Breakfast Bites - Dollar hits one-month high

Rise and shine everyone.

US Equity Futures are lower this morning with Tesla leading the way down after news broke about Elon Musk wanting to retain at least 25% in the company and voting power.

The US dollar hits a one-month high crossing 103 while yields continue to push higher across the board. The Yield Curve has steepened to 0.19%. Oil is up this morning again, off their recent lows closing in on $73. Gold is lower, while Bitcoin is showing some signs of recovery after its recent pullback but remains below the 43k mark.

Asia and Australia

• Asian markets mostly lower this morning with Japan and India finally taking a breather from their recent rallies. Hong Kong led the way down closing -2.16%. South Korea closed lower as well -1.12%.

• China reportedly told some institutional investors not to sell stocks; China regulators reimposed stock-selling restrictions on securities to stabilize the stock market. Moves like this make us wonder whether they are serious about solving the actual problem with the property market and local government debt, instead of asking people to artificially hold up the market.

• Japan Dec PPI saw an 11th straight slowing in the annualized pace, with the first lack of increase since Feb 2021 - this does not bode well for the inflation narrative which is a pre-condition to policy change. In other news, several leaders in Japan have been asking companies to raise wages to offset the cost of living expenses. A latest report says that corporate bankruptcies have reached a 4-year high in 2023. All of this taken together makes it far more challenging for the BoJ to change policy drastically.

• Leading mining group Rio Tinto reported this morning warnings that the US economy is slowing down with the labor market cooling. Rio Tinto’s shares fell by more than -1.6% after slightly missing expected shipments of iron ore and copper prices off of their recent best in late 2023.

Europe, the Middle East, and Africa

• European markets are lower this morning after hawkish comments coming out of Davos from several speakers. Earnings are also pouring in and the weakness in consumer demand remains evident in trading results.

• Positive news coming out of the UK in terms of earnings. Wage growth came in at 6.6% YoY down from 7.2% last month. This has been an important driver of core inflation and this deceleration is a welcome change. however, the levels still remain far above that of the Euro Area or the US, so rate cuts may not be in the bag just yet.

• Consumer inflation expectations in the Euro Area fell from 4% to 3.2% this month. However, the ZEW Economic Sentiment Index declined marginally from 23 to 22.7. The survey shows that the majority is expecting stability, followed by improvement and then deterioration in economic conditions. It would seem that the outlook is that the economy has bottomed.

• ECB's Nagel (Germany) spoke at Davos saying that the discussion about rate cuts is too soon. They need to wait for data to decide on policy and there are still ways to go on inflation. He also mentioned monitoring US elections to understand the market impact.

The Americas

• Former President Trump is projected to win the Iowa Caucus to become the Republican Nominee. With ~90% of the vote counted, Trump has 50.9%.

• Business disruptions have ensued in the US due to severe freeze weather warnings. Texas issued a warning yesterday about the potential risks of a grid emergency, and Clearwater Paper (CLW) has halted its operations in Idaho.

• PNC delivered a double beat with EPS of $3.16 vs. $2.12 est. Revenues fell 7% YoY to $5.36B. The company issued downside guidance for Q1, 2024, and inline guidance for the full year 2024.

Stock Watch

• Long BOIL and UNG (Henry Hub Natural Gas) - Freeze weather warnings across US could prices higher (not to be confused with European Gas Dutch TTF that declined in price)

• Long YANG and EWH (Short) - Hong Kong continues to decline after PBoC didn’t do rate cuts

• Long TAST - Target of acquisition by QSR; Shares were halted earlier in the pre-market.

Chart of the Day: We’ve followed the story of PBoC injecting net liquidity into the system over the past quarter. While true they made significant injections, the charts below show that these are mainly stop-gap solutions. We’d discussed how rates had shot up because of a liquidity squeeze, and that’s exactly what happened.

The liquidity issues are being driven by the Local Government Funding and the Property Sector. But, the funding in turn is going towards infrastructure and advanced manufacturing. We remain cautious about China and Chinese Equities.

Calendars

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