Symax Fintech Daily Market Insights 17.01.24

China’s GDP rose 5.2% year on year in the fourth quarter, slightly slower than estimates. It was a mixed picture under the hood: Indicators for home prices and property spending disappointed, and signs suggested deflation remains stubborn. BB

China is gearing up for a record number of trips—about 9 billion—during Lunar New Year as hundreds of millions of people take to the skies, roads and rails. The jump in outbound travel is weighing on the yuan. BB

The dollar hit a one-month high as Treasury yields climbed on growing speculation that the Fed may hold back on cutting interest rates as early as March. The Bloomberg Dollar Spot Index rose 0.4% to its highest level since December 13, as cooling demand for risky assets boosted the greenback after Monday’s holiday. A possible pivot to rate cuts has been the focus of markets after a series of cooler inflation readings, but increasingly traders believe bets on more aggressive rate cuts may have been overdone. This comes after ECB Council member Robert Holzmann said threats stemming from lingering inflation and geopolitical risks may prevent the ECB from lowering interest rates this year. BB

Iran isn’t yet restocking Houthi rebels with weapons by sea after the US and UK air strikes in Yemen last week, Western officials said, signaling cautious optimism that the military action had some success in disrupting the supply of arms to the group. At least temporarily, the strikes appeared to have cut off key supply lines from Iran to Yemen, the people said. BB

Based on a ratio of index-weighted price to 12-month trailing earnings estimates, only three out of the 11 sectors are currently trading below their historic medians: real estate, consumer staples and energy. Utilities is about in line, so one could argue its P/E isn’t too stretched. 

It makes sense. As long as soft landing remains the narrative, there’s little need to hide in defensive sectors such as staples or utilities, for example. The two are also in the bottom echelon of Bloomberg Intelligence’s scorecard. The slump in oil explains energy’s lack of appeal despite attractive valuations.

The outlook for earnings corroborates the story. The three most expensive sectors are the ones exposed to Big Tech — communication services, information technology and consumer discretionary — which are leading profit growth for the current and following quarter, alongside utilities. In this regard, revisions to forward outlooks will be telling.

Nonetheless, it leaves the market in a more vulnerable place should profit estimates ultimately prove optimistic. The macro narrative matters too — and Fed Gov. Waller’s pushback on imminent rate cuts is yet to be heeded by risk assets BB

UK inflation came in higher than expected in December, and this seems to be largely down to unexpected stubbornness in services inflation. Headline CPI unexpectedly rose to 4% (expected at 3.8%) while services inflation nudged up to 6.4% from 6.3% a month earlier, defying expectations for a further fall.

It is worth putting this in context by saying that even with this latest surprise, services inflation is still some 0.5 percentage points below the Bank of England’s most recent projections. Some of this latest boost can also be chalked down to some stickiness in things like airfares and accommodation/package holidays, which the Bank itself said in the December meeting minutes were “not reliable” indicators of inflation persistence. And there were some pockets of good news.

Rent inflation, on a month-on-month basis (admittedly not seasonally-adjusted) was a little softer than we’d expected, while restaurants/bars continued to experience less aggressive month-on-month price rises than a year earlier. This latter category, we think, is one of the better gauges of underlying inflationary pressure in the service sector.

The lesson here is not to react to one month’s worth of data on services inflation, which has bounced around a bit over recent months. But it is a reminder that the decline in services CPI will be gradual in the near term, and we don’t expect this to dip below 6% until at least March. ING

Goldman Sachs topped profit estimates as its equities-trading unit posted a jump in revenue that was triple what analysts expected, capping off what it’s pitching as a year of transition. The asset and wealth division helped drive the gains, posting its highest quarterly revenue in two years on a gain tied to the sale of a financial-management business. 

Morgan Stanley’s traders fell short again, dragging down profit at the firm, as the company’s wealth business surged past expectations. Revenue from the fixed-income trading business was little changed from a year earlier, disappointing analysts who had expected an increase. Net revenue from the wealth unit, meanwhile, totaled $6.65 billion, higher than analysts’ expectations of $6.4 billion. BB

Federal Reserve Governor Christopher Waller said the US central bank should take a cautious and systematic approach when it begins cutting interest rates, a process that can start this year absent a rebound in inflation. BB

The US hit four Houthi missiles in Yemen in a preemptive strike on Tuesday local time, American defense officials said. “US forces struck and destroyed four Houthi anti-ship ballistic missiles,” Central Command said in a statement. “These missiles were prepared to launch from Houthi-controlled areas of Yemen and presented an imminent threat to both merchant and US Navy ships in the region.”BB

The ECB may cut rates around summer, Gediminas Simkus said, adding that he’s “less optimistic than markets” about cuts in March or April. Separately, money markets pushed back bets on the timing of the first 25 bps reduction to June, from April.BB

The European Parliament approved rules to create centralized data feeds for various assets including stocks, exchange-traded funds and bonds from a wide range of trading platforms, giving an important boost to its uphill battle to create a capital markets union. Member states must now give their blessing. BB