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Thoughts of the Day

Despite all the bad news (weak chinese economy, geopolotical instability in the Middle East, the unending Ukraine War, the political situation in US), all the US stock indices keep rising. Many investors are left scratching their heads. Asset managers who fear being left behind, will be forced to join the rally despite lingering worries

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Day Ahead

Nothing noteworthy on the horizon today.

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What Happened Yesterday

Market Movements as of New York Close 7 Feb 24

Fedspeak:
Kashkari (2026 voter, known hawk):
“A few more months of good inflation data will give the Fed confidence that inflation is on its way back to 2%. At the moment, two to three rate cuts this year seems appropriate.”
Kugler (current voter, known centrist): “Cooling inflation and labour markets may make rate cuts appropriate at some point.”
Collins (2025 voter, known centrist): “When cuts start, they should be gradual and methodical. While she supported the FOMC decision to keep rates steady last week, she still needs more data before supporting a rate cut.”
(Kashkari is starting to sound more dovish than before. This is Kugler’s first public comments on monetary policy since she assumed office. Collins used to sound dovish but now sounds more neutral.)

In January 2023, China experienced a -0.8% year-on-year decrease in consumer prices, continuing a downward trend for the fourth consecutive month, the longest such period since October 2009. This decline was more severe than the anticipated -0.5% drop, representing the most significant fall in over 14 years. Meanwhile, in January 2024, China’s producer prices saw a -2.5% year-over-year reduction, slightly less than the -2.7% decrease observed in the previous month and just slightly higher than the -2.6% fall forecasted by the market. This marked the 16th consecutive month of producer price deflation, underscoring the ongoing deflationary pressures within the economy. Reaction in the CNH was muted.

The US Treasury Yield curve inversion widened to 0.32% as the US 2-year bond yield rose +0.02% to 4.41% while 10-year yield stayed at 4.09%.

The US stock futures traded within a tight range through the Asian and early London trading sessions. However, the market started to creep higher in the latter half of the London hours, causing the S&P 500 futures to be up +0.52% when the New York session began.

The US stock market opened higher from Tuesday. It then remained elevated through the New York session. As a result, the S&P 500 gained +0.82% (high: +0.92%, low: +0.30%), the Dow Jones rose +0.41% (high: +0.59%, low: +0.13%) while the Nasdaq popped +1.04% (high: +1.20%, low: +0.37%).

Walt Disney Co (NYSE: DIS) popped 6.71% in after market trading after it announced it would boost its cash dividend by 50% on Wednesday as the company reported fiscal first quarter earnings that beat expectations while streaming losses narrowed. Revenue: $23.5 billion vs $23.8 billion expected. Earnings: $1.22 vs $0.99 expected.

ARM Holdings (NASDAQ: ARM) leapt +19.85% in after market trading after it announced that they are seeing higher royalty and licensing revenue amid strong AI demand as it lifted its outlook for the year. Revenue: $824 million vs $761.6 million expected. Earnings: 29 cents vs 25 cents expected.
Nasdaq futures are up +0.10% in after-hours trading, as a result. 

The crypto market rose on the day as data showed that asset accumulation among Bitcoin whales rose to a multi-month high of 73
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Headlines & Market Impact

Arm shares soar as much as 41% after chip designer gives strong forecast, says AI is boosting sales

Notable Snippet: Arm, whose chip design technology is in nearly every smartphone and many PCs, said it expects earnings per share for the fiscal fourth quarter of between 28 cents and 32 cents on sales of $850 million to $900 million. Analysts expect earnings of 21 cents per share on sales of $780 million.

The company reported net income of $87 million, or 8 cents per share. Total revenue in the quarter increased 14% from a year earlier.

Arm makes money through royalties, when companies pay for access to build Arm-compatible chips, usually amounting to a small percentage of the final chip price.

Arm said its customers shipped 7.7 billion Arm chips during the September quarter, the most recent period for which figures are available.

Royalty revenue increased 11% on an annual basis to $470 million. The company said the jump was partially because of a recovery in the smartphone market, as well as increasing sales to automotive companies and cloud providers. Arm said it expects growth to be driven by royalty revenue.

In recent years, Arm has emphasised its licensing business, selling access to more complete designs that semiconductor companies can plug into their planned chips. That process saves chipmakers time and effort, and it’s more lucrative for Arm than simply collecting royalties.

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Oil prices rise as Netanyahu vows to press on with Gaza war, U.S. crude output to slow this year

Notable Snippet:  Israel Prime Minister Benjamin Netanyahu on Wednesday rejected a proposal made by Hamas for a permanent ceasefire, vowing to fight on in Gaza until “absolute victory.”

Netanyahu’s comments came shortly after he met with U.S. Secretary of State Antony Blinken, who is trying to facilitate truce in Gaza in exchange for the release of hostages.

“While there are some clear nonstarters in Hamas’ response, we do think it creates space for agreement to be reached and we will work at that relentlessly until we get there,” Blinken told reporters at a press conference in Israel.

The war between Israel and Hamas threatens to draw the U.S. into a direct confrontation with Iran. The U.S. launched airstrikes against Iranian forces and allied militants in Iraq and Syria last weekend in retaliation for the death of three American troops in a drone strike in Jordan.

Analysts have warned that a confrontation between the U.S. and Iran could impact the oil market if there is a prolonged disruption in the Strait of Hormuz, a crucial route for crude flows.

U.S. oil output has raised worries among traders that the market is oversupplied as China’s economy and crude demand softens. But the world will face a crude oil supply deficit of 120,000 barrels per day this year, according to EIA estimates.

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Fed policymakers signal no rush to cut US interest rates

Notable Snippet: U.S. central bankers want to hold off on cutting interest rates until they have more confidence that inflation is headed down to 2%, and on Wednesday gave a range of reasons for feeling little urgency to start easing policy soon or to move quickly once they do.

“For the moment, policy remains well positioned, as we carefully assess the evolving data and outlook,” Boston Fed President Susan Collins told the Boston Economic Club on Wednesday. “As we gain more confidence … I believe it will likely become appropriate to begin easing policy restraint later this year.”

The strength of the labour market and the economy, she said, suggests that cooling will take some time, and rate cuts should be gradual and methodical when they start.

“Sitting here today I would say two to three cuts would seem to be appropriate for me right now…that’s my gut based on the data we have so far,” Minneapolis Fed President Neel Kashkari said in an interview with broadcaster CNBC.

Richmond Fed President Thomas Barkin, who like Kashkari tends to be on the more hawkish side of the Fed policymaker spectrum, said he still wasn’t quite sold on the idea that progress on inflation will continue, given that disinflation so far has come from easing prices in goods and has yet to spread to the services and rental sectors.

“I am very supportive of being patient to get to where we need to get,” Barkin said at The Economic Club of Washington.

Fed Governor Adriana Kugler, in her first public comments since starting the job last September, said for her part she is “optimistic” that progress on inflation will continue with help from both slowing wage growth and from lower rents, though like her colleagues she said she needs more data to be sure, and would support holding rates steady for longer if disinflation stalls out.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord