After a blockbuster year for stocks, one which saw an $8+ trillion surge in the S&P 500 and a 55%+ explosion in the Nasdaq, its best year since 1999 (everyone knows what happened next), markets have started the new 2024 on the back foot with US equity futures sliding 0.7% as tensions in the Middle East sent oil surging, while Chinese data came in weak. As oil jumped, treasury yields rose more than 7bps while the dollar rose the most in 3 months as rate cut odds got slashed by a market that clearly got carried away by euphoria in 2023 Santa Rally. As of 7:40am, S&P futures dropped 0.7%, while Nasdaq 100 futs lost 1% as shares of Apple fell in US premarket trading after a downgrade by Barclays. Yields on 10-year US bonds and German bunds added more than seven basis points as money markets wagered on fewer than 150 basis points of easing by the Federal Reserve.
In premarket trading, Apple dropped 1.8% as the stock got itself a new bear, with expectations of soft demand for its latest iPhone prompting analysts at Barclays to downgrade the stock. Cryptocurrency-linked stocks like Marathon Digital (MARA) and Riot Platforms (RIOT) rallied on Tuesday morning as Bitcoin rose past the $45,000 mark to touch its highest level since April 2022, amid anticipation that US regulators will soon approve an exchange-traded fund that will invest directly in the token. Here are some other notable premarket movers:
- Shares in US-listed Chinese electric-vehicle makers drop after China’s BYD posted a record sales quarter thanks to aggressive discounting amid an industry price war, stoking worries over rising competition. Li Auto Inc. (LI) and NIO Inc. (NIO) are among stocks trading lower.
- Unity Software (U) drops 3.3% after Piper Sandler downgrades the graphic-tools provider to underweight from neutral following its chunky gain last month. Overall, the broker has a more optimistic outlook for the broader application-software sector for 2024.
According to Oppenheimer Asset Management’s Chief Investment Strategist John Stoltzfus, US stocks are due a breather, but the next earnings season could see the advance resume. “It’s not uncommon for markets to pause to digest a bull run of the magnitude experienced in the fourth quarter just ended,” said Stoltzfus. “In fact it would appear to us to make good sense for markets to pause considering the run-up in stock prices.”
Brent crude surged more than 2% after Iran dispatched a warship to the Red Sea after the US Navy destroyed three Houthi boats, a move that risks ratcheting up tensions in the Middle East. Oil surged.
Meanwhile, Chinese stocks were hammered - again - after the Dutch chipmaking giant ASML canceled some of its shipments to China at the request of the Biden administration. ASML had licenses to ship three top-of-the-line deep ultraviolet lithography machines to Chinese firms until January when new Dutch restrictions take full effect. China accounted for nearly half of ASML’s sales in the third quarter — compared with 24% in the previous quarter and 8% in the three months ending in March — as companies there rushed to import its machines. China’s Huawei produced a smartphone advanced enough to rival Apple’s iPhone last year using made-in-China chips produced with ASML’s equipment, alarming the US. In his New Year speech, Chinese President Xi Jinping Xi touted Chinese “manufacturing prowess” and rattled off a list of homegrown projects.
More than 45 people were killed in an earthquake that hit Japan’s northwest coast. And passengers were evacuated from a Japan Airlines aircraft that caught fire at Tokyo’s Haneda airport after colliding with a coast guard plane carrying aid. Elsewhere, Israel’s Supreme Court overturned a highly contested law aimed at weakening the justices’ own power in a blow to Benjamin Netanyahu’s right-wing coalition.
