A bazooka or a water pistol?

Thoughts of the Day

Chinese officials will address the implementation of Central Economic Work Conference decisions in a press conference today and hopefully announce more financial support.
With the Chinese stock index, CSI 300, languishing close to 5-year lows, if they disappoint again with half-measures, the downtrend is likely to persist.

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Day Ahead

The Bank of Canada is expected to keep interest rates at 5%.

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What Happened Yesterday

Market Movements as of New York Close 23 Jan 24
  • The US Treasury Yield curve inversion narrowed to 0.17% as the US 2-year bond yield fell -0.06% to 4.31% while the 10-year yield rose +0.03% to 4.14%. 
  • The US stock futures did not move much in the Asian and London trading session on Tuesday with the S&P 500 futures rising just +0.08% on the day before the New York session began.
  • The US stock market opened slightly higher from Monday. It then started to falter slightly due to poor earnings guidance from 3M ($2.07 median vs $2.22 expected) and just slightly better than expected earnings from Johnson and Johnson ($2.29 vs $2.28 expected). However, the market sentiment improved mid session, recovering some losses made earlier in the session.  Consequently, the S&P 500 rose +0.29% on the day (high: +0.33%, low: -0.12%), the Dow Jones slipped -0.25% (high: -0.06%, low: -0.52%) while the Nasdaq increased +0.43% (high: +0.46%, low: -0.26%).
  • Netflix (NASDAQ: NFLX) popped +8.66% in extended trading following its stellar earnings results with the streaming company achieving 260.8 million paid subscribers (vs 256 million expected and approx 248 million previous), a new record for the service. Earnings: $2.11 vs $2.22 expected. Revenue: $8.83 billion vs $8.72 billion expected. Nasdaq futures traded around +0.3% higher following the earnings.
  • The crypto market continues to trade on the defensive as the temporary euphoria over the Bitcoin ETFs has waned. Bitcoin traded to a low of 38,573 (-2.59%) while Ether traded to a low of 2166 (-6.28%) before bouncing back and erasing some of the earlier losses.
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Headlines & Market Impact

Bank of Japan retains its ultra-loose policy, says 2% inflation target is in sight

Notable Snippet: The Bank of Japan said Tuesday that prospects of the world’s third-largest economy sustaining the 2% inflation target were “gradually heightening,” after the central bank expectedly retained its ultra-loose monetary policy at its first meeting this year.

The BOJ decided unanimously to keep interest rates at -0.1%, and stuck to its yield curve control policy that keeps the upper limit for 10-year Japanese government bond yield at 1% as a reference, according to a policy statement released Tuesday after a two-day meeting. This was in line with the expectations of economists polled by Reuters.

“We were able to confirm that the economy is moving in line with our projections on inflation,” Governor Kazuo Ueda said in a press conference in Tokyo, according to a Reuters translation.

“Our core-core inflation forecast is at 1.9%, very close to our 2% target. This was the case in October but it happened again this time, after close scrutiny.”

Japan’s central bank defines “core-core inflation” as inflation that excludes growth in food and energy prices, while core inflation is inflation that excludes only food prices.

“This is the biggest factor that made us more convinced than before that the likelihood (of sustainably achieving our price target) is gradually heightening,” Ueda added. “But it’s hard to quantify how close we’ve come.”

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Alibaba co-founders buy more than $200 million worth of shares, sending stock up

Notable Snippet: Alibaba co-founders Jack Ma and Joe Tsai have acquired shares worth hundreds of millions of dollars on the open market, according to a regulatory filing and The New York Times, sending the company’s stock up around 8% on Tuesday.

An entity linked to Tsai’s family office, Blue Pool, acquired nearly 2 million Alibaba depositary shares worth $152 million in the fourth quarter, according to a Tuesday regulatory filing. Separately, sources familiar with the matter told the Times that Ma acquired $50 million worth of Alibaba’s Hong Kong stock during the same period. Depositary shares are effectively U.S.-traded versions of foreign stock.

Alibaba has a market cap of more than $174 billion.

Until recently, Ma had largely stepped out of the public eye. Tsai maintains a more visible profile as the owner of several sports teams, including the Brooklyn Nets.

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Japan Jan factory activity languishes, but service sector picks up – PMI

Notable Snippet: Japan’s factory activity shrank for the eight consecutive month in January amid weak demand, but the service sector saw strong gains as new business picked up, a private business survey showed on Wednesday.

The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) was little changed at 48.0 in January from a final 47.9 in December. The headline index has remained below the 50.0 threshold, which separates contraction from expansion, since June.

Both output and new orders, the two key subindexes contributing to the headline figure, remained in contractionary territory but their pace improved slightly from the prior month.

“Backlogs of work broadly stabilised in January, providing an early sign that output was starting to be supported by improved demand rather than the fulfilling of prior orders,” said Usamah Bhatti, an economist at S&P Global Market Intelligence.

While input price inflation persisted in January, its level dipped from December when it hit a three-month high. Output charges went up but at the slowest rate since June 2021.

The au Jibun Bank flash services PMI increased to 52.7 in January from a final 51.5 in December, sustained by new business growth that was the strongest since September last year. Foreign demand for services expanded for the first time in five months.

Looking ahead for the next 12 months, the service sector’s optimism was high.

The au Jibun Bank Flash Japan composite PMI, which combines both manufacturing and service sector activity, advanced to 51.1 in January from 50.0 in December.

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Phan Vee Leung
CIO & Founder, TrackRecord