Macro: Sandcastle economics
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Summary: The US CPI exceeded expectations, both on the headline and core fronts, disrupting the disinflation narrative. In response, the 2-year Treasury yield surged by 18bps to 4.66%, and the DXY index broke past the 100-day moving average. USDJPY also rallied beyond 150.50, prompting Japanese officials to issue warnings about the move. The S&P 500 Index dropped by 1.4%, and the Nasdaq 100 Index fell by 1.6%. In the first trading session following the Lunar New Year holiday, the Hong Kong equity market is expected to face pressure due to the MSCI announcement regarding the deletion of 66 Chinese companies from the MSCI China Index.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: After the anticipation of a near-term Fed rate cut was further diminished, and bond yields surged following a hot CPI report, stocks had a significant pullback across the board. The S&P 500 Index dropped by 1.4%, with all 11 sectors declining. Moody’s, which plunged 7.9%, was the worst-performing stock within the broad market benchmark index after reporting revenue and earnings below estimates. The Nasdaq 100 Index dropped by 1.6%. Biogen, plunged by 7.4% and was the worst performer within the Nasdaq 100 after guiding a low-to-mid-single-digit percentage revenue decline in 2024. JetBlue, on the other hand, surged by 21.6% following the news that Carl Icahn has built a 9.9% stake in the airline. Cisco is reporting results today.
Fixed income: The 2-year Treasury yield jumped by 18bps to 4.66% after the CPI prints came in stronger than expected, reducing the anticipation of rate cuts in March and May. The 10-year Treasury yield rose by 14bps to 4.31%.
China/HK Equities:In the first trading session following the Lunar New Year holiday, the Hong Kong equity market is expected to face pressure due to the MSCI announcement regarding the deletion of 66 Chinese companies from the MSCI China Index and 76 from the MSCI China All Shares Index. This includes notable names such as China Southern Airlines, Greentown China, Weibo, Ping An Healthcare, and China Everbright Environment. Additionally, there are three deletions from the MSCI Hong Kong Index: Xinyi Glass, Budweiser Brewing, and New World Development. The mainland A-share market will remain closed for the Lunar New Year holiday for the rest of this week. Overnight, the NASDAQ Golden Dragon China Index pulled back 2.7%, reversing the 2.1% gains on Monday.
FX: The dollar surged sharply in response to the hot CPI report overnight, with the DXY index breaking past 100DMA to touch its highest levels in three months when markets started to price in Fed rate cuts. Scandies were the underperformers, while Swiss franc also slid below its 200DMA after Swiss CPI came in softer-than-expected yesterday. USDCHF rose to 0.8880 and next resistance seen at 0.89. USDJPY also rallied past 150.50, and Japanese currency official Kanda was on the wires this morning warning about the move and stoking concerns of intervention. EURUSD tested 1.07 while GBPUSD slid below 1.26 and UK CPI will be on the radar today. To read our weekly FX outlook, go here.
Commodities: Gold slumped below the key $2,000 mark as yields and dollar jumped higher. The precious metal has held above this key psychological level since mid-December on the hope of Fed rate cuts, which are being re-assessed now. Crude oil gained as concerns over demand were soothed by a bullish outlook from OPEC. IEA however hinted at “comfortable” markets this year as increasing production from non-OPEC countries underpins, and inventory data was also mixed, keeping oil range-bound.
Macro:
Macro events: Indonesian Presidential Election, UK CPI (Jan), EZ Employment (Q4), Japan GDP (Q4). Speakers: ECB’s de Guindos, Cipollone; BoE's Bailey hearing; Fed’s Goolsbee, Barr
Earnings: Commonwealth Bank of Australia, Sony, Cisco, Occidental Petroleum, Heineken, Tokio Marine, Equinix, CME, EssilorLuxottica, Kraft Heinz.
In the news:
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