Market 01/25: Q4 GDP growth exceeds expectations - reinforces soft-landing confidence

Q4 GDP growth exceeds expectations: market confident in soft-landing

GDP Q4/2023 growth +3.3% QoQ => Market gains more confidence in soft-landing!

• 2023 full-year growth reaches +2.5%.

Of which:

• Personal consumption and government spending remain the main drivers of Q4/2023 growth!

• For individuals: Healthcare services and entertainment goods, vehicles contribute nearly half to personal spending growth.

• Fixed investment slightly decreases, contributing 0.31% GDP.

• Government spending contributes 0.56% GDP, though still high but down from 0.99% Q3.

• Consumer sentiment is also improving in recent months (according to University of Michigan survey).

Fed confirms stopping BTFP from 03/11 and immediately increases lending rates

Fed confirms stopping BTFP from 03/11, after recent surge in loans, as banks exploit price spreads (arbitrage).

• Especially FED immediately increases BTFP interest rates to end these arbitrage activities.

• As of 01/17, outstanding loans amount to 161.5 billion USD, average weekly increase in the last 6 weeks is nearly 5.6 billion USD, highest since early May.

  

Auction of 41 billion USD 7Y Treasury bonds not very optimistic

After the rather failed 5Y Treasury bond auction yesterday, today, US Treasury continues with a not-so-optimistic 7Y bond auction with tails +0.3 bpts:

• High Yield: 4.109% higher than market (4.106%).

• In fact, the market has been reducing demand for Treasury bonds since after the 2008 financial crisis.

  

• Especially, as currently, US Treasury is increasing issuance of short-term bonds to avoid high borrowing costs.

Core PCE low - as expected by Fed!

PCE inflation index Q4 increases relatively stable at 1.7% after 2.6% in Q3

→ Relatively stable figure.

• However, the market will await PCE MoM figure tomorrow.

• Core PCE index Q4 (excluding food and energy) increases 2.0% , equal to Q3 and matches forecast => exactly at Fed's 2% target level!

Initial jobless claims rise back to 1-month high

After nearing the lowest level in 54 years last week, initial jobless claims surged up +214,000.

• Initial claims unadjusted for seasonal factors dropped sharply to 249,000.

• In particular, seasonally adjusted initial unemployment claims were continuously revised upward

  => Actual labor market worse than initial data, though not yet too severe.

  

• Continuing claims for unemployment benefits also rose last week from 1.806 million to 1.83 million.

New home sales rose higher than expected due to lower mortgage rates

December new home sales increased +8% MoM to 664,000, beating estimates of 615,000 thanks to lower mortgage rates attracting buyers.

• While existing home sales continue to plummet.

• Average new home price fell 13.8% YoY to $413,200.

• Mortgage rates have fallen significantly recently, though still much higher than real rates.

December durable goods orders unchanged after strong increase last month

Last month's durable goods orders recorded a surge due to non-defense aircraft orders, however this month, the figure showed no change (0% MoM).

• Annual growth reached 3.7% YoY.

• December core durable goods orders rose +0.6% MoM.

ECB continues to hold rates steady: no plans to cut!

ECB holds record high rates at 4%, committed to fighting inflation.

• Refinancing rate: 4.50%

• Deposit rate: 4.00%

Downward inflation trend still holding (despite energy price drag) thanks to tight financial conditions → reduced demand.

• December inflation at 2.9%.

Earnings report updates

Tesla ER: Stock plunges as 2024 revenue growth expected to slow

• EPS: 71 cents, below estimates of 74 cents.

• Revenue: up +3% YoY, to $25.17 billion (est. $25.6 billion).

• Net income: more than doubled to $7.9 billion, vs. $3.7 billion last year.

Tesla expects revenue growth to slow in 2024 due to high competition + slowing demand.

→ Stocks at lowest since May 2023.

IBM ER: Stock hits highest in 20 years after earnings beat all expectations

• EPS: 3.87 USD, higher than expected 3.78 USD.

• Revenue: up +4% YoY, reaching 17.38 billion USD, higher than expected 17.30 billion USD.

• Software revenue: up +3% YoY reaching 7.51 billion USD.

• 2024 revenue growth forecast reaches 12 billion USD.

• Distributed infrastructure product line, especially servers using IBM Power chips, up strongly 8%, compared to 4% decline in Q3.

IBM stock surges to near 20-year high after earnings beat all expectations.

Humana ER: Stock plunges due to surging medical costs

• Q4 Revenue: 22.4 billion USD, loss 15 million USD.

• Full-year 2023 earnings relatively dismal. Revenue reached 106.4 billion USD, profit reached 2.5 billion USD. → Gonly half of Wall Street expectations.

  • as rising medical costs hinder the insurance industry in general.

→ $HUM stock down over 12% in the session, dragging healthcare sector down this morning!

Some other news:

1. Just hitting 3 trillion USD market cap milestone, Microsoft cuts 1,900 jobs in Activision Blizzard and Xbox divisions.

   

2. FAA requires Boeing to pause expansion of Boeing 737 MAX production after door plug safety incident, allowing Max 9 flights to resume.

   

3. Nokia stock up 8% on 653 million USD share buyback announcement, after reporting 2023 profit decline.

4. China: Interbank market interest rates (bank borrowing rates) in CNY hit highest in nearly 2.

• Yesterday PBoC planned to cut reserve requirement ratio for banks from February. (Read more: here).