Market 01/16: FED and ECB stance on interest rates

Empire State manufacturing index plummets: -43.7

New York manufacturing index in January drops 29.2 points to -43.7, lowest since May 2020 due to sharp decline in new orders and deliveries.

This is a significant drop compared to the forecasted level of just -5 (thought to be a mild recovery from previous month's -14.5).

Of which:
- New orders: -49.4 - down more than 38 points, lowest since April 2020.
- Deliveries: -31.3 - sharpest drop since August.
- Average hours: -6.1 (vs -2.4 previous month)

→ The excessive drop indicates January was a tough month for New York manufacturing, with employment and hours worked also declining.

However, the overall outlook for the next 6 months rises to the highest in 3 months:

→ Manufacturing will stabilize back at weak levels.

Prospects index for capital costs rises to highest since April 2023.
→ Sign of increasing investment.

Update on Fed and ECB members' stance on interest rates

Hawkish messages from Fed members continue to be issued to restrain market reactions.

Atlanta Fed President Bostic: interest rates need to be kept high, at least until summer.
- Predicts inflation will slow but hard to reach 2% target until 2025. Inflation at end of 2024 at 2.25%.
Fed official Waller also notes rates may be cut this year, however still “need to be cautious about the inflation target”.

While the market still expects Fed rate cut in March.
- According to Atlanta Fed President Bostic, “… the market is too optimistic about the pace of this cut.”

Additionally, US Congress just announced a major tax deal to expand child tax credit and restore corporate tax cuts.
- In terms of economic impact, this action is no different from injecting more money into the economy - reversing the Fed's QT process.

ECB Holzmann: “Likelihood of no rate cuts in 2024."

When asked about the first rate cut in April, he said unless inflation hits target, “no announcements on the timing of cuts”.

Eurozone headline inflation rose to 2.9% in December, vs 2% inflation target.

Meanwhile, the market predicts 6 ECB cuts for 2024.

The reason for this market confidence is the clear weakening of major Eurozone economies:

Germany's GDP declines -0.3% YoY - the first negative growth since the pandemic and the only G7 economy to hit the recession threshold.

FYI: 152 central banks worldwide are expected to cut interest rates in 2024, including the Fed.

Viet Hustler previously also summarized The progress of interest rate cuts by central banks: here.
- According to Goldman Sachs, developed countries are forecast to hesitate more in cutting interest rates compared to other emerging economies.

2024 election update: Trump wins overwhelmingly in Iowa

According to Reuters, Trump won with the largest margin ever in the Republican presidential race in Iowa.

Ramaswamy is the first candidate to drop out.

With 95% of votes counted, Trump takes 51%, while Florida Governor Ron DeSantis gets 21%, former UN Ambassador Nikki Haley only 19%.

Trump nearly wins on every front.

Goldman Sachs, Morgan Stanley report Q4/2023 earnings

Goldman Sachs: Profits surge 51% thanks to Asset Management and Private Wealth

Revenue: 11.32 billion USD, up 7% vs expected 10.8 billion USD.
- Asset Management and Private Wealth sectors contributed to a 23% revenue increase, thanks to strong stock market growth.
- Institutional client lending revenue also increased.
Profit: 2.01 billion USD, up +51% YoY.
EPS: 5.48 USD/share.

Morgan Stanley: Revenue beats expectations. CEO warns of geopolitical and economic risks.

Revenue: 12.90 billion USD (>12.75 billion USD expected).
- Investment banking revenue up +5% YoY thanks to a 25% increase in revenue from bond underwriting.
- Morgan Stanley also noted an increase in underwriting of higher investment grade bonds.
EPS: 85 cents/share (< expected 1.01 USD).

However, CEO Ted Pick warned of risks from geopolitical conflicts and the impact of Fed interest rate policy which could affect Morgan Stanley in 2024.

China: Government efforts to control the economy

Beijing asks some investors not to sell stocks as China's stock market declines,
- aimed at salvaging the stock market decline in the early weeks of the new year.

Chinese Premier Li Qiang at the World Economic Forum 2024:
China's economy grew 5.2% in 2023 and is gradually recovering. "The long-term growth trend remains unchanged".

→ However, China's economy still faces major challenges this year due to the aftermath of the real estate market crisis.

China is exporting its "deflationary" condition.

Export prices from China fell more than -10% YoY.

Events this week:

Retail Sales Data - Wednesday
Philly Fed Manufacturing Index - Thursday
Existing Home Sales Data - Friday
Michigan Consumer Sentiment Index - Friday
7 Fed members will speak this week.

Some other news:

Boeing stock plunges after Wells Fargo downgrades rating from Overweight to Equal Weight with price target at 225 USD/share (previously 280 USD/share).

- Not stopping there, delivery of 737 MAX aircraft to China is delayed after the mid-air door blowout on an Alaska Airlines plane.

The European Commission EU is examining whether Microsoft's 13 billion USD investment in OpenAI complies with the bloc's merger rules.
- EU is cautiously considering its oversight amid the rapid development of AI and preventing monopolistic forms in this field.

- Following OpenAI, Microsoft launches Copilot Pro with GPT and custom Office integration at 20 USD/month.

In the first 2 weeks of 2024, inflows into money market funds reached a record 182 billion USD, boosting total money market fund assets to 6 trillion USD.

Global shipping rates surge dramatically ~106% in 6 weeks due to attacks in the Red Sea, pushing commodity prices higher and disrupting supply chains.

Bitcoin price just executed a "golden cross" (MA50 price crosses back above MA200): indicating potential for a new Bitcoin price breakout.
- This could be the effect following the Spot Bitcoin ETF listing.
- Viet Hustler's analysis of this event here.