Symax Fintech Daily Market Insights 19.01.24

Hints of price pressures are emerging anew in commodities, in a threat to aggressive bets on interest-rate cuts this year.

In his latest column, colleague Cameron Crise alerted me to the surge in shipping costs stemming from the Red Sea conflict and their potential to feed inflation. We’re already seeing the impact via diversions for carriers of commodities, from oil to gas and even livestock. Recent history shows that’s likely to be reflected in headline inflation eventually, with time lags of anywhere from four to nine months.

Then there are signs of food inflation cropping up, from coffee — which is taking a direct hit from Red Sea trade disruption — to chocolate, where output has slowed to Covid-era levels amid a cocoa shortage that has pushed futures to a four-decade high.

It’s the sort of inflationary pressure that was once argued to be transitory, given its supply-driven nature. Yet as we’ve seen in the latest global monetary-policy tightening cycle, it’s also the kind of inflation that hits closest to home for consumers and that has great potential to entrench future expectations for prices.

And should this become a more viable scenario this time around, traders who continue to bet on a rate-cut path that’s more aggressive than the Federal Reserve’s own projections will be especially vulnerable. BB

European stocks are poised to extend gains amid a global tech-fueled rally. ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak in Davos. Expected data include UK retail sales and German PPI. On the earnings front, Investor AB and Avanza are among companies slated to report. BB

Congress passed a temporary spending bill to avert a partial US government shutdown this weekend, sending the legislation to the White House, where President Joe Biden plans to sign it. The interim measure would finance some US agencies — set to run out of money after Friday — through March 1 and others through March 8. The short-term package is meant to give lawmakers time to complete negotiations on annual funding for the fiscal year that began Oct. 1. BB

Alphabet Inc.’s Google said it is investing $1 billion in a new data center in the UK to help meet growing demand for its services, a boost for Prime Minister Rishi Sunak’s Conservative government as it tries to position Britain as a world leader in tech. Building work has started on a 33-acre site in Waltham Cross, north of London, which Google acquired in 2020, the company said late Thursday in a statement. BB

Chinese equities fell again. The country’s largest brokerage suspended short selling for some clients amid the deepening rout, people familiar said. Adding to the strain, global passive funds joined in selling off Chinese and Hong Kong shares. China’s benchmark stock index is now close to its lowest in five years.BB

It’s a different story elsewhere: The Nasdaq 100 closed at a fresh all-time high yesterday. US and European futures are pointing higher and even other stocks in Asia are up today, making China’s slide almost a uniquely domestic affair.BB

Economists seem confident that the ECB will pick the right time to being cutting rates rates, our latest survey shows, even though they were widely accused of tardiness in responding to Europe’s once-in-a-generation price shock. No changes are expected at next week’s Governing Council meeting. BB

Christian Sewing, CEO of Deutsche Bank, told an audience at the World Economic Forum in Davos that Europe needs to harmonize its capital markets to fund investments and make sure the region can attract technology firms. Sewing, who also heads the European banking lobby, has long called on politicians to move forward with the capital markets union, already decades in the planning. BB

Bond traders are growing convinced that US Treasury yields are on the brink of returning to the way they’ve traded for most of their existence — it’s the how, why and when of the normalization that keeps financial markets bouncing around. The shift many investors bet is now underway would see the interest rate on 10-year Treasuries rise above those on US two-year notes, a steepening of the so-called yield curve that would mean banks and investors get rewarded for the risk of lending money for longer periods as is typical. BB

Semiconductor stocks from Tokyo Electron to Nvidia gained more than $160 billion of market value after Taiwan Semiconductor Manufacturing’s outlook for capital spending and revenue lifted hopes of a broad tech recovery in 2024. TSMC’s better-than-projected numbers underscored expectations for a bounce-back in smartphone, chip and computing demand, following more than a year of post-Covid malaise. BB

India’s central bank won’t consider rate cuts unless inflation settles firmly around the 4% target, with policymakers not even discussing the topic yet, Governor Shaktikanta Das said in Davos. He added rate cuts will depend on domestic factors. As for economic growth, he reiterated it will likely touch 7% in the next fiscal year while inflation will average around 4.5%. BB

Pakistan’s military carried out targeted strikes against militant hideouts in Iran on Thursday, responding to an attack by Tehran a day earlier. Even as officials on both sides strove to prevent the situation from spiraling out of control, the tit-for-tat response is the most significant escalation between the two neighbors, which have had their conflicts in the past. The strikes are the latest sign of rising turmoil in the Middle East over the Israel-Hamas war. The US and UK struck Iranian-backed Houthi militants in Yemen for a fifth time in a week after the Houthis attacked another commercial boat Wednesday, and President Joe Biden vowed the strikes would continue. The Houthis have argued their assault on commercial boats in the Red Sea is in response to Israel’s bombing campaign in Gaza. For global shippers though, the back-and-forth has only wrought more chaos, forcing carriers to spend more to go the long way around Africa to deliver goods. Meanwhile Benjamin Netanyahu reiterated Thursday that for him a two-state solution with Palestinians is off the table—something US diplomats have been pushing for since the outbreak of the war. — Margaret Sutherlin BB

Some welcome news for homebuyers: mortgage rates in the US fell to the lowest level in almost eight months. The average for a 30-year, fixed loan was 6.6%, the lowest since May and down from 6.66% last week. The reversal offers some reassurance for would-be buyers looking for a way into a deal as the housing market gets ready to enter its busiest season. But shoppers are likely to encounter high prices and bidding wars, thanks to a persistent shortage of listings across the country. BB

Fund managers are going all-in on Big Tech stocks—so much so that it’s sparking warnings that the Nasdaq 100 is looking ever more vulnerable to investor pullbacks. One estimate shows hedge funds are holding the highest level of net-long Nasdaq 100 futures in nearly 7 years and the strength in tech shares like Apple and Taiwan Semiconductor pushed the Nasdaq 100 up as much as 1.4% Thursday. Here’s your markets wrap. BB

Just days after ending its 701-day snow drought, New York City is preparing for more snow. The Big Apple could get 2 to 4 inches and Washington as much as 2 inches of snow in the early hours Friday, threatening to snarl commuters and traffic. Amtrak was forced to cancel some Acela trains due to extreme temperatures Thursday too. Dangerous cold and ice storms have gripped the US for days, killing at least 14 people in Tennessee and 3 in Oregon.  BB