Symax Fintech Daily Market Insights 16.01.24

Central bank officials and investors are pushing back against expectations for interest-rate cuts in 2024, which risks weighing on global risk sentiment. Several policymakers from the European Central Bank signaled it’s too early to consider lowering borrowing costs, prompting traders to pull back on bets for rate reductions. In the US, markets are bracing for at least six quarter-point cuts this year, prompting a warning from BlackRock Vice Chairman Philipp Hildebrand that such bets could prove excessive once inflation turns out to be stickier than anticipated.  BB

Houthi militants hit a US-owned commercial ship carrying steel products off the coast of Yemen with an anti-ship ballistic missile on Monday, underscoring warnings that vessels should steer clear of the Red Sea. The maritime industry had already been warned on Friday to stay away from the region, prompting numerous shipowners — among them gas tankers from Qatar — to find longer alternative routes. Oil edged lower amid the attack, suggesting that at this point, traders don’t see the Red Sea conflict endangering crude production and flows from the wider Middle East. BB

China may only achieve moderate growth this year, according to a survey of economists released by the World Economic Forum in Davos. The nation is “a notable exception as weak consumption, lower industrial production and distress in property markets weigh on the prospects of a stronger rebound in 2024,” the report showed. The findings come after China’s central bank held a key interest rate on Monday, disappointing investors who had expected the first cut since August.  BB

One of the keys for how markets can be both buoyantly optimistic and certain that the Federal Reserve will soon be slashing rates may lie in the unusual state of business surveys. Both ISM surveys have come crashing down from the extreme heights hit during the post-pandemic boom, underscoring concerns that the Fed’s rate hikes will end up severely damaging the economy.

The manufacturing survey has been under the 50 line, signalling contraction, for 14 straight months — the longest such streak since the aftermath of the 2001 recession — while the services gauge has tumbled even more precipitately and seems destined to also soon slide under 50. All the same, it hasn’t done so yet, and the factory survey’s decline has been a relatively shallow one, stopping short of the depths below 45 that were hit during previous recessions.

There’s also a possibility that the extremes of the recent boom — services hit a record peak and manufacturing reached the highest since 1983 — could create some distortions as businesses struggle to get an accurate handle on conditions after several years of massive changes. Unless the readings head south in a hurry, that would support optimism for a soft landing for the economy. It would also, though, call into question those bets on rapid, deep rate cuts.BB

Eurozoeon Industrial Production dropped for the third month in a row in November, broadly continuing the trend of contraction in output. Production is now 7.2% lower than it was in September 2022. This means that industry will continue to weigh on economic activity in the eurozone, clearly performing much weaker than services. The eurozone economy experienced negative growth in the third quarter and could well have seen another quarter of negative growth in 4Q too. The industrial figures at least point to that.

The outlook for eurozone industry remains pretty bleak at this point, according to surveys. New orders continue to deteriorate, albeit at a slower pace than a few months ago. And while producers are getting slightly more upbeat, we do not expect that a real turning point in production is likely in the coming months. And any input shortages coming from the Red Sea disruptions won’t help. More importantly, demand would need to return and there is still very little evidence of that in the current weak global economy. ING

Donald Trump secured a resounding win in the first 2024 Republican presidential contest in Iowa on Monday, asserting his command over the party despite facing scores of criminal charges as he seeks an election rematch with President Joe Biden. Trump took over half the votes, propelling him towards what looks set to be a close and deeply acrimonious election campaign against Biden, a Democrat, in November. Florida Governor Ron DeSantis, 45, finished well behind Trump in second place in Iowa, edging out former U.N. Ambassador Nikki Haley, 51, as they both failed to emerge as the chief opponent. Trump, 77, the only current or ex-U.S. president to be charged with criminal activity, won by an unprecedented margin for an Iowa Republican contest, strengthening his case that his nomination is a foregone conclusion given his massive lead in national polls.

Plans for the construction of a second new nuclear power plant in Britain have moved a step closer after a development consent order was officially triggered. Sizewell C in Suffolk is expected to cost about £20 billion and could generate enough energy to power six million homes. – The Times

We’ve now got the last set of UK wage data ahead of the February Bank of England decision, and it confirms that pay growth is tracking a fair bit below where policymakers had forecast it to be at this point. Private sector regular pay growth – which removes the volatile bonus category – now sits at 6.5%, down from a peak of over 8% last summer. ING