Summary: The Hang Seng Index surged by 3.6%, and the CSI300 Index rose by 1.4% following the People's Bank of China's 50bp cut in the reserve requirement ratio (RRR). The Nasdaq 100 reached a record high of 17,499, gaining 0.6%. Notably, Netflix saw a 10.7% surge after surpassing earnings and subscriber addition estimates. ASML reported strong Q4 results with €9.2 billion in bookings, exceeding expectations, signaling a positive outlook for the semiconductor industry. Tesla, however, reported Q4 revenue and adjusted EPS slightly below projections, causing a nearly 5% drop in share prices during extended hours. The Bank of Canada's unexpected dovish stance resulted in the Canadian Dollar underperforming, with USDCAD rising sharply to 1.3520. China's RRR cut positively impacted commodities, particularly metals, with copper and iron ore rising close to 2.5%.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The Nasdaq 100 added 0.6% to 17,499, reaching another record closing high, driven by Nvidia’s 2.5% and Meta’s 1.4% gains. Netflix surged 10.7% after earnings and subscriber additions beat estimates. ASML reported Q4 results, showing a strong order intake with bookings at €9.2bn, compared to the anticipated €3.6bn. The CEO mentioned that the overall semiconductor industry has bottomed and is entering the rebound phase. The ADR of ASML gained 8.9%. See Peter Garnry’s article on Netflix and ASML here.
The S&P500, a broader benchmark, underperformed the tech-heavy Nasdaq, ticking up 0.1% to 4,869, while the Dow Jones Industrial Index slid 0.3%. After the closing bell, Tesla reported Q4 revenue of $25.2 billion and adjusted EPS of $0.71, both around 3% below analysts’ projections. The company warned in a letter to shareholders that vehicle volume growth in 2024 “may be notably lower than the growth rate achieved in 2023”. Tesla shares dropped by nearly 5% in the extended hours.
Fixed income: The 10-year Treasury yield rose by 5bps to its highest level in 2024, reaching 4.18%, following the unexpected bounce of the S&P Global US Manufacturing PMI to 50.3, indicating an expansion in activities. Soft demand in a $61 billion auction of 5-year Treasury notes kept Treasuries on the defensive and led to a finish at their day highs in yields or lows in prices. The 2-year yield rose 1bp to 4.38%.
China/HK Equities:The Hang Seng Index extended its rally by 3.6%, and the CSI300 Index added 1.4% following the People’s Bank of China cut the reserve requirement ratio by 50bps. The PBoC’s mentioning of supporting developer cash flows triggered a strong rally in the share prices of Chinese developers. The news from the previous day about founders Jack Ma and Joseph Tsia increasing holdings continued to draw buying to Alibaba, propelling it 7.3% higher. The Chinese regulators’ removal of a controversial draft bill on online games the day before continued to support Tencent and NetEase. Other China internet stocks as well as central state-owned enterprises were other notable outperformers. While the RRR cut triggered an impressive rally, markets will struggle to go higher as investors have their focus back to the economic fundamental and uncertainties ahead of crucial political meetings in the coming two months.
FX:The dollar pushed lower earlier on Wednesday, with the DXY index breaking below 103, as yen gained on higher JGB bond yields and yuan recovered with PBOC expanding its measures to support the economy. However, dollar recovered later with US PMIs indicating sustained economic resilience and Bank of Canada’s dovish surprise which led to CAD being the underperformer for the day. USDCAD rose sharply to 1.3520 and immediate resistance seen at 1.3540 ahead of the fibo retracement at 1.3623. USDJPY slid below 147 to lows of 146.66 but moving back above 147.50 this morning in Asia as US yields jumped higher. EURUSD made an attempt to break above 1.09 again but was short-lived with ECB ahead today and even GBPUSD gains to 1.2775 following the strong PMIs seen to be reversing on dollar recovery. US GDP today will be key and higher-than-expected growth could boost the dollar, weighing on JPY and EUR.
Commodities: China’s RRR cut boosted commodities, especially metals. Copper and iron ore were up close to 2.5% amid supply concerns underpinning the former. Gold edged lower as Treasury yields rose higher after US PMI data, but Silver gained 1% as it bounced off key support. Crude oil was firmer amid a broader recovery in risk appetite with economic and earnings holding up and stimulus announcement from China, while supply concerns due to geopolitical tensions continued and the EIA data showed a chunky fall in crude stockpiles which were down more than 9mn barrels last week. However, the EIA report could have been distorted by the recent cold ‘bomb’ in the US temporarily cut production of oil and gas due to freeze-offs – when low temperatures freeze wells and other equipment, while temporarily driving a spike in demand for fuels, especially diesel and heating oil.
Macro:
Macro events: ECB, Norges Bank, SARB & CBRT Policy Announcements, US GDP Advance (Q4), Germany IFO (Jan), US Jobless Claims
Earnings: Union Pacific, T-Mobile US, Visa, LVMH, Intel, Comcast, Blackstone, NextEra Energy, Marsh & McLennan
In the news:
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
