Symax Fintech Daily Market Insights 12.01.24

CPI comes in above expectations

December US CPI has come in at 0.3% month-on-month/3.4%year-on-year and core 0.3%/3.9% versus the 0.2/3.2% expectation for headline and 0.3/3.8% for core. So, it is a little disappointing, but not a huge miss. Meanwhile, initial jobless claims and continuing claims both came in lower than expected with continuing claims dropping to 1834k from 1868k – the lowest since late October. The combination of the two – slightly firmer inflation and good jobs numbers really brings into doubt the market expectation of a March rate cut from the Federal Reserve. We continue to see May as the most likely start point. ING

Hertz plans to sell 20,000, or a third, of its US EV fleet and reinvest in gas-powered cars due to weak demand and high repair costs for its battery-powered options. It expects to record a non-cash charge of $245 million in the fourth quarter. BB

The US and UK launched joint airstrikes against Houthi targets in Yemen. They hit radar installations and other sites, according to US officials, in a bid to cripple the Houthis’ ability to attack Red Sea shipping. Brent jumped as much as 2.5%.BB

Christine Lagarde warned that Donald Trump’s first term as president raises concern about his potential return to power in 2025. His policies on trade tariffs, commitment to NATO and the fight against climate change “were not aligned with European interests.” She also said the ECB will start lowering rates once it’s convinced inflation is headed back to its 2% goal.BB

Google is laying off hundreds of staff that work on its digital assistant, hardware, and engineering teams as it continues to cut costs. The move comes as Google, part of Alphabet, has seen its core search business face more pressure from rival AI offerings from Microsoft and OpenAI. It’s the latest in a slew of tech companies to announce layoffs already this year, echoing what happened at the start of 2023. Amazon is cutting workers in its Prime Video and Twitch units and Unity Software is planning to slash 25% of its workforce. BB

Spain’s securities regulator has started “disciplinary proceedings” against Deutsche Bank linked to the sale of derivatives in the country. “The advisory service provided to Spanish clients in relation to highly complex and high-risk financial derivative instruments on currencies” may constitute a “very serious infringement” of Spanish law by Deutsche Bank, the regulator known as CNMV said in a statement Thursday. Deutsche Bank’s share price deepened losses after the news, dropping as much as 4.85%. BB

A single block trade in the fed funds futures market, struck as the dust settled following Thursday’s December inflation reading, was the biggest size ever seen of its kind. It was for 72,000 contracts in the February 2024 tenor, which expires Feb. 29. The expiration date means that it only captures the Jan. 20 Federal Reserve policy meeting, where expectations for a rate cut are close to zero. This would mean the trade is more likely linked to covering an existing short position in the contract or against another instrument. BB

At the culmination of the first full trading week of 2024, so many things appear to have changed across the globe, yet still remain the same.

Chinese stocks are garnering focus as a potential reversal trade after a year riddled with disappointment over the nation’s post-Covid reopening. Yet concerns over geopolitical and economic risks attached to China remain, most imminently crystallized in this weekend’s Taiwan election. While the prospect of war between China and Taiwan remains remote, such a scenario is likely to cost the global economy $10 trillion, according the Bloomberg Economics. The nature of such risks, however unlikely, is perhaps why some US pension funds have decided it’s time to start cashing out of China for good.

Meanwhile, in Europe, bonds are suddenly hot again. Sales by governments from Spain to Belgium and the UK have seen blockbuster demand, presumably as investors anticipate the arrival of much-anticipated rate cuts from the European Central Bank. Yet as we’ve seen from recent commentary from policymakers, a move toward lower rates is far from certain. After all, inflation rates for the region’s biggest economies remain north of 3% — a far cry from the ECB’s target. There’s also the lingering risk of ballooning budget deficits, which are bound to hang over any bond bull.

In the US, earnings season kicks off in earnest with JPMorgan, Citigroup and Bank of America leading the slew of bank results, often used by investors as a barometer for the health of consumers and businesses. However, while the emerging prospect of lower interest rates is expected to offer relief to these banks and their customers, analysts are increasingly focused on how they’ll manage a future that’s looking more uncertain. Earning previews are littered with mentions of costs, including those related to staffing, underscoring the implicit question of whether the finance industry will need to shed more jobs.

With investors across the globe grappling with endless caveats and contradictions pertaining to the 2024 outlook, how does one navigate the coming year? The answer lies in what’s in between: the gaps in expectations. Will bulls overzealously banking on rate cuts for both stock and bond gains be proven wrong and therefore need to reverse course? Will bears prove too extreme in expecting geopolitical risk or a softer labor market to significantly crimp growth, and therefore miss out on a major rally? The process of how these gaps get resolved will be where the trading opportunities are. BB

Mark Zuckerberg is making AI his top priority as Meta approaches its 20th anniversary next month. While at first the company’s interest was mostly to achieve his metaverse vision, it’s now focusing far more on generative AI. But close attention from the founder hasn’t always proved to be a recipe for success at Meta. BB

China is quickly losing its place as a must-have holding in global portfolios following years of losses, with that trend likely to accelerate as some of the world’s largest investors distance themselves from the market. An analysis covering 14 pension funds with investments in Chinese stocks shows most of them have cut their holdings since 2020, with some larger players doing so for a third straight year. Elsewhere, Chinese leader Xi Jinping is calling for stable US relations amid a test to the ties from the election in Taiwan. BB

Brexit erased £140 billion from the UK economy, Sadiq Khan said.

• Khancalled on the government to “urgently” rebuild relations with Europe.
• Transcriptsfrom 2015 show the BOE had a rosy outlookfor the UK economy before Brexit.
• Growth expectationssuggest the UK economy is now stuck in neutral gear,wavering between stagnation and a minor contraction. BB

Half the world’s population—and GDP— are heading to the polls at some point in 2024. Elections are scheduled in some of the world’s youngest democracies, Pakistan and Tunisia, and in the oldest, like the UK. The European Union is voting. So too is Taiwan. And Indonesia. And Mexico. In Russia, President Vladimir Putin’s re-election in March is all but certain. India is expected to return Prime Minister Narendra Modi to office. But on other ballots like in Austria or the US, the outcomes remain uncertain. The results from these votes will shape public policy in every corner of the globe: what to do about climate change and the economic impact of a warming world, how to handle surging immigration, what ballooning government debt’s impact on public projects will be, and how war and rivalries are reshaping geopolitical lines. BB