CAUSE AMERICA-Markets take a break – January 18, 2024 at 12:04 pm

Mike Dolan's A Look at the Future in US and Global Markets

After a tough week with sticky inflation numbers abroad, muted interest rate hopes and reduced bets for the new year, global markets appear to have found some support.

Although the domestic inflation picture in the U.S. remains largely unfavorable, incoming retail sales, manufacturing and housing data this week all beat forecasts, leaving investors wondering whether the scale of planned rate cuts this year will materialize.

Hawkish sounds from European central bankers made the mood even gloomier.

But the prospect of a recession-free 2024 in the US and struggling inflationary pressures in China and Germany leave the outlook in balance.

The Fed's latest “beige book” on economic conditions suggests the Fed's view has changed little in the weeks since its bombastic December meeting that predicted multiple rate cuts this year.

So, even if the price for a Fed rate cut is slightly off, futures indicate a more than 50% chance of a cut in early March and a total of 145 basis points of easing through December.

Long-term bond yields fell further, with the 10-year yield hitting a one-month high of 4.12% on Wednesday, although it was down about 5bps again today.

The Treasury saw weak demand for its $13 billion auction of 20-year bonds on Wednesday ahead of an expected deluge of debt issuance this year. The paper sold at a high yield of 4.423%, about 9bps above where it traded before the sale and the bid-to-cover ratio was the lowest since March.

But after this week's latest round of gloomy economic updates and worrisome demographic data, the focus overseas is on China. China's nominal growth last year, including a year of inflation, fell to the lowest level since 1976 and China's population shrank for a second year in a row.

However, fresh stimulus measures and speculation about purchases from state-backed investors calmed market sentiment on Thursday. China's main stock index ended the year up 1.4% after initially touching a fresh 5-year low as foreign net sales hit a more than one-year high on Wednesday.

Many large-cap ETFs, the preferred investment vehicles of these state-backed funds, so-called “national team” investors, saw increased trading volume, indicating support for such firms.

European stocks also gained ahead of the release of the minutes of the European Central Bank's latest meeting.

Wall Street futures are somewhat positive for Thursday's open as the U.S. fourth-quarter earnings season is still mixed, dominated by regional banks today and Friday.

Shares of U.S. chipmakers rose after hours after Taiwanese chipmaker TSMC forecast revenue growth of more than 20% through 2024 on rising demand for high-end chips used in artificial intelligence applications. TSMC's US shares rose 4.8% in premarket trading.

In addition to corporate profits, US housing starts and weekly unemployment are high on the agenda.

The dollar bounced back from its highest level in a month, along with a fall in US government bond yields.

With troubling geopolitics in the background — attacks on Red Sea shipping continued and Pakistan retaliating against Iran after an incident earlier this week — crude oil prices remained firm.

The International Energy Agency on Thursday further revised its forecast for oil demand growth in 2024, although the forecast is dramatically lower than the expectations of producer group OPEC. Key agenda items that could guide US markets later Thursday: * US corporate earnings: Northern Trust, M&T Bank, Fastenal, Trust, KeyCorp, PPG, JP Hunt Transport. December housing starts/permits, Philadelphia Fed January business survey, weekly jobless claims * Atlanta Federal Reserve President Raphael Bostic speaks * World Economic Forum in Davos – Thomas Jordan, Swiss National Bank President, Christine Lagarde, European Central Bank President, Eurogroup President Paschal Donohoe and UK Treasury Chancellor Jeremy Hunt were among the many speakers * US Treasury bids on 10-year inflation-protected bonds, 4-week bills