In Europe, the Stoxx 600 Index pared earlier gains to trade 0.2% lower, tracking drop in US futures as risk-on mood is challenged by economic data and geopolitical tensions. Telecoms +1% and energy +0.7% lead, while consumer -1% and tech -0.9% lag. Here are the most notable European movers:
- European defense, shipping and oil stocks climb after Iran dispatched a warship to the Red Sea following the US Navy’s sinking of three Houthi boats, raising shipping rates and the oil price
- Sartorius advances as much as 4.7% alongside French subsidiary Sartorius Stedim Biotech, which is up as much as 5.2%, with JPMorgan flagging earnings upside for the shares in 2024
- Ferrovial extends its winning run to a fifth day as the infrastructure operator hits a record high after announcing higher toll rates for the 407-ETR highway in Canada, rising as much as 3.2%
- Iberdrola gains as much as 1.7% after its US unit Avangrid terminated a $4.3b agreement to buy a local rival PNM Resources Inc., ending three years of legal and regulatory wrangling
- Wise falls as much as 6.6%, their worst day since last May, amid worries over greater competition in the fintech industry as HSBC readies to unveil its payments app Zing
- ASML drops as much as 1.8% after the Dutch semiconductor equipment maker canceled shipments of some of its machines to China at the request of the US
- Etablissements Maurel & Prom falls as much as 7.5% after Gabon’s interim president announced the government would increase its stake in Assala, an energy firm that the French firm had planned to buy
In Asia, sentiment was dented after Chinese President Xi Jinping acknowledged some companies and citizens had endured a difficult 2023 in a rare admission. Asian equities declined the most in nearly three weeks after key markets returned from the New Year holiday, as sentiment soured after weak economic data from China. The MSCI AC Asia Pacific Excluding Japan Index fell as much as 0.7%, with Alibaba Group, AIA Group and MediaTek among the biggest drags. Mainland and Hong Kong stocks were the worst performers in the region after China’s factory activity shrank in December to the lowest in six months. Markets in Japan and New Zealand remained closed for a holiday. Chinese shares also took a hit amid worries over a resurgence in geopolitical tensions as ASML Holding canceled shipments of chip manufacturing equipment to China at the request of the US. A gauge of semiconductor stocks in the region declined as much as 0.8%. The December factory data reinforces “tough growth conditions in the world’s second-largest economy,” Jun Rong Yeap, market analyst at IG Asia, said. “Until economic conditions offer a sustained trend of recovery to provide conviction for markets that the worst is over, the divergence with global equities may be set to continue.”
In FX, the dollar gained 0.5%, rising the most in 3 months with all emerging-nation currencies except the Brazilian real trading lower against the greenback. The yen weakened against almost all of its Group-of-10 peers in thin trading as investors monitored conditions after an earthquake in Japan on Monday. The US dollar gained against all major peers.
- USD/CHF rose 1% to 0.8491, the highest level since Dec. 27
- EUR/USD dropped 0.6% to 1.0979, the lowest level since Dec. 21
- NZD/USD fell 0.6% to 0.6285, one-week low
In rates, treasury yields gained across the curve following wider bear steepening move seen in gilts where UK long-end yields are cheaper by up to 13bp on the day. US yields are cheaper by 5bp to 7bp across the curve with spreads broadly within one basis point of Friday session close; 10-year yields rise to around 3.95%, extending through Friday’s range while gilts underperform by additional 7bp in the sector. The rally in oil adds to downside pressure in Treasuries. In front-end, rate cut pricing fades slightly with swaps pricing in around 150bp of cuts by the end of the year. Treasury supply resume next week with 3-, 10- and 30-year auctions.
In commodities, oil rose in New Year trading after Iran sent a warship into the Red Sea, escalating Middle East tensions, and as the outlook for Chinese crude demand brightened. Brent crude climbed more than 2% to as high as $79. The deployment of an Iranian warship comes after the US Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea, the latest flashpoint on the key maritime corridor over the past few weeks. Defense and shipping stocks were also trading higher on Tuesday. Spot gold rises 0.6%.
Looking at the day ahead, economic data includes December S&P manufacturing PMI (9:45am) and November construction spending (10am); this week also includes ISM manufacturing, JOLTS. FOMC minutes, ADP employment change, factory orders, ISM services index and December jobs report. No Fed members scheduled to speak on the day; Barkin and Logan are scheduled for the week.
