Symax Fintech Daily Market Insights 22.01.24

Another week, another round of good US economic news. The flavors this time were falling initial jobless claims, soaring consumer sentiment and strong retail sales data. The latter underscored how solid the American economy has remained through a Federal Reserve rate-boosting campaign that’s arguably broken the back of inflation. But Wall Street is eager to know when those rate hikes will be reversed. Fed Governor Christopher Waller said earlier policy moves should be “carefully calibrated and not rushed,” while Atlanta Fed President Raphael Bostic said he wants to see more evidence inflation is on track toward the 2% target. His comments seem to counter market expectations for as many as six rate cuts this year. In Europe, which has previously been hesitant to discuss unwinding its interest-rate increases, officials in Davos signaled the chance of a move around mid-year. That’s when they’ll know more about inflation, wages and the stuttering European economy—as well as harm to supply chains by conflict in the Red Sea tied to the Israel-Hamas war.

Two major Wall Street firms are recommending investors start buying five-year US notes after they saw their worst rout since May last week. Morgan Stanley sees scope for a rebound in Treasuries on expectations data in the coming weeks may surprise to the downside. JPMorgan is suggesting investors buy five-year notes as yields have already climbed to levels last seen in December, though it warned that markets are still too aggressive in pricing for an early start to central bank interest-rate cuts. BB

Billionaire money managers Chris Hohn and Ken Griffin led hedge funds to deliver one of the best years for clients in 2023. The industry produced combined gains worth $218 billion after fees, according to estimates by LCH Investments, a fund of hedge funds. Hohn’s TCI Fund Management made $12.9 billion to top LCH’s rankings, followed by Citadel, which made $8.1 billion.  The top 20 firms, which oversee less than a fifth of the industry’s assets, generated roughly a third of the gains last year. BB

As violence spreads across the Middle East, many of the flashpoints can be seen to have a common actor. “Everywhere in the background stands Iran, which arms Hamas, Hezbollah and the Houthis,” Marc Champion writes in Bloomberg Opinion. And a large part of the increasing risk of a regional conflagration is the decades-long shadow war between Iran and Israel. Iran attacked what it said was an Israeli spy base in Iraq, an alleged Islamic State target in Syria (using sophisticated missiles potentially capable of hitting Israel) and militant separatists in Pakistan. Pakistan fired back even as each side said it didn’t want escalation. Iran-backed Houthis continue firing on vessels going to and from the Suez Canal, with US President Joe Biden conceding American missile strikes in Yemen have yet to stop the attacks. Five Arab nations are quietly touting a settlement for postwar Gaza, but Prime Minister Benjamin Netanyahu isn’t buying it or a two-state solution. BB

US President Joe Biden is forgiving nearly $5 billion in additional student debt as the administration seeks to deliver on one of his signature initiatives. Almost 74,000 student loan borrowers will see debt canceled as a result of administrative changes by the US Education Department in the latest round of relief. Those affected include borrowers enrolled in the government’s income-driven repayment and public-service loan forgiveness programs.  BB

The news for China stocks is less pleasant. They just capped another dismal week, with a gauge of mainland firms listed in Hong Kong languishing at the bottom of global equity index rankings. Tokyo has overtaken Shanghai as Asia’s biggest equity market while India’s valuation premium over China hit a record. Locally, a meltdown in Chinese shares is wreaking havoc on the nation’s asset management industry. This “is a continuation of what we saw last year,” said John Lin, AllianceBernstein’s chief investment officer of China equities. “These squeezing-the-toothpaste type of stimulus policies so far haven’t been able to turn around the underlying bottom-up fundamentals of areas like the property sector.” BB

America is seeing more and more of its most fertile land snapped up by China and other foreign buyers, yet problems with how the US tracks such data means it’s difficult to know just how much. Foreign ownership and investment in property such as farmland, pastures and forests jumped to about 40 million acres in 2021, up 40% from 2016. BB

Ford said it would cut the number of workers making its F-150 Lightning truck as US demand for electric vehicles continues to weaken. In another sign that traditional gas-powered vehicle demand remains strong despite the accelerating climate crisis, Ford also said it was hiring nearly 900 new employees and adding 700 employees from its Rouge Complex for a third shift at its Michigan Assembly plant. “It’s pretty clear there’s been some slowdown in EV adoption,” said David Lefkowitz, head of consumer equities for UBS Global Wealth Management. “We’re getting to the part of the market where it may take a little more effort to penetrate.” BB

German protesters took to the streets to oppose far-right extremism and the rise of the AfD. The trigger was reports of a November meeting at which AfD bosses discussed an immigrant-deportation scheme that echoed Nazi policies. BB

The EU will unveil a proposal on Wednesday as part of its effort to recreate itself into a global power that can leverage its massive single market.

• The bloc plansto propose rules aimed at boosting its power to screen and potentially block foreign investment in sensitive industries, according to a draft seen by Bloomberg.
• The EUis trying to shield its economy from coercive actions from the likes of Beijing, Moscow and even Washington. BB

With Russia’s war on Ukraine nearing its two-year mark and a €50 billion financial-aid package still in limbo, the EU is looking at ways to sustain pressure on Vladimir Putin. With most major Russian targets already sanctioned, the bloc is increasingly attacking circumvention, including in its next sanctions package due by Feb. 24. And with weapons stockpiles low, the EU wants to revamp a multi-billion-euro fund for Ukraine. Instead of reimbursing nations for arms sent to bolster Ukraine’s forces, the fund would subsidize joint procurement from European defense firms, according to the proposal we’ve seen. EU foreign ministers are likely to discuss both issues in Brussels today. BB

Global consensus has clearly shifted in the past several years away from the idea that international trade should be as frictionless as possible. Protection in at least some form is widely favored in a way that wasn’t the case a decade ago—if only in the name of boosting supply-chain resiliency in the face of shocks.

Even some free-trade advocates who championed China’s entry into the World Trade Organization at the start of the century now view things differently. Perceptions among working-class American voters that they have been ignored helped propel Donald Trump to the White House in 2016, changing the game for those favoring reduced trade barriers.

The reality on trade is such that President Joe Biden hasn’t even pressed for trade-negotiating authority from Congress, which lapsed in 2021. But these days, a new source of angst is overshadowing the political calculations of Western countries to an extent not seen in recent times. After upending the consensus on untrammeled access of goods, many are calling for increased barriers to the import of people.

Public attitudes toward migration are being shaped by scenes such as the overcrowding of New York City shelters and politicians’ eagerness to exploit the issue. The danger is, the bigger the turn in rich-world democracies against letting foreigners in, the bigger the hit to long-term growth. Low birth rates across developed nations mean that letting others in is key to avoiding population decline and potential economic stagnation. BB