New All-Time Highs, yet again!

Thoughts of the Day

Despite initial attempts at a sell-off following Powell’s pushback on interest rate cut expectations, major US stock indices swiftly bounced and reached new all-time highs. The unexpectedly strong US jobs number contributed to rising bond yields and a reduced probability of a March rate cut, but did not dent risk sentiment and stop the market from rushing to all-time highs.

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Week Ahead

Monday: The Euro Area Producer Price Index is expected to show that prices fell -10.5% in December, compared to -8.8% in November. Earnings: Palintir (PLTR), McDonald’s (MCD)

Tuesday: The RBA is expected to keep interest rates at 4.35% in its monetary policy meeting.

Wednesday: Earnings: Alibaba (BABA), Walt Disney (DIS)

Thursday: The Chinese Consumer Price Index is expected to show that prices fell -0.5% in January, compared to -0.3% in December.The Producer Price Index is expected to show that prices fell -2.6% in January, compared to -2.7% in December. Earnings: Snap Inc. (SNAP)

Friday: The Canadian labour data is expected to show +15k jobs being added to the economy in January, compared to +0.1k in December. The Unemployment Rate is expected to tick slightly higher to 5.9% from 5.8%.

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What Happened Yesterday

Market Movements as of New York Close 2 Feb 24 (4 Feb for Crypto)
  • Fedspeak:
    Goolsbee (2025 voter, known dove): “We wouldn’t want to make much of any one month, but the continued strength of the labour market, if that continues, would lessen my worry that the job market side of our mandate is deteriorating.”
    (Goolsbee remains on the dovish side of the spectrum.)
  • In his interview with CBS news, Fed Chair Powell reiterated that the Federal Reserve is data dependent for now and will be looking for more signs that inflation is indeed falling before deciding to cut rates. Of note was this comment that inflation was high in the first few months of 2023 and that new readings from now will be replacing these high prints from last year. As such, the 12-month rolling window of inflation that the Fed pays attention to will likely trend lower from here. 
  • The US Nonfarm Payrolls (NFP) showed that the US saw a significant job increase of +353K, surpassing December’s revised +333K (from 216k) and exceeding expectations of 180K, marking the largest employment surge in a year and indicating a robust labour market. The unemployment rate remained steady at 3.7%, slightly better than the anticipated 3.8%. Additionally, the Labour Force Participation Rate held constant at 62.5%, matching December’s 10-month low. The average workweek for all employees on private nonfarm payrolls in the US fell by 0.2 hours to 34.1 hours, which was below the market predictions of 34.3 hours. Goolsbee, a Fed official, made the following remark “Weakness in overall hours worked suggests that this wasn’t as strong as that headline number suggested.” in response to the fall in average weekly hours.
  • The University of Michigan’s consumer sentiment in the US for January 2024 was adjusted upward to 79 from an initial 78.9, marking the highest level since July 2021. Inflation expectations for the coming year decreased to 2.9% from 3.1% the prior month, the lowest in three years and aligning with preliminary figures. Meanwhile, the five-year inflation outlook remained steady at 2.9%, consistent with December’s figure and slightly above the initial forecast of 2.8%.
  • The US Treasury Yield curve inversion remained at 0.33% as the US 2-year bond yield and the 10-year yield both rose +0.16% to 4.36% and 4.03% respectively due to the stronger than expected NFP numbers. 
  • The US stock futures popped in early Asian hours (S&P 500 futures: +0.59%) due to the stellar earnings from Amazon (AMZN, +7.11%) and Meta Platforms (META, +15.22%). It then traded sideways through the rest of the day before being brought down by the stellar NFP numbers which sent the S&P 500 futures down by -0.64% from where it was trading prior to the data release in immediate reaction. However, the down move was short lived as the S&P 500 futures bounced from the lows quickly after, allowing the S&P 500 futures to be up +0.08% before the New York session began.
  • The US stock market opened slightly higher from Thursday. It traded higher following the UoM consumer data which showed a resilient economy amid falling inflation expectations. Adding to the optimism was Facebook’s stellar earnings from the day before which fuelled risk seeking behaviour in tech stocks. As a  result, the S&P 500 climbed +1.07% (high: +1.41%, low: +0.04%), the Dow Jones ticked higher by +0.35% (high: +0.68%, low: -0.48%) while the Nasdaq spiked +1.72% (high: +1.95%, low: +0.19%).
  • The crypto market traded sideways due to the lack of market drivers.
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Headlines & Market Impact

