Economic data on China fell short of forecasts. In the Eurozone, there is a decline in inflation expectations

By JustMarkets

As of Tuesday’s stock market close, the Dow Jones Index (US30) was down by 0.62% and fell to a one-month low, while the S&P 500 Index (US500) fell by 0.37% yesterday. The NASDAQ Technology Index (US100) closed negative by 0.19%.

Fed Chief Waller’s hawkish comments on Tuesday supported the dollar and pressured the indices after he said that when the Fed starts to cut interest rates, it should be methodical and cautious, and there is no reason to move as quickly and cut rates as precipitously as in the past.

Economic news from the US on Tuesday was negative for the indices as well after the January Empire Index of overall business conditions in the manufacturing sector unexpectedly fell by 29.2 to a 3-year low of negative 43.7, weaker than expectations of a rise to negative 5.0.

Boeing (BA) shares fell more than 6% yesterday, topping the list of losers in the S&P500 (US500) and NASDAQ (US100) after Wells Fargo Securities downgraded the stock to neutral from upgraded, citing an increased risk that growing scrutiny of the company’s manufacturing quality will affect production or delivery rates. Morgan Stanley (MS) shares fell more than 4% yesterday after the bank reported fourth-quarter sales and trading revenue of $2.20 billion, below consensus of $2.26 billion. Apple (AAPL) is down more than 1% after the company cut prices on the iPhone 15 and other products in China in an attempt to spur weak demand for new models. Shares of Nvidia (NVDA) are up more than 3% after KeyBanc Capital Markets raised its price target on the company’s stock from $650 to $740.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 0.30%, France’s CAC 40 (FR40) lost 0.18%, Spain’s IBEX 35 (ES35) decreased by 0.82% on Tuesday, and the UK’s FTSE 100 (UK100) closed negative 0.48%.

The economic growth expectations index from Germany’s ZEW survey for January unexpectedly rose by 2.4 to an 11-month high of 15.2, stronger than expectations for a decline to 11.7. ECB 1-year Eurozone inflation expectations fell to 3.2% from 4.0% in October, the lowest in 21 months. 3-year inflation expectations fell to a 22-month low of 2.2% from 2.5% in October, better than expectations of 2.4%. The decline in Eurozone inflation expectations is dovish for ECB policy. Swaps estimate the odds of a 25 bps ECB rate cut to 2% at the next meeting on January 25 and 25% at the March 7 meeting. Yesterday, there were also speeches from several ECB officials. ECB Governing Council representative Simkus said he was optimistic about an ECB rate cut this year but much less optimistic than the markets about a rate cut in March or April. His colleague Centeno noted that the inflationary trajectory in the Eurozone is good and that Eurozone GDP still looks rather stagnant in the first quarter. ECB Governing Council representative Villeroy de Gallo indicated that the question of the ECB cutting interest rates this year is premature as the ECB is likely to be more patient.

Brent crude rose slightly on Tuesday, while WTI fell as investors saw fundamentals weakening in the US, but ongoing naval and air conflicts in the Red Sea heightened fears that tankers would have to reroute to avoid the area, increasing costs and delivery times.

Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) retreated from highs and decreased by 0.79%, China’s FTSE China A50 (CHA50) was up by 0.62% on Tuesday, Hong Kong’s Hang Seng (HK50) lost 2.16% on the day, and Australia’s ASX 200 (AU200) was negative 1.09% on Tuesday.

China’s economy grew to 5.2% in the fourth quarter, surpassing Beijing’s target of 5% for 2023. But much of that growth was driven by a lower base compared to 2022. Other data showed that Asia’s largest economy is still struggling to regain growth (output rose from 6.6% to 6.8% y/y, retail sales fell sharply from 10.1% to 7.3% y/y, the unemployment rate rose from 5.0% to 5.1% y/y) after the lull of the COVID period amid continued pressure from weak consumer spending, sluggish private investment and the ongoing real estate crisis.

Soft Japan PPI data released earlier this week indicated that the BOJ is under little pressure to tighten policy, a view that is expected to be confirmed by CPI data due out this Friday.

S&P 500 (US500) 4,783.83 +3.59 (+0.08%)

Dow Jones (US30) 37,592.98 −118.04 (−0.31%)

DAX (DE40)  16,704.56 +157.53 (+0.95%)

FTSE 100 (UK100) 7,624.93 +48.34 (+0.64%)

USD Index  102.44 +0.15 (+0.15%)

• – World Economic Forum Annual Meetings at 10:00 (GMT+2);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+2);
• – Canada Business Outlook Survey at 17:30 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.