Market Snapshot
- STOXX Europe 600 up 0.3% to 480.42
- MXAP down 0.4% to 168.66
- MXAPJ down 0.5% to 526.33
- Nikkei down 0.2% to 33,464.17
- Topix up 0.2% to 2,366.39
- Hang Seng Index down 1.5% to 16,788.55
- Shanghai Composite down 0.4% to 2,962.28
- Sensex down 0.4% to 71,973.44
- Australia S&P/ASX 200 up 0.5% to 7,627.79
- Kospi up 0.5% to 2,669.81
- German 10Y yield little changed at 2.09%
- Euro down 0.1% to $1.1031
- Brent Futures up 2.1% to $78.64/bbl
Top Overnight News
- China’s NBS PMIs for Dec fall slightly below expectations, with manufacturing coming in at 49 (down from 49.4 in Nov and below the Street’s 49.6 forecast) and services at 50.4 (up from 50.2 in Nov, but below the Street’s 50.5 forecast). China’s Caixin manufacturing PMI for Dec rises to 50.8 in Dec, up from 50.7 in Nov and ahead of the Street’s 50.3 forecast. RTRS
- China’s Xi says reunification with Taiwan is inevitable (“The reunification of the motherland is a historical inevitability…China will surely be reunified”). RTRS
- Russia facing energy pressures as China reimposes coal import tariffs and Moscow struggles to arrange payments from India for oil. BBG
- Japan issued a string of tsunami warnings after a powerful earthquake with a preliminary magnitude of 7.6 struck the west coast on Monday, triggering widespread blackouts and evacuations during new year celebrations. FT
- Israel said it was shifting thousands of troops out of Gaza in the first significant drawdown since the war commenced, a sign that fighting is starting to be scaled back. NYT
- Israel’s Supreme Court on Monday struck down (in an 8-7 ruling) a law passed by Netanyahu’s gov’t in July limiting the power of the judiciary, a move that could trigger a constitutional crisis and catalyze another round of domestic discord. NYT
- Crude +2% — recouping most of last week’s losses — after Iran sent a warship to the Red Sea in response to the US Navy’s sinking of three Houthi boats. Maersk suspended all transit through the route. BBG
- The private equity industry has entered 2024 with record amounts of unspent investor cash and an unprecedented stockpile of ageing deals that firms must sell in coming years. Private equity firms were sitting on a record $2.59tn in cash reserves available for buyouts and other investments as of December 15, according to S&P Global Market Intelligence. Nearly a quarter of that cash was held by 25 of the industry’s largest groups, including Apollo Global, Blackstone, KKR, CVC Capital and Advent International. FT
- Apple faces a legal reckoning in 2024, with a series of regulatory decisions by US and EU authorities over the coming months set to determine the future of its $85bn-a-year services business. The biggest hit to the iPhone maker could come from a US antitrust trial against Google, where it emerged that the fellow tech giant had paid more than $26bn in 2021 to make its search engine the default on Apple devices and other smartphones and browsers. FT
- Global equities logged +$172B worth of inflows in 2023. This is the least amount of inflows in the past 4 years despite the rally, even a down tape in 2022 saw larger inflows.
A more detailed look at global markets courtesy of Newsquawk
The region traded with modest pressure, Shanghai Composite -0.4%, as the official NBS Manufacturing PMI for December came in softer than expected despite the Services figure lifting from the prior modestly and the Caixin Final seeing an unexpected upward revisions. Newsflow has been light as desks return from the New Year break with focus primarily on geopolitics going into a week headlined by key data points in the US. Antipodean bourses are the relative outperformers, ASX 200 +0.5%, supported by industrial metals given the Caixin print and as desks expect steel mills to begin restocking raw materials for production requirements during the February Lunar New Year break.
