Jan 2nd 2024 Morning Update
Geopolitical risk remains on the radar
Welcome to 2024. We hope you had a wonderful holiday period and wish you the best in this New Year.
Financial markets ended the year with higher rate cut expectations, with limited pushback from US data and Fed officials. This led to the rally extending in risk assets during the holiday period.
Still, geopolitical risk remains on the radar, with new uncertainty in the Red Sea as Iran sent a warship there after the US sank Houthi boats. Half of the container ship fleet that regularly transits the Red Sea and Suez Canal is avoiding the route according to industry data. This is keeping energy prices (WTI $73/bbl +2.7%) supported and elevates shipping costs, with no clear solution.
Today, treasuries are 8-10bps higher across the curve, with activity light in Asia given the Japan holiday but picking up as the US session starts. Equity weakness is extending, with E-minis -0.9% at the time of print. The majority of the FX complex is weaker given USD strength, but Bitcoin has rallied above $45k from 42k on Dec 31st on the ETF approval hopes. Overnight, China Caixin PMI surprised higher, but the manufacturing PMI missed. Japan was hit by a 7.6-magnitude earthquake on Jan 1.
Though today's catalysts are light, the rest of the week will be busy as we will get the Fed mins, US ISM survey reports, Eurozone CPI, and the latest US jobs report.
Other news:
The Global minimum tax (15%+) on multinationals went live yesterday FT The chill in the US housing market is casting shadows over other industries NYT US office owners face a $117bn wall of debt repayments FT Is it time to lock in today's high CD rates? NYT The Fed will set the pace for markets more than ever this year BBG Opinion Dissenting opinions at the Fed are nearly extinct WSJ Shale is keeping the world awash in Oil as conflicts abound WSJ Five investors discuss how to navigate the bond market in 2024 WSJ Logjam in private equity markets as new cash piles up and a backlog of aging deals that must be sold FT