, Charles Schwab and Schlumberger.
Date
Major Macro Data
01/15/2024
US MLK Holiday, US equity and bond cash markets are closed, futures markets are shortened hours; 54th World Economic Forum (all week); EU Industrial Production;
01/16/2024
German CPI; UK Employment report; EU and German ZEW Survey; Canada CPI
01/17/2024
China GDP, Industrial Production and Retail Sales; UK inflation report incl. CPI; EU CPI; US Retail Sales and Industrial Production
01/18/2024
Australian Employment report
01/19/2024
Japan CPI data; UK Retail Sales; Michigan Consumer Sentiment
Date
Major Earnings Data
01/15/2024
Nothing of note
01/16/2024
Morgan Stanley; Goldman Sachs
01/17/2024
Prologis; Charles Schwab
01/18/2024
Truist Financial Corp
01/19/2024
Schlumberger; Travelers; State Street
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