Jan 3rd 2024 Morning Update

Markets fading holiday moves

After a strong finish to 2023, markets started the first trading session on a weaker note. All three major equity indices pulled back – S&P 500, Russell 2000, and NASDAQ fell by 0.6%, 0.7%, and 1.6%, respectively. Technology stocks led market declines, with notable drops in the Magnificent 7 stocks. IG and HY credit spreads also widened. The weakness in risk assets continued overnight, with Bitcoin also down 5% after rallying over $45k yesterday.

Markets remain biased to fade holiday moves, especially the more aggressive Fed rate cut pricing but I also sense nervousness into FOMC minutes and the upcoming data releases (US jobs report on Friday). Probabilities of a Fed rate cut by March dropped from 100% to 85%, and ECB rate cut chances decreased similarly. This skepticism led to a sell-off in sovereign bonds, with notable increases in yields across various regions.

Fed's Barkin stated today that while a soft landing for the economy is possible, it's not guaranteed. He observed that demand, employment, and inflation are normalizing. Despite expectations of rate cuts in 2024, Barkin indicated that future rate decisions will depend on inflation trends and economic performance. He suggested that additional rate hikes could still occur, noting that strong demand doesn't solve high inflation. Barkin's stance on interest rates remains unspecified, highlighting a data-driven approach by the Fed.

Other news:

US public debt tops $34tln (it exceeded $33tln for the first time back in September) as Congress heads into funding fight RTRS 

US companies dive into convertible debt to keep interest costs down FT

Tech's A/I hangover may be just beginning WSJ 

Double infections (Covid and Flu) hit California hard Yahoo 

Manhattan home prices rise in early sign of a market rebound BBG

Apartment Rent Relief Is Expected to Continue in 2024 WSJ

Fed pivot may cap junk bond defaults, but risks remain Rtrs

Private equity groups hunt for new exit strategies as cash piles up FT

India’s Food-Security Problem WSJ