IG Morning Call

[MongiIG]

US stocks recorded fresh all-time highs yesterday, thanks to more gains for the Dow and Nasdaq 100, following on from dovish comments from the Richmond Fed president who said that the US was making good progress on inflation. The People's Bank of China left rates unchanged, though more easing is expected in the new year. The Nikkei 225 extended its gains and the yen lost more ground against the dollar, as the after-effects of the Bank of Japan meeting continued to make themselves felt. To cap all this, UK inflation came in below forecasts, rising only 3.9% over the year, and falling 0.1% on a monthly basis. Markets continue to price in expectations of Fed rate cuts in 2024, with March viewed as a high-probability event for an easing of US interest rates. 

 

[MongiIG]

Stock markets hit an air pocket yesterday, dropping sharply after the run of gains made since the end of October. In Asia the Nikkei 225 led the fallers, losing 1.5%, while US yields ticked higher. Markets continue to keep a way eye on the Red Sea, where a US-led force is to begin escorting vessels to protect them from drone and missile attacks. Today's US initial jobless claims figures are the main event of the session, with just PCE price data tomorrow left before Christmas. 

 

[KoketsoIG]

Asian markets were generally higher overnight, following on from a slowdown in Japanese core inflation, which rose at its slowest pace since the summer. The Nikkei 225 made headway, but the Hang Seng slumped again as new restrictions on video games in China hit tech stocks. The focus now shifts to US PCE inflation data. Further, weakening price growth would reinforce the expectation that cuts in US rates are on the way in 2024, while a higher reading might spook markets after the big moves of the past two months. UK retail sales rose 1.3% in November compared to October, well ahead of expectations.

 

[KoketsoIG]

Asia stock indices were mixed as they kicked off the first trading day of the new year as China's manufacturing PMI unexpectedly rose in December, though CFLP's readings released last Sunday were a miss and contracting for the sector while Singapore's Q4 GDP growth picked up. Japan was shut for a national holiday and will be on Wednesday as well with European equity indices expected to open higher this morning while awaiting a plethora of final European manufacturing PMIs and US construction spending data.

 

[KoketsoIG]

Risk assets continued their poor form so far in 2024 overnight, as Japan returned to full trading following a break. The Nikkei 225 fell over 1% as traders reacted to the recent earthquake, while markets generally were weaker as the Fed minutes poured cold water over the rally in stocks. Policymakers seemed to take a more hawkish line than the impression given at the December meeting, sticking to the 'higher for longer' line and discussing a potential commencement of quantitative tightening (QT). Oil prices remained resilient as supply constraints and further concerns about attacks on shipping in the Red Sea prompted crude to rally off the lows of Wednesday's session. German inflation brings the price data centre stage once again, while the afternoon sees the publication of the ADP employment report and weekly EIA crude inventories, both delayed by a day.

 

[KoketsoIG]

Aside from the Nikkei 225, which managed a modest gain, Asian indices were under pressure again, as stocks continued to suffer losses thanks to revised expectations around the first Fed rate cut. Expectations of a March rate cut, always an unlikely prospect, have been revised downwards, leading to a rebound in the US dollar. Yesterday's ADP payroll report came in ahead of expectations, putting markets on notice for a potentially better non-farms payroll report this afternoon. Oil prices have rallied off their lows of the week, as shipping in the Red Sea continues to be disrupted. Also on the calendar today is eurozone inflation and the latest Canadian employment report.

 

[MongiIG]

Friday's post-NFP rebound for US markets failed to translate into a broader rally in Asia overnight, with the Hang Seng slumping once more. Investors have been noticeably reticent about pushing stocks higher after the strong gains of Q4, and this week's inflation data from around the globe, most notably the US, China and Japan, combined with the start of earnings season, means that risk appetite may well remain muted for the time being. While the calendar for the day is sparse, it will be worth watching the Dow this afternoon, to see how Boeing stock fares following the incident with a 737 aircraft over the weekend. Boeing stock has a 4.3% weighting in the Dow. 

 

[MongiIG]

Asian markets made gains overnight, following on from the rally on Wall Street on Monday that marked a strong start to the week after the lacklustre beginning of the year. Tech stocks led the way, supported by falling yields, after a survey of inflation expectations by the New York Fed showed that fears of rising prices were continuing to abate. In addition, Fed governor Bowman said that she would support eventual rate cuts, shifting away from her more hawkish stance. Oil prices dropped sharply yesterday after Saudi Arabia cut its official selling price for February. All eyes are on the US inflation readings later in the week, which is closely followed by the start of earnings season. 

