INSIDE
Key Points
Trading Session Summary
Investment Axioms
Key Points
Central bank officials are pushing back against expectations for interest-rate cuts in 2024.
The PBOC disappointed markets by keeping short-term rates unchanged at 2.50%, but it’s considering $1.0 trillion yuan ($139 billion USD) of new debt issuance to fund projects related to food, energy, supply chains and urbanization. On separate news, Chinese lenders are considering more support to a property sector in crisis.
Trump could be coming back…
Trading Session Summary
US equities and bonds declined as central bankers pulled the rug under investors betting on interest rate cuts. Fed swaps show the probability of interest rates declining as soon as March dropping to about 65% from almost 80% on Friday.
While the UST10 year yields is back above 4.0%, it is worth noting that the UST 30yr yield has closed above the UST 2yr yield for the second day in a row. The UST 2-30 spread has not been in positive territory since the Fed started to raise short-term rates back in early 2022.
With UST yields increasing across the curve, the Bloomberg USD basket strengthened close to 1.0%; needless to say, the EUR, GBP, JPY, and Gold declined.
In corporate earnings, Morgan Stanley slid after warning on lower margins in its wealth management business, while Goldman Sachs Group Inc. rose as profit beat estimates. Boeing Co. sank on an analyst downgrade. Apple Inc. slipped as the US Supreme Court refused to consider its appeal in an antitrust suit challenging the App Store.
Let’s look where major financial market indices finished the trading day:
In Equities and Commodities:
The S&P500 fell -0.37%, the Nasdaq Composite declined -0.19%, the Dow Jones Industrials decreased -0.62%, and the small capitalization index, Russell 2000, fell -1.26%.
Within the US Economic Sectors:
Everyone except for technology sector was a loser today. Energy led the market lower with a -2.4% drop as WTI oil fell -1.2% to close at $71.84/barrel.
In Fixed Income:
The UST 2yr yield finished the day up +0.08% at 4.23%, while the UST 10yr yield increased +0.12% to finish at 4.06%. The UST 2-10 spread is now at -0.16%.
Investment Axioms
The Economic Spotlight: US Trading Day #010
In the UK, Jobless Claims for December rose 4.0k, while the Claimant Rate as at 11.7%. Worth noting that the big step-down in private sector pay growth will give the Bank of England greater confidence that risks of inflation persistence are abating.
The ZEW survey for the Euro Area and Germany improved in January.
US NY Empire Fed Index declined more than expected to -43.7 from -14.5 in November.
China Q4 2023 GDP will be out at 21:00 EST.