Just when we thought it would be smooth sailing…

Thoughts of the Day

US stock markets traded weak on its first trading day of 2024 with the tech-heavy Nasdaq leading the way lower, closing down -1.68% after falling more than -2.2% at one stage during the day. Escalation of geopolitical worries is never good for risk sentiment and the situation should be closely watched. If the situation should stabilise, investors will likely shift their focus back to what’s truly important, i.e. the US jobs data that will be released later this week.

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Day Ahead

The US JOLTs Job Openings will be released with 8.85M job openings expected, up from 8.733M previously.

The Federal Reserve meeting minutes for the December meeting will be released as well. Expect more details about how the Federal Reserve will lower interest rates in the year ahead.

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What Happened Yesterday

Market Movements as of New York Close 2 Jan 2023
  • The US Treasury Yield curve inversion widened to 0.38% as the US 2-year bond yield rose +0.10% to 4.33% while the 10-year bond yield rose +0.07% to 3.95%.
  • The US stock futures traded sideways through the Asian trading session. However, it started trading lower when the London session began following reports that Barclays downgraded Apple (-3.58%) to underweight from equal weight citing poor sales. The S&P 500 futures were down -0.72% before the New York session started.
  • Additionally the heightened geopolitical tension in the Red Sea weakened risk sentiment as well. All INE Containerized Freight Index (Europe Service) futures contracts opened up at 23% limit-ups in China on Wednesday as shipping routes were re-routed through Africa’s southern Cape of Good Hope (which increased delivery costs). [see article 1 below for more details]
  • The US stock market opened lower from last Friday. It then stayed at weaker levels due to the lack of market drivers. Consequently, the S&P 500 closed -0.57% on the day (high: -0.32%, low: -0.99%), the Dow Jones rose +0.07% (high: +0.27%, low: -0.51%) while the Nasdaq decreased -1.68% (high: -0.83%, low: -2.22%). 
  • The crypto market continued to rise higher because speculators remain hopeful that a Bitcoin ETF could be approved by the US authorities soon. BTC broke above 45,000 and almost touched 46,000 before the weak stock market caused it to pull back to the 45,000 level.
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Headlines & Market Impact

Maersk halts Red Sea shipping until further notice after Houthi militant attack

Notable Snippet: Maersk will pause all shipping through the Red Sea and Gulf of Aden until further notice after one of its vessels came under attack from militants over the weekend, the company announced Tuesday.

The decision by the Danish shipping giant extends a 48-hour pause implemented on Sunday in the immediate aftermath of the attack.

“We have made the decision to pause all transits through the Red Sea / Gulf of Aden until further notice,” the company said in an update to customers.

Oil prices were volatile Tuesday, jumping more than 2% earlier in the day on Red Sea tensions but later giving up those gains. U.S. crude shed 82 cents, or 1.14%, to trade at $70.83 a barrel while global benchmark Brent lost 68 cents, or 0.88%, to trade at $76.36 a barrel.

The container ship Maersk Hangzhou came under attack over the weekend by four small boats crewed by Houthi militants, who are based in Yemen and backed by Iran.

U.S. Navy helicopters responded to a distress call from the Maersk Hangzhou and fired on the militants after coming under attack, sinking three boats and killing the crews, according to the U.S. Central Command.

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ASML blocked from shipping some of its critical chipmaking tools to China

Notable Snippet: ASML, which makes machines that are critical to manufacturing the most advanced semiconductors, was barred by the Dutch government from exporting some of its tools to China, the company said.

In a statement released Monday, ASML, which is headquartered in Veldhoven, Netherlands, said a licence for the shipment of its NXT:2050i and NXT:2100i lithography systems in 2023 has “recently been partially revoked by the Dutch government.”

The second type of tool it sells is called an immersion deep ultraviolet (DUV) lithography machine, which is used to make slightly less advanced chips. The NXT:2050i and NXT:2100i, which are caught up in the Dutch government’s latest export curbs, are DUV lithography machines.

The revocation of the shipping licence comes after the U.S. government tightened export controls on advanced semiconductors and chipmaking tools to China in October, building on previous rules.

ASML said in its statement that in recent discussions with the U.S. government, the company has “obtained further clarification of the scope and impact” of the October updated export controls. These curbs “impose restrictions on certain mid critical DUV immersion lithography systems for a limited number of advanced production facilities.”

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Exclusive: China removes official after video games rules spark turmoil

Notable Snippet: China removed an official at a government body overseeing its press and publications regulator, five sources who were briefed on the matter said, days after Chinese gaming stocks were hit by proposed rules to curb spending on video games.

Feng Shixin was removed last week from his position as head of the publishing unit of the Communist Party’s Publicity Department, the sources said. The department oversees the National Press and Publication Administration (NPPA) which in turn regulates China’s vast video games sector.

The five sources said Feng’s removal was linked to rules the NPPA announced last month that sent stocks in the world’s largest video games sector, including industry giant Tencent (0700.HK), plunging.

The sources declined to be identified as authorities had yet to officially announce Feng’s departure.

The NPPA’s proposed measures, which seek to curb spending and the use of rewards that encourage the playing of video games, triggered fears that authorities were once again cracking down heavily on the sector and wiped nearly $80 billion off the market value of China’s two biggest gaming companies.

Five days after the rules were announced, the NPPA struck a more conciliatory tone, saying it would improve them by “earnestly studying” public views.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord