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Breakfast Bites - China takes positive steps

PBoC cuts RRR; Flash PMIs in Europe show decline; Earnings season improving

Rise and shine everyone.

Today’s note will be early and slightly shorter since, I have to head out.

US Equity Futures are trading higher after a mixed close yesterday. Earnings results are lifting spirits and the market. Yields and the US dollar are pulling back. Oil, Gold, and Bitcoin are all higher.

Asia and Australia

  • Asian markets mixed this morning. Japan and South Korea closed lower; Australia and India higher. Shanghai Composite closed higher by 1.8% and the Hang Seng Index closed higher by 3.6%.

  • China’s PBoC finally cut the RRR (Reserve Requirement Ratio) for banks by 50bps effective Feb 5. They will cut re-lending rate and re-discount rate by 25bps for agriculture, SMEs; effective from Jan 25th. This is a significant cut in the RRR where previous cuts have been 25bps. The move is expected to release 1 Trillion Yuan into the economy. This is positive news for China’s economy and should help revive consumer spending.

  • Japan's 'Shunto' spring wage negotiations started today. This is important for BoJ’s policy making.

  • India’s Flash PMIs exceeded expectation. Composite PMI increased to 61 from 58.5. Manufacturing increased to 56.9 from 54.9 and Services increased to 61.2 from 59.

Europe, Middle East, Africa

  • European stock markets traded higher on Wednesday, with the STOXX 50 jumping 1% to a near one-month high, buoyed by robust earnings updates.

  • German Flash PMIs showed a decline in the HCOB Germany Composite PMI to 47.1, compared to the previous month's 47.4, missing the market consensus of 47.8. Business activity decreased for the seventh consecutive month, marking the swiftest decline since last October. Services activity experienced its fastest rate of decrease since August, while manufacturing production contracted at the slowest pace in eight months. New work inflows dropped for the ninth straight month, attributed to hesitancy amid elevated financing costs and geopolitical uncertainty.

  • Europe Earnings Update: ASML, Europe's largest technology company by market value, reported a Q4 net profit that surpassed expectations. Software firm SAP projected double-digit percentage growth in revenue from its crucial cloud business, and Siemens Energy released Q1 preliminary results that exceeded market expectations. Alstom, the train maker, reported orders that exceeded expectations, Swedbank posted a slightly larger-than-expected rise in Q4 profit, and Easyjet forecasted smaller losses in the first half of the year despite the ongoing conflict in the Middle East.

The Americas

  • Netflix earnings was received extremely well even though they missed EPS estimates by $0.11, reporting earnings of $2.11. Revenues rose 12.5%YoY to $8.83B vs the $8.72B est. Net addition of 13.12 million subscribers. The company forecasts Q1 earnings per share above consensus and anticipates revenue in line with expectations. Additionally, they raised their operational margin guidance for FY24.

  • Intuitive Surgical outperformed by $0.12, exceeded revenue expectations, which aligned with the guidance given on January 8. Worldwide da Vinci procedures experienced a growth of 21%, consistent with the provided guidance. On the call, Intuitive Surgical provided guidance, anticipating a year-over-year procedure growth of +13-16% for FY24.

  • Texas Instruments delivered a double beat, but the company issued downside guidance for Q1, sees EPS of $0.96-1.16 vs. $1.40 Consensus; sees Q1 revs of $3.45-3.75B vs. $4.05B Consensus.

Chart of the Day - This is the busiest political year in human history. Great chart from MUFG showing

just how many countries are having elections / political events this year.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)

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