 

[KoketsoIG]

While most indices in Asia were lower, the Nikkei 225 took off skywards, breaking above 34,000 for the first time since 1990, as slowing inflation for Tokyo weakened the yen. Meanwhile, inflation in Australia weakened to 4.3% YoY for November, leaving the Australian dollar on the back foot against the US dollar. US and European markets face another empty calendar, with just weekly US crude inventories on the calendar for the day, as the wait for US inflation tomorrow goes on. UK retailers will be in focus as Sainsbury's reports an improvement in sales over Christmas.
 

[MongiIG]

The surge in the Nikkei goes on, with the Japanese index breaking 35,000 for the first time in over three decades. It was a solid session across most of Asia as investors threw caution to the wind ahead of today's widely-anticipated US CPI data. Today's report will provide further indications as to whether inflation is still dropping towards the Fed's 2% target. While the FOMC itself only expects to cut by 75bps this year, markets are merrily pricing in 140 basis points of cuts. Herein lies the potential for at least some volatility this year, even within the context of a broader equity market uptrend. Futures currently point to a solid start for European and US markets, though traders should be prepared for volatility around the US inflation announcement. 

 

[MongiIG]

It will be a quiet start to the week, with US markets on holiday for Martin Luther King Day, stopping earnings season in its tracks. The latest reporting period began on a muted note with mixed figures from the big banks, resulting in a muted end to last week's trading. Over the weekend Taiwan's presidential election contest resulted in a win for the pro-sovereignty party, a move likely to increase tensions in the region. The US and UK began strikes on Houthi rebels in response to attacks on shipping in the Red Sea, with more action likely on both sides, potentially boosting oil prices further. Key events for the week include Chinese GDP and Japanese inflation, while UK inflation and employment data is also scheduled for release. 

 

[MongiIG]

Investors are turning risk averse once again, as Donald Trump's strong victory in Iowa and hawkish comments from European policymakers raise fears of a resurgence in volatility. Trump won a firm victory, as expected, and investors are bracing themselves for a volatile campaign. European policymakers in Davos pushed back against the prospect of deep rate cuts. Asian markets fell back, with the Nikkei 225 finally shedding some ground after its recent surge, and the Hang Seng breaking below 16,000 once again to hit a 14-month low. The UK unemployment rate held at 4.2% in November, while wages grew at a slower-than-expected pace of 6.5%. US markets return from their holiday, joining in the cautious mood.

 

[MongiIG]

Poor Chinese economic data set the tone for another difficult session across Asian markets. Q4 GDP in China grew 5.2%, up from the 4.9% of Q3 but it was insufficient to cheer investors, and Chinese stocks fell sharply once again, led by the Hang Seng. A fall in China's population also added to the gloomy tone. UK inflation rose by 4% for the year to December, above November's 3.9% and ahead of forecasts. Monthly price growth rebounded to 0.4% from -0.2%, putting a brake on hopes that the Bank of England may begin cutting rates soon. A weak start is expected across European and US markets. 

 

[MongiIG]

Stock markets tumbled further yesterday as investors continued to reprice expectations around central bank rate cuts. The UK's stronger inflation reading and ECB head Christine Lagarde's comments about no rate cuts in sight yet continued to cast a pall over risk appetite. While Chinese markets rebounded overnight, the overall tone in Asia was still cautious. Geopolitical tensions are on the rise, as the US conducts another strike on the Houthis in Yemen, while Pakistan has responded to Iran's strikes on terrorist groups inside the former with an attack of its own. US weekly jobless claims are on the calendar for the day, but the main event comes in the form of Japanese CPI late this evening. 

 

[MongiIG]

A rally in semiconductor stocks has re-enegerised the global market rally, lifting the Nikkei 225, following on from a strong session in US markets. Once more Chinese stocks fell however, resuming the trend of the week. In the US last night tech stocks led the way higher, with only Tesla failing to make headway out of the 'Magnificent 7'. A spending bill to avert a US government shutdown also helped to restore sentiment, after a week in which diminishing expectations of early rate cuts had put pressure on global equities. Japanese December inflation rose by 2.3% annually, in line with forecasts, and down from last month's 2.5%. UK retail sales slumped by 3.2% in December, much worse than forecast. 

 

[MongiIG]

Asian markets continue to witness the surge in Japanese stocks and the ongoing rout in their Chinese counterparts. US markets finished the week on a high, with the S&P 500 joining the all-time high club again after more than 500 days without a new record. In Asia Japanese markets continue to be the beneficiary of flows out of China, where the absence of any policy stimulus is keeping investors in firmly risk-averse mode. In addition, the Bank of Japan's dovish policy stance, weakening the yen, is providing additional impetus for the rally. The week sees the resumption of earnings season, while central bank decisions in Japan, the eurozone and Canada also dominate the calendar. 

