Symax Fintech Daily Market Insights 02.01.24

China’s factory activity shrank in December to the lowest in six months. The official manufacturing PMI fell to a weaker-than-expected 49 due to subdued demand.

• The Caixin PMIis expected to come in at 50.3 today, down from November’s 50.7.
• The PBOCmay cut rates in early January, ANZ said. BB

Iran dispatched a warship to the Red Sea after the US Navy destroyed three Houthi boats. The Alborz destroyer traversed the Bab El-Mandeb strait, a narrow choke point between the Red Sea and the Gulf of Aden, on Monday, Iranian state media said without providing further information on the vessel’s mission. Iran’s foray into the Red Sea a day after the US action compounds a highly volatile situation in the channel that handles about 12% of the world’s commerce. Brent crude and West Texas Intermediate  climbed. BB

A weaker dollar is the expectation for 2024 of most analysts surveyed by Bloomberg amid forecasts that the Fed will lead the way among rich peers in cutting interest rates and that a soft landing in the US’s economy will encourage investors to seek risk away from its shores. But strategists at JPMorgan Chase and HSBC are among those who reckon the greenback could still strengthen because the rest of the world will end up needing to reduce rates more to aid their economies. Currency-watchers are more confident in predicting the Japanese yen will rise as they anticipate the Bank of Japan will finally raise rates. BB

The Fed’s December change in tack towards easier monetary policy in 2024 forced bond strategists to rewrite their forecasts to show US debt doing even better next year. The median forecast for the 10-year Treasury yield is now for it to fall to 3.98% this time next year. But there is still some dissent. TD Securities thinks yields have scope to hit 3% a year from now following 200 basis points of Fed rate cuts beginning in May. Goldman Sachs and Barclays Capital, while capitulating on their views that rate cuts were unlikely before the fourth quarter, forecast yields to end 2024 at 4% and 4.35% respectively. In the hunt for returns, some traders are looking to Austria’s century bonds and the debt of supra-nationals among other non-traditional destinations.  BB

No fireworks for next year. That’s the consensus view for equity markets as investors have already scooped up stocks on expectations of a soft economic landing and a flurry of interest rate cuts for 2024. Record highs have been broken on a number of benchmarks in the last stretch of the year, confounding bearish forecasts set by the likes of Morgan Stanley and JPMorgan. The biggest focus for 2024 is whether Big Tech can extend its meteoric rise following its best year since the dotcom bubble, if the rally broadens up to include 2023 laggards such as Chinese equities, or if the long-awaited recession finally hits and send stocks plunging. Some who got this year right see more gains ahead.  BB

Xi Jinping told Joe Biden in a letter to mark 45 years of diplomatic ties that their nations should strive for “peaceful coexistence.” Biden wrote that he looks forward to building on meetings and discussions to continue to advance the Sino-US relationship. Meanwhile, the Chinese leader pledged to strengthen economic recovery and job creation. BB

A magnitude-7.6 earthquake hit Japan’s northwest coast, followed by more than 50 aftershocks, killing at least four people and triggering a widespread tsunami warning. The Japan Meteorological Agency warned residents to be on alert for potentially large aftershocks over the next week. BB

After an unexpected contraction in 3Q23, the Japanese economy appears to have recovered modestly. Inflation slowed due to base effects while the monthly activity outcomes were a bit mixed. We don’t expect an imminent Bank of Japan rate hike but it may still terminate the yield curve control programme in the first quarter as JGB market conditions remain supportive.