Jan 26th Morning Note

All eyes on US PCE report

Market will be watching the US PCE report due to be released at 8:30 AM EST (What to Watch in Friday’s Spending Report: A Last Look at Inflation Before the Fed Meeting) after an upside surprise in USGDP for Q4, adding hopes that economy can pull off a soft landing. The weekly jobless claims rise to 214k for week ending Jan 20th was a bit concerning, but even with that, the 4-week average still fell to its lowest in almost a year, at 202.25k.

Dovish ECB as noted in yesterday’s post, led to a sharp rally in sovereign bond yields. The US 10Y Treasury finished 6bps lower at 4.10%.

Turning to commodities, Brent Crude oil prices surged by 2.99%, reaching a peak of $82.43 per barrel, a high not seen since November. This increase is attributed to a combination of a general uptick in market risk appetite and recent data indicating a significant drop in U.S. crude inventories, reaching their lowest point since October as of January 19th. In addition, the ongoing Houthi attacks on commercial shipping are exerting a wider influence, as evidenced by Drewry’s World Container Index rising for the seventh consecutive week. The current rate for a 40-foot container stands at $3,964, almost three times higher than the post-pandemic low observed in late October.

Asian markets experienced a downturn overnight, evidenced by declines in major indices: Japan's Nikkei dropped 1.45%, Hong Kong's Hang Seng fell by 0.64%, and China's Shanghai Composite decreased by 0.24%. On the economic data front, the latest Consumer Price Index (CPI) figures from Tokyo showed a decrease to 1.6% in January, lower than the anticipated 2.0%. This marks the first time since March 2022 that Tokyo's headline CPI has dipped below 2%. As a result, this has led investors to reassess the potential for interest rate hikes by the Bank of Japan this year. Reflecting this sentiment, yields on 10-year Japanese government bonds (JGBs) have declined by 3.0 basis points this morning.

Other news:

Dubai's property boom shows signs of fizzling out RTRS

Five signs the Fed's pivot is underway before even a single rate cut RTRS

Intel tumbles on dismal forecast, weak PC chip demand RTRS

JPMorgan Shuffles Top Managers as Jamie Dimon Prepares Successors BBG

Biden Freezes Approvals to Export Gas, Imperiling Major Projects BBG

US Extends Lead Over China in Race for World’s Biggest Economy BBG

One Stock in the ‘Magnificent Seven’ Isn’t So Magnificent (WSJ)

To Mute Your Spending, Make a Loud Budget (WSJ)