Symax Fintech Daily Market Insights 18.01.24

Investors want an interest-rate cut. The Federal Reserve isn’t so sure the economy needs one yet. And now traders are throwing a tantrum. US December retail sales beat expectations across the board on Wednesday, showing that the consumer remains resilient, and knocked down the probability of a March rate cut to that of a coin toss. Fed officials have said as much, too. Fed governor Christopher Waller said rates would be lowered “methodically and carefully” at best.  So all those bold bets for a March cut are being reconsidered, leading to higher Treasury yields and a lower stock market BB

China’s economy grew 5.2% last year, hitting the official growth target for 2023. But the data released by Beijing also underscored that China’s economy hasn’t shaken off the problems that are most persistently weighing on domestic demand and confidence. A slew of indicators for home prices and property-related spending disappointed as the real estate crisis continues to bite. Deflationary pressures aren’t going away, with recent data showing prices dropped in December for a third consecutive month. China’s population also extended a historic decline, which could be an additional headwind down the road. Now attention turns to the government’s response—and Beijing up to this point has kept stimulus conservative for the world’s second biggest economy. BB

Apple was slighted by Netflix, which said it’s not bothering to make an app for the Vision Pro just weeks ahead of the headset’s debut. The company was also forced to sell watches without its blood oxygen feature in the US from today. And it may also face a DOJ antitrust lawsuit in March. BB

Another commercial vessel was struck by a drone south of Yemen, the third such incident in as many days that’s underscoring the intensifying danger to vessels in one of the world’s most vital waterways. The attack occurred about 60 miles (97 kilometers) southeast of Aden, Yemen, according to the UK Navy. Meanwhile, the US launched another round of strikes at 14 Houthi targets in Yemen overnight as the militant group’s attacks on shipping in the Red Sea continue. BB

The Pakistani military carried out strikes against what is said were militant hideouts in Iran. That came a day after Tehran allegedly attacked a separatist group based in Pakistan. The US said it launched another round of strikes at 14 Houthi targets in Yemen. BB

The “risk-reward” equation in China has “changed dramatically,” said JPMorgan CEO Jamie Dimon, even as the nation has been “very consistent” in opening up to financial-services companies. This came as Chinese Premier Li Qiang gave his clearest signal yet that Beijing won’t resort to huge stimulus to revive growth amid the worst bout of deflation in decades, even as another batch of troubling economic data tested the patience of investors. BB

Volatility measures are climbing again as investors unwind some of their expectations for interest-rate cuts from major central banks. The “fear gauge” for equities, the VIX Index, climbed back up to November levels. The equivalent for Treasuries — ICE’s MOVE Index — rose to remain above the 100 line where it has spent most of this Federal Reserve rate-hike cycle. 

That might seem to be just the expected state of affairs for a time when the central bank is driving up yields, but in fact that’s not the case. The last two times the MOVE index held above 100 for sustained periods came when the Fed was cutting rates, while the previous three hiking cycles either saw traders’ expectations for yield swings stabilize or decline. 

That underscores the dangers of treating this cycle as though it will conform to historical norms. It clearly hasn’t so far — the four straight hikes of 75 basis points each in 2022 outpaced anything seen since the early 1980s. It remains to be seen whether the easing cycle to come will also break from history and involve a gradual series of measured reductions, instead of the sort of rapid cuts delivered in 2001 and 2008 amid economic slumps. BB

Luxury stocks from Burberry to Hugo Boss face more gloom ahead after falling short of already reined-in expectations. Concerns about demand for luxury goods were amplified by lackluster economic growth figures from China, whose shoppers account for about a quarter of the estimated $394 billion global market. BB

Rishi Sunak’s plan to deport asylum seekers survived a key vote after most rebels fell in line, but the saga further dented his authority before a general election later this year. The legislation now advances to the House of Lords, where it will face more opposition. BB

Britain’s biggest banks are bracing for a new misselling saga—this time with car loans.

• The FCAhas reached out to around a dozen banks to begin reviews into their practices, people familiar said.
• Analysts are warningthis may be a major problem for the banks. RBC estimates potential compensation costs may reach £10 billion in the worst case. BB

Europe should focus on strengthening its economy rather than obsessing about the US election, Bundesbank President Joachim Nagel said. He reiterated that the ECB should wait for more data before rate cuts. Officials are increasingly pointing to potential action in June. BB

Emmanuel Macron called for the issuance of joint European debt to pay for priorities including defense and technology to ensure the region remains sovereign amid increasing competition with China and the US. “We need more public investment in Europe, so we should open a second phase of reinvestment as we did during the Covid crisis, and maybe daring again to have Eurobonds for priorities,” the French president said in Davos.  BB

The EU is set to sign off on sanctions targeting the Hamas leadership and the militant group’s financing as soon as Monday over its attack on Israel. The bloc is considering measures such as travel bans and asset freezes. Also being considered are punitive steps against extremist Israeli settlers in the West Bank. Those may include bans on imports of settlers’ products, but the measures are not finalized. BB

Union Push | The EU needs to make progress on its long-mooted drive to unify its banking and capital markets now that it can no longer rely on the City of London,  UBS Chairman Colm Kelleher says. Europe is closed and its equity market capitalization is less than what it was 13 years ago, he noted. BB

The dollar is also proving to be an attractive option for some asset managers, who finally added to their net-long positions last week after seven weeks of cutting them. This week’s caution on rate cuts could well add to that momentum in the dollar, at least until we get more clarity from the Fed later this month. In equity markets, investors are finding ways to trade the shift via bets on the VIX, aka Wall Street’s fear gauge. BB