Top Asian News
- A magnitude 7.6 earthquake occurred in the Noto peninsula, Japan at 07:10GMT on January 1st, resulting in Tsunami warnings being issued though this have since been downgraded but saw 1 metre high waves impact on the western coast.
- Earthquake with an intensity of upper-5 on Japan's scale hits Ishikawa, Japan; no tsunami warning, via NHK
- BYD (1211 HK) sold 3.02mln vehicles in 2023, +61.9% Y/Y; selling 1.6mln battery EVs.
- Fitch Ratings: growth headwinds and policy shifts weigh on Greater China sector outlooks
European equities, Eurostoxx50 (+0.4%), are on firmer footing, with Defensive and Energy names benefitting from recent Red Sea flareups; the FTSE 100 is in the red having lagged throughout the session. European sectors have a positive tilt; Autos and Telecommunications are found towards the top of the pile whilst Financial Services lags. US equity futures are mixed, unable to share some of the positive sentiment seen in European trade; ES -0.1%, RTY +0.4%. Nokia (+1.8%) shrugs off initial weakness despite anticipating missing FY23 targets due to delayed license renewals and a more challenging than expected Q4. ASML (-0.1%) is modestly weaker as it cancels shipments of some machines to China after a US request, via Bloomberg; additionally, their license has been partially revoked by the Dutch government. Pharma names: Major pharmaceutical companies like Pfizer (PFE), Sanofi (SAN FP), and Takeda (4502 JT) intend to increase prices on over 500 drugs in the US in January, Reuters reported citing data by healthcare research firm 3 Axis Advisor.
Top European News
- ECB's De Cos says uncertainty over data remain high; inflation is expected to continue its downward trend
- Defense, Shipping, Oil Stocks Up as Red Sea Tension Rises
- European Stocks Kick Off 2024 With Gains as Oil Companies Climb
- Top Court Overturns Netanyahu’s Judicial Oversight Law (1)
- BNP to Pay Up to €600M in Swiss Franc Loan Case: Parisien
- Airbus Set to Exceed Annual Delivery Goal With December Surge
FX
- DXY holds onto modest gains and edges towards the upper end of today's range between 101.71-33 in a quiet start to a packed week of Tier 1 data.
- EUR is weaker and circulates around the 1.10 mark, with the EZ PMI and M3 data unable to sway sentiment.
- The JPY is the G10 laggard; USD/JPY trades towards the top end of today's ranges, approaching Dec 29th highs of 141.91.
- Antipodeans diverge with the AUD the best G10 performer, benefitting from the AUD/NZD cross, which has led the Kiwi lower.
Fixed Income
- USTs conform with the bearish EGB action with the belly of the yield curve leading, though still shy of 4.0%.
- Bunds are pressured amid marked upside in the Energy space and potentially as market participants re-evaluate pronounced action towards end-2023; EZ Flash HICP due later in the week.
- Gilt price action is in-fitting with the broader risk tone with UK newsflow light as the year begins.
Commodities
- WTI and Brent are bid as geopolitical tensions remain in-focus; recent flare ups in the Red Sea region has led Maersk to pause shipping in the area.
- Spot Gold is firmer as the risk tone is contained Stateside ahead of a busy week; Base metals hold onto a mixed bias, ultimately capped by varied Chinese PMI data.
- China announces 179mln/MT (prev. 118.8mln) of crude import quotas for 2024, via Reuters citing sources; +60% Y/Y.
- Outokumpu (OUT1V FH) intends to temporarily restrict production of Ferrochrome due to weak market conditions. Intend to keep furnace and sintering plant closed until autumn 2024, ferrochrome production will continue at 80% of full capacity during this. Stainless steel market has slowed significantly, negatively impacting ferrochrome deliveries.
- LME Stocks: Aluminium +17.33k (prev. -2k)
US Event Calendar
- 09:45: Dec. S&P Global US Manufacturing PM, est. 48.4, prior 48.2
- 10:00: Nov. Construction Spending MoM, est. 0.5%, prior 0.6%