US intends further strikes on Iran-backed groups, national security adviser says

Notable Snippet: The United States intends to launch further strikes at Iran-backed groups in the Middle East, the White House national security adviser said on Sunday, after hitting Tehran-aligned factions in Iraq, Syria and Yemen over the last two days.

The United States and Britain unleashed attacks against 36 Houthi targets in Yemen, a day after the U.S. military hit Tehran-backed groups in Iraq and Syria in retaliation for a deadly attack on U.S. troops in Jordan.

“We intend to take additional strikes, and additional action, to continue to send a clear message that the United States will respond when our forces are attacked, when our people are killed,” White House National Security Adviser Jake Sullivan told NBC’s “Meet the Press” program on Sunday.

The strikes are the latest blows in a conflict that has spread into the Middle East since Oct. 7, when the Iran-backed Palestinian militant group Hamas stormed Israel from the Gaza Strip, igniting war.

Iran has so far avoided any direct role in the conflict, even as it backs those groups. The Pentagon has said it does not want war with Iran and does not believe Tehran wants war either.

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Tech execs are telling investors they have to spend money to make money on AI

Notable Snippet:  One theme investors heard repeatedly from top execs is that, when it comes to AI, they have to spend money to make money.

“We move from talking about AI to applying AI at scale,” Microsoft CEO Satya Nadella said on his company’s earnings call on Tuesday. “By infusing AI across every layer of our tech stack, we are winning new customers and helping drive new benefits and productivity gains.”

Last year marked the beginning of the generative AI boom, as companies raced to embed increasingly sophisticated chatbots and assistants across key products. Nvidia

 was the big moneymaker. Its graphics processing units, or GPUs, are at the heart of the large language models created by OpenAI, Alphabet, Meta and a growing crop of heavily funded startups all battling for a slice of the generative AI pie.

As 2024 gets rolling and executives outline their plans for ongoing investment in AI, they’re more clearly spelling out their strategies to investors. One key priority area, based on the latest earnings calls, is AI models-as-a-service, or large AI models that clients can use and customise according to their needs. Another is investing in AI “agents,” a term often used to describe tools ranging from chatbots to coding assistants and other productivity tools.

Overall, executives drove home the notion that AI is no longer just a toy or a concept for the research labs. It’s here for real.

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Chinese turn U.S. embassy post into ‘Wailing Wall’ for stock plunge

Notable Snippet: Many Chinese are venting their frustration at the slowing economy and the weak stock market in an unconventional place: the social media account of the U.S. Embassy in Beijing.

A post on Friday on protecting wild giraffes by the U.S. embassy on Weibo, a Chinese platform similar to X, has attracted 130,000 comments and 15,000 reposts as of Sunday, many of them unrelated to wildlife conservation.

“Could you spare us some missiles to bomb away the Shanghai Stock Exchange?” one user wrote in an repost of the article.

The Weibo account of the U.S. embassy in China “has become the Wailing Wall of Chinese retail equity investors”, another user wrote.

China’s blue-chip CSI300 Index (.CSI300) tumbled 6.3% last month, plumbing five-year lows, after a raft of government support measures failed to prop up confidence dented by multiple economic headwinds, including a multi-year property slump, tepid domestic consumption and deflationary pressures.

Chinese authorities have since ramped up efforts to calm investors, sending out positive messages that sometimes produce the opposite effect.

On Friday, the official People’s Daily published an article with the headline: “The entire country is filled with optimism”.

A Weibo user, in an repost of the U.S. embassy’s giraffe protection article, wrote: “The entire giraffe community is filled with optimism.”

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord