Inflation continues to slow

Thoughts of the Day

The latest PCE Price Index, indicates a further slowdown in price rises, reaching the lowest levels since early 2021. This will reinforce the Fed’s confidence in a slowing inflationary trend, potentially leading to discussions about future interest rate cuts during their upcoming policy meeting.

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Week Ahead

Monday: –

Tuesday: The US JOLTS job openings data point is expected to show +8.75M jobs available in the economy in December vs 8.79M previously.

Wednesday: Australian Monthly CPI Indicator is expected to show that prices rose +3.7% on an annual basis in December, down from 4.3% in November.

Chinese PMIs are slated to be released with the NBS Manufacturing PMI expected at 49.3 vs 49 in December.

US ADP Employment Change is expected to show +135K jobs being added to the economy in January, down from 164k in December.

The Federal Reserve is expected to keep interest rates unchanged at 5.5%. Updates to the monetary policy stance especially with regards to discussions about possible interest rate cuts in the future are likely.

Thursday: Euro Area Consumer Price Index is expected to show that prices rose +2.8% YoY in January, slightly lower than the +2.9%  print in December.

The Euro Area Unemployment Rate is expected to remain at 6.4% in December.

The Bank of England is expected to keep interest rates unchanged at 5.25% in its monetary policy decision.

Friday: The US Nonfarm Payrolls is expected to show +173K jobs being added to the economy in January, down from+ 216k in December. The US employment rate is expected to tick higher to 3.8% from 3.7%.

US University of Michigan Consumer Sentiment is expected to rise to 78.8 in January from 69.7 in December.

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What Happened Yesterday

Market Movements as of New York Close 26 Jan 24 (28 Jan for Crypto)
  • The US PCE price index saw a year-on-year rise of +2.6% in December as expected, matching the increase observed in November. The annual PCE inflation rate has stabilised, reaching its lowest level since February 2021. Additionally, the Core PCE Price Index in the United States saw a decrease to +2.9% YoY (vs +3% expected) in December, down from November’s +3.2% in 2023.
  • The US Treasury Yield curve inversion widened to 0.19% as the US 2-year bond yield rose +0.06% to 4.34% while the 10-year yield edged higher by +0.01% to 4.15%. 
  • The US stock futures fell through the Asian trading session following the poor earnings guidance on Intel (forecast that current-quarter revenue could fall short of market estimates by more than $2 billion) with the S&P 500 futures falling to a low of 4899.5 (-0.40%) from 4919.25. However, the downward pressure eased when the London trading hours started. The slightly weaker core PCE print then added strength to risk sentiment. Thus, the S&P 500 futures bounced +0.39% from the lows to 4918.5 by the time the New York session began.
  • The US stock market opened almost unchanged from Thursday. It then attempted to climb higher before succumbing to some weakness caused by the negative outlook on Intel (-11.9%). Consequently, the S&P 500 edged -0.07% lower on the day (high: +0.26%, low: -0.26%), the Dow Jones eked out a gain of +0.16% (high: +0.44%, low: -0.13%) while the Nasdaq slipped -0.55% (high: -0.01%, low: -0.69%). 
  • The crypto market remained elevated over the weekend following a spike on Friday with Bitcoin gaining +5.67% and Ether rising +1.67%.
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Headlines & Market Impact

US to announce billions in subsidies for advanced chips -WSJ

Notable Snippet: President Joe Biden’s administration is expected to award billions of dollars in subsidies in coming weeks to top semiconductor companies including Intel (INTC.O) and Taiwan Semiconductor Manufacturing Co (2330.TW), to help build new factories in the U.S. The Wall Street Journal reported on Saturday.

The forthcoming announcements aim to kick-start manufacturing of advanced semiconductors that power smartphones, artificial intelligence, and weapons systems, the WSJ reported, citing industry executives familiar with the negotiations.

The executives expect some announcements to come before Biden’s State of the Union address on March 7, according to the report. Among the likely recipients of the subsidies, Intel has projects underway in Arizona, Ohio, New Mexico, and Oregon that will cost more than $43.5 billion, the paper said.

Another likely recipient, Taiwan Semiconductor Manufacturing Co (TSMC) has two plants under construction near Phoenix for a total investment of $40 billion. South Korea’s Samsung Electronics, also a contender, has a $17.3 billion project in Texas. Micron Technology (MU.O), Texas Instruments (TXN.O), and GlobalFoundries (GFS.O), count among other top contenders, WSJ added citing industry executives.

The U.S. Department of Commerce refused to discuss any potential applicants and declined to comment on any timing reports.

“This is a merit-based process with tough commercial negotiations — CHIPS awards will be entirely dependent upon which projects will advance US economic and national security,” a department spokesperson said to Reuters citing a Commerce official.

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Tech layoffs balloon in January as Wall Street rally lifts Alphabet, Meta, Microsoft to records

Notable Snippet: While Wall Street cheers on Silicon Valley, tech companies are downsizing at an accelerating clip. So far in January, some 23,670 workers have been laid off from 85 tech companies, according to the website Layoffs.fyi. That’s the most since March, when almost 38,000 people in the industry were shown the exits.

Activity picked up this week with SAP announcing job changes or layoffs for 8,000 employees and Microsoft cutting 1,900 positions in its gaming division. Additionally, high-valued fintech startup Brex laid off 20% of its staff and eBay slashed 1,000 jobs, or 9% of its full-time workforce. Jamie Iannone, eBay’s CEO, told employees in a memo that, “We need to better organise our teams for speed — allowing us to be more nimble, bring like-work together, and help us make decisions more quickly.” 

Earlier in the month, Google confirmed that it cut several hundred jobs across the company, and Amazon has eliminated hundreds of positions spanning its Prime Video, MGM Studios, Twitch and Audible divisions. Unity said it’s cutting about 25% of its staff, and Discord, which offers a popular messaging service used by gamers, is shedding 17% of its workforce.

The layoffs aren’t limited to the tech industry. Embattled bank Citigroup said earlier this month that it was cutting 10% of its workforce. And on Thursday Levi Strauss said it will lay off at least 10% of its global corporate workforce as part of a restructuring. Paramount became the latest media brand to announce cuts, with CEO Bob Bakish saying on Thursday the business needs to “operate as a leaner company and spend less.”

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Beijing intensifies military pressure on Taiwan as U.S.-China talks resume

Notable Snippet: Beijing sent dozens of military aircraft and naval ships toward Taiwan on Friday, the same day of a low-profile meeting between U.S. national security adviser Jake Sullivan and Chinese Foreign Minister Wang Yi aimed at stabilising U.S.-China relations.

The intensified military pressure comes as the U.S. and China are attempting to steer relations back on track after an icy couple of years. For example, at their meeting, Sullivan and Wang confirmed the plan to launch a collaborative U.S.-China “Counternarcotics Working Group” on Tuesday to address the fentanyl crisis.

During their two-day meeting in Bangkok on Thursday and Friday, Sullivan and Wang talked about reopening military-to-military communications, curbing the flow of fentanyl and mitigating the risks of artificial intelligence.

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Phan Vee Leung
CIO & Founder, TrackRecord