Breakfast Bites - Everyone's in the same trade

Rise and shine everyone.

The CPI revisions showed lower numbers for December than previously reported. Not only this, but most banks are now revising their core CPI numbers lower for Tuesday’s Inflation Report. Markets took all of this as a good sign and traded in risk-on mode. The S&P 500 continued to make record highs in the face of rising yields and the Russell 2000 small-cap index also broke out on Friday.

Some of this momentum is set to continue as everyone seems to be in the same trade.

But, we’re still wary of small caps given they are more sensitive to rates with weaker margins and higher debt.

US Equity Futures are flat this morning after Friday’s surge. Yields are lower across the curve with the US Dollar weaker. Gold, Bitcoin, and Oil are all lower.

Markets were closed in China, Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, and Vietnam, mainly due to the Lunar New Year. European markets are mostly higher except for the UK.

It’s a quiet day for macro data. The big event is tomorrow with the CPI release.

Oil prices could remain elevated

We’ve had various reports of no ceasefire in the Middle East and this will continue to push up oil prices to a certain extent. We’ve also discussed the OPEC not making any decision on output quotas until the early March meeting. However, the Saudi Energy Min Abdulaziz spoke recently and stressed that OPEC was ready to tweak policy at any time. He further insisted that Saudi Aramco was not necessarily abandoning capacity expansion and that they are ready to tweak up or downwards at any time, whatever market necessity dictated

ECB Speakers hint at easing

We seem to be getting signals of easing from various ECB members, likely paving the way for a cut as early as April.

• ECB's Panetta (Italy, dove) noted that the time for a reversal of the monetary policy stance was fast approaching; Disinflation was at an advanced stage and saw rapid progress toward 2%

• ECB De Cos (Spain noted that the March Staff Projections would be key to assessing whether one could sufficiently be confident that the 2% medium-term target would be achieved and will be pivotal for deciding when to start cutting interest rates

• ECB's Centeno (Portugal, voter, dove) noted that the Council would not wait until inflation hits the 2% target to cut rates

Chart of the Day

Commercial Real Estate in the US is still a concern, as we’ve recently seen with NYCB and the biggest reason is Office Properties. The chart below shows the lag in activity for the “back to office” crowd (yellow line). While many landlords are considering repurposing these properties, this will take time and definitely, further costs. The result of this lower credit creation from banks that do have large exposure to office properties - they simply won’t have the ability to lend to businesses, as before.

Other Stories

• Diamondback Energy and Endeavor are in talks to form a $50 Billion Energy Giant. Endeavor could be valued at $25B.

• IMF Chief Georgieva anticipates a gentle slowdown in global economic growth, with expectations for interest rates to decline starting in the middle of the year.

• Tod's Spa shares soar in Milan following the announcement of a private acquisition bid supported by LVMH.

• Over the recent weekend, Trump suggested that NATO allies should fulfill their financial obligations or allow Russia free rein.

• Following Trump's remarks on NATO, Rheinmetall and other European defense companies saw their stock prices increase.

• RBNZ Governor Orr expressed concerns that inflation remains excessively high, though the system is equipped to handle elevated interest rates.

• India reported inflation at 5.1% year-over-year, slightly above the 5% forecast but within the target range. December's industrial and manufacturing production exceeded expectations, indicating economic growth.

• Moody's downgraded Israel's credit rating to A2 from A1 and revised the outlook to negative, citing a higher-than-anticipated debt load due to recent conflicts.

• President Biden has created a TikTok account in anticipation of the 2024 election, which will be managed by his campaign team.

Calendars

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