What’s something to worry about this week?

Thoughts of the Day

FED officials have maintained a consistent stance post-January’s meeting, foreseeing a future interest rate cut but awaiting clearer inflation signals. Their data-driven approach places emphasis on Thursday’s PCE Price Index release, pivotal for market sentiment.

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Week Ahead

Monday: – 

Tuesday: The Japanese Consumer Price Index will be released. The core index is expected to show that prices rose +1.8% Year-on-Year in January, down from +2.3% in December.

Wednesday: The Australian Monthly CPI Indicator is expected to show that prices rose +3.5% YoY in January, up from +3.4% in December. 

The RBNZ is expected to keep interest rates unchanged at 5.5% in its monetary policy meeting.

The 2nd estimate of the US GDP Growth Rate is expected to show a QoQ growth of +3.3% in Q4’23 down from +4.9% in Q3’23.

Thursday: The US PCE Price Index is expected to show that prices rose +2.4% YoY in Jan, down from +2.6% in December.

Friday: The revised University of Michigan Consumer data will be released.

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What Happened Yesterday

Market Movements as of New York Close 23 Feb 24 (25 Feb for Cryptos)

Fedspeak:
Waller (current voter, known hawk):
“The Committee can wait a little longer to ease monetary policy. Cutting too soon could squander inflation progress and risk considerable harm to the economy. The CPI report last week is a reminder that ongoing progress on inflation is not assured.”
Cook (current voter, known dove): “I would like to have greater confidence that inflation is converging to 2% before beginning rate cuts. The risk of persistently-high inflation has diminished, but not disappeared entirely.”
Williams (current voter, slight hawk): “Rate cuts are likely later this year, but only if appropriate. However, things are moving in the right direction. Rate hikes are not Fed Williams’ base case currently.”
(Waller remains a strong hawk. Williams is starting to add some hawkish remarks to his previously data dependent stance. This is Cook’s first direct comment about monetary policy.)

The US Treasury Yield curve inversion widened to 0.41% as the US 2-year bond yield fell -0.02% to 4.67% while the 10-year yield slipped -0.07% to 4.26%. 

The US stock futures traded within a range through the Asian and early London trading hours. However, some positive momentum started to seep in as the London session progressed with the S&P 500 up +0.39% when the New York session began.

The US stock market opened higher from Thursday It then started to falter following some relatively hawkish comments from Fed officials. As a result, the S&P 500 inched higher by just +0.03% (high: +0.47%, low: -0.11%), the Dow Jones rose +0.16% (high: +0.55%, low: +0.06%) while the Nasdaq slipped -0.37% (high: +0.48%, low: -0.57%).

The crypto market traded weak on Friday but showed signs of life over the weekend allowing Bitcoin and Ether to rise +0.70% and +4.81% respectively.
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Headlines & Market Impact

Why widespread tech layoffs keep happening despite a strong U.S. economy

Notable Snippet: “The layoffs to the start of 2024 signal a dramatic shift in the tech industry,” said Jeff Shulman, professor at the University of Washington’s Foster School of Business. “We’re going to continue to see layoffs happen as the future of work has changed, as the future of technology has changed and as investors’ appetite for risk and growth versus profitability has dramatically changed as well.”

The number of tech sector layoffs in 2024 has been outpacing the number of terminations in 2023. So far, about 42,324 tech employees were let go in 2024, according to Layoffs.fyi, which tracks layoffs in the tech industry. That averages out to more than 780 layoffs each day in 2024. In 2023, nearly 263,000 tech employees got laid off, averaging to about 720 layoffs each day that year.

There are several factors behind the churn. AI is at the forefront. Companies need to free up cash to invest in the chips and servers that power the AI models behind these new technologies. There’s also the stock market effect. Companies that conducted layoffs haven’t been punished, either by investors or on their bottom lines. In fact, they’ve been rewarded with rising stock prices.

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China’s woes won’t slow US economy, but excess capacity a concern, says Treasury’s Adeyemo

Notable Snippet: U.S. Deputy Treasury Secretary Wally Adeyemo said on Friday that he is concerned about China’s excess manufacturing capacity spilling over to the global economy, even if China’s current economic woes are unlikely to slow U.S. growth in the near term.

“I am not concerned about the headwinds from China having a large impact on the US economy,” Adeyemo told a Council on Foreign Relations event in New York, referring to challenges from its property sector, an ageing population and a worsening business climate for private firms.

“The thing that I am fundamentally concerned about from China is excess capacity coming from China and hitting the global economy,” Adeyemo said.

China’s heavily subsidised manufacturing capacity for electric vehicles, solar panels and other goods has followed industries such as steel and aluminium in producing more goods than China can consume, he added.

“Fundamentally that overcapacity is going to go somewhere,” Adeyemo said, adding that U.S. tariffs and tax credits for EVs and their batteries will help keep Chinese EVs out of the U.S. market and allow American firms to compete more fairly.

“This is going to be a challenge for the global economy and it’s something we are talking directly with the Chinese about,” Adeyemo said. “They need to compete on a level playing field, not just with the United States, but with countries around the world.”

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Xiaomi bets big on its new electric vehicle — targets 20 million premium users

Notable Snippet: Chinese smartphone company Xiaomi believes it’s identified a consumer niche that will pay up for its upcoming electric car in a fiercely competitive market.

“We think it’s a good starting point for us in the premium segment because we already have 20 million premium users in China based on the smartphone,” Xiaomi Group President Weibing Lu told CNBC ahead of the car’s international reveal at the Mobile World Congress in Barcelona, which kicks off Monday.

“I think the initial purchases will be very overlapped with the smartphone users.”

He said the company considered a range of price points, from entry level to luxury, for a car it’s spending $10 billion to develop.

Xiaomi launched a new operating system in the fall called HyperOS.

It claims the system includes an artificial intelligence component that can learn from user behaviour to automatically adjust connected devices, such as home lighting.

“In the future, we think it’s not [that] we give the instruction to the device but actually [that] the device can understand your needs and meet your needs proactively,” Lu said.

The company calls the strategy “human x car x home.”

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord