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Futures Dip As Doubts Emerge About March Rate Cut,
US Markets Closed For Holiday
Tyler Durden

US equity futures were steady on Monday as investors were displeased by hawkish comments from ECB's Holzmann , who said there may not be any rate cuts this year which pushed European stocks to session