Summary: The run higher in Treasury yields and US dollar took a breather, but equities were choppy as sentiment turned cautious amid a further plunge in NYCB stoking CRE and regional banking sector concerns. China stocks were supported by increased hopes of government intervention, and Alibaba results will be in focus today. NZDUSD jumped higher on a strong Q4 employment report, while AUD also extended gains after a hawkish-leaving rhetoric from RBA yesterday.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Major indices ended mixed on Tuesday, with the Nasdaq 100 pulling back 0.2% to 17,573 while the S&P 500 added 0.2% to 4,954. Semiconductor stocks retreated. Nvidia declined 1.6% and AMD fell 3.6%. Eli Lilly surged initially after reporting earnings beating estimates and sales of its diabetes/off-label weight loss drug jumping to $2.2 billion in Q4 from $0.28 billion a year ago, before paring all gains to end the session 0.2% lower. New York Community Bancorp sank 22.4% after Moody’s downgraded the bank’s credit rating by two notches to Ba2. Meanwhile, Palantir Technologies soared 30.7% on an upbeat 2024 outlook. In the extended hours, Snap plummeted nearly 33% after the social media company reported Q4 revenue below expectations and said Q1 adjusted EBITDA will be a loss of between $55 and $95 million.
Fixed income: The selloff in Treasuries, which was triggered by a strong non-farm payroll report on Friday and Powell’s 60 Minutes interview on Sunday, finally paused as bargain hunters showed up. The demand at the $52 billion 3-year Treasury note auction drew robust demand. The 10-year yield fell 6bps to 4.10% and the 2-year yield finished 7bps lower at 4.40%. Today, the Treasury is auctioning $42 billion in 10-year notes.
China/HK Equities: The Hang Seng Index and the CSI 300 Index rallied sharply by 4% and 3.5% respectively on state-controlled funds buying of A shares and a Bloomberg report that President Xi is set to receive a briefing from the country’s financial regulators. In our opinion, the boost from market intervention tends to fade within days. In this article, we discuss the formidable challenges that are confronting the Chinese equity market.
Alibaba shares surged by 7.6%. The e-commerce and cloud service giant is set to announce its December quarter results on Wednesday, with an anticipated 5.4% Y/Y growth in revenue, reaching RMB 261.2 billion. This growth is affected by soft customer management revenue (CMR), attributed to a higher Taobao contribution to the Gross Merchandise Value. Taobao charges merchants no commission, unlike Tmall. Cloud revenue growth is expected to remain sluggish. The Bloomberg consensus forecast estimates adjusted net income at RMB 47.9 billion.
FX: Yields and dollar took a breather after strong gains at the start of the week, and DXY index closed below 100DMA at 104.31 although staying above 104. AUDUSD failed at the 0.6520 attempt in the first go but broke higher this morning, bringing the 100DMA at 0.6537 in view with RBA staying relatively hawkish for now. AUDNZD however returned to test the 1.07 handle this morning in Asia with NZDUSD jumping higher to 0.61 on stronger job growth for Q4 showing employment rose 0.4% QoQ from -0.1% previously. EURUSD stuck around 1.0750 but GBPUSD making another attempt above 1.26 pushing EURGBP back below 0.8540 despite BOE Chief Economist Huw Pill suggesting a rate cut for this year. USDJPY back below 148.
Commodities: Sentiment in the commodities space was boosted on the back of expectation that measures from China will likely expand. Oil prices gained with the risk-on tone and supply concerns remaining in focus, although API inventories showed a large crude inventory build of 674k barrels last week. Gold gained traction as Treasury yields pulled back, and Ole Hansen discusses what shifts in monetary policy expectations can mean for precious metals here.
Macro:
Macro events: US Trade Balance (Dec), Germany Industrial Production (Dec), US Treasury 10-year auction. Speakers: Fed Kugler, Collins, Barkin, Bowman, Remache, Nordstorm. BOE Catherine Mann.
Earnings: Alibaba, Walt Disney, TotalEnergies, Uber, CVS Health, Equinor, ARM, Vinci, McKesson, PayPal, Yum China.
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