 

[MongiIG]

The Bank of Japan left policy unchanged at its meeting, noting that deflationary expectations were firmly entrenched in Japan. The next policy meeting is mid-March, but annual wage talks will still be in progress then, so markets are unlikely to see any movement in policy until 26 April at the earliest. The Hang Seng was was lifted by reports of a potential support package of around $278 billion from offshore accounts of state-owned enterprises, to buy shares on the Hong Kong exchange. Netflix becomes the first of the 'Magnificent 7' tech stocks to report earnings, and expectations are generally optimistic thanks to the moves to end password sharing and the start of paid sharing in key markets. 

 

[MongiIG]

Netflix earnings last night provided more support for bullish sentiment, after the streaming giant announced subscriber numbers that were well ahead of forecasts. While it missed on earnings expectations, Netflix did beat on revenues. Asian markets were more positive overnight, though the Nikkei 225 slipped back. Chinese markets made some headway after the proposed stimulus announcement yesterday, though enthusiasm was muted. Alibaba stock was supported by news that Jack Ma was actively buying shares in the retailer. Global PMI figures dominate the day in Europe and the US, while Tesla takes its turn in the spotlight as it reports earnings. 

 

[MongiIG]

Chinese stocks were given fresh support overnight thanks to a cut in bank reserve requirements, as well as promises of more support in the future. Tesla earnings missed on revenue and earnings per share, despite beating forecasts on vehicle deliveries, causing a check to sentiment after Netflix's numbers earlier in the week. Attention now turns to today's ECB meeting, though no change in policy is expected, and the first reading on US Q4 GDP. Boeing shares will be in focus once more after the US Federal Aviation Administration blocked the group from expanding production of its 737 Max aircraft after recent incidents. 

 

[MongiIG]

A fifth straight record high for the S&P 500 on Thursday came even as Tesla stock tumbled following disappointing earnings. Optimism about the economy and lower interest rates, combined with AI-driven flows, has helped to push the S&P 500 to its new peak. However, poor earnings from Intel overnight cast a shadow over the end of the session on Wall Street. Meanwhile in Asia, optimism soured with a 1.3% fall for the Nikkei 225 and a 1.5% drop for the Hang Seng. Today's calendar is dominated by the release of US PCE price inflation, the Fed's preferred measure of price growth, along with pending home sales. 

 

[MongiIG]

A busy week for markets lies ahead. The remaining five members of the 'Magnificent 7' tech stocks, the ones that have driven the gains over the past year, report this week. These names account for around 30% of the S&P 500, making it a key period for the index. As well as these names, the Fed and Bank of England release their latest rate decisions, and the monthly US payroll report is published on Friday. Asian markets remained relatively robust overnight despite this action-packed week, though initial gains for Chinese markets faded despite the regulator saying it would suspend the lending of restricted shares. Troubled property developer Evergrande has been ordered to liquidate, which also trimmed bullish sentiment in the country. A cautious open is expected for most indices in Europe and the US. 

 

[MongiIG]

Asian indices were broadly lower overnight, with just the ASX 200 eking out a small gain. Chinese markets once again led the way lower as worries about the property sector and the prospect of new security laws in Hong Kong dampened sentiment. Markets face a wave of key data from today onwards, with eurozone GDP and earnings from Microsoft and Alphabet the big events of the session. US indices finished up the day with fresh gains, and the Dow hit a new record high, but with earnings, a Fed decision and payrolls all taking place this week stocks may struggle to hold their gains in the short-term. While oil prices dropped yesterday, the world continues to await a US response to the deaths of three of its soldiers in Jordan at the weekend, raising fears of an escalation in the situation in the Middle East. 

 

[MongiIG]

While both Alphabet and Microsoft beat expectations last night, both saw their stock prices fall as concerns around the rising cost of massive AI investments weighed on investors' minds. Overnight in Asia the yen firmed up against the dollar after Bank of Japan meetings that showed policy normalisation was getting closer, and that some policymakers were now moving to favour a rate hike this year, Japan's first since 2007.

Chinese manufacturing data showed a contraction for the fourth consecutive month, and Chinese indices fell once again. German GDP and inflation data dominate the morning and early afternoon, but are swiftly followed up by the ADP report, then EIA crude oil inventories and then the Fed decision tonight.

Powell and co are expected to leave rates unchanged, but all eyes are on the statement and press conference for hints about the first rate cut. The chances of a March cut have dropped to 44%, according to CME Fed Watch, from the 70% seen at the start of the year.  Markets are also on watch for any US response to the deaths of three soldiers at the weekend. US president Biden said that he had decided on action, but that he also wished to avoid a wider war in the Middle East. 

 

[MongiIG]

Investors are digesting the impact of last night's Fed meeting, which has resulted in expectations of a March rate cut being scaled back. While the FOMC dropped the tightening bias in the statement, it said that cuts would not be appropriate until there was more confidence that inflation was heading back to 2%. However, Powell added that the committee did expect lower rates this year - while a strong labour market would not push back the timing of the first cut, the Fed would cut faster if employment weakened. This makes the next few payrolls readings even more important, and handily there is one tomorrow that could help provide clarity.

It was a more mixed session for Asian markets, with a strengthening yen weighing on the Nikkei 225. Now the Bank of England takes its turn in the spotlight, with the focus on whether any policymakers will agitate for rate cuts. A hold on interest rates is all but a given nonetheless. 

 

[MongiIG]

Meta's announcement of its first dividend, and a $50 billion share buyback programme, provided a tonic for markets that had been wobbling after the Fed decision. Strong figures from Amazon helped too, helping to offset Apple, which dropped 3% on news of weak China revenue. The ASX 200 and Kospi both rose sharply overnight, with the Nikkei 225 seeing more muted gains. While the Hang Seng was flat, indices in mainland China dropped sharply again. Today's payrolls reading is expected to see job growth slow again, and the unemployment rate to rise. Given the Fed is on watch for any signs of weakening data, today's figures will prove crucial for near-term direction in indices and the US dollar.

 

[MongiIG]

Friday's blowout non-farm payrolls reading has seen the chances of a March rate cut by the Fed diminish yet further. The payroll report blew past expectations, restating the strength of the US economy. An interview with Powell, broadcast last night, revealed that the Fed chief still expected 75bps of cuts this year, but reiterated that the committee was in no rush to cut rates would wait for more data before making a move. Stocks in Asia were muted - while the Nikkei 225 rose, Chinese markets were under pressure once again, as was the ASX 200. The dollar continues to revive, though US indices show little sign of heading substantially lower; indeed, the S&P 500 came within touching distance of 5000 on Friday. After the heavyweight data and earnings of last week, things cool down slightly, though today's US ISM report will be worth watching to see if it confirms the strong outlook for US jobs. 

 

[MongiIG]

The Reserve Bank of Australia (RBA) joined in the cautious line from central banks, pushing back against expectations of imminent rate cuts. While policy was left unchanged, the RBA did note that inflation was easing. However, it also lowered its near-term outlook for growth due to a weaker consumer spending forecast. Chinese markets enjoyed a solid session, which saw the Hang Seng gain 3.8%, the Shanghai composite rise 2.7% and the Shenzhen composite gain a remarkable 6.3%. Chinese regulators said that they would guide institutional investors to raise stock investments, and also encourage listed companies to raise their level of share buybacks, moves which follow on from the decision to shore up the market with $17 billion last week. A quieter day on the economic front lies ahead, though earnings from Ford will be of interest. 

 

[MongiIG]

Overnight, stocks in Asia were mostly positive following a decline in global yields and additional support efforts from China. However, the Hang Seng and Shanghai Composite saw early momentum fade, as doubts persisted over the abilities of the authorities to power a sustainable rally.  FOMC member Mester said that the Fed could lower interest rates later this year if the economy performs as expected. She also mentioned that any rate cuts would likely be implemented gradually, without providing a specific timeline. The line from the ECB continues to be more hawkish, with German member Schnabel saying that a too-hasty move to cut rates could lead to a revival in inflation. Uber, Disney and PayPal earnings are expected today, while just EIA crude oil inventories are on the calendar for economic data. 

 

[MongiIG]

Overnight, stocks in the Asia-Pacific region were mixed following the fresh record levels seen on Wall Street, where the S&P 500 came within a whisker of 5000, though the Nikkei 225 managed a 2% gain. Soft Chinese data ahead of the Lunar New Year holiday kept sentiment in check overall. The Reserve Bank of India (RBI) kept the Repurchase Rate unchanged at 6.50%, as expected, and maintained its stance of remaining focused on the withdrawal of accommodation. European equity futures are indicating a slightly higher open, taking their cue from a positive session on Wall Street. US jobless claims are the main event scheduled for today.

 

[MongiIG]

Asian stocks saw a mixed performance, with the Nikkei 225 and ASX 200 flat, while mainland China indices saw strong gains and the Hang Seng suffered fresh losses. The Nikkei 225 crossed the 37,000 mark for the first time in 34 years, as a weak yen lifted exporter stocks, and the broader Topix index also made a new high. A quiet end to the week sees European futures pointing to a muted open, while crude oil is calm after a 3% gain yesterday. Markets face a light economic calendar, with just Canadian job numbers on the agenda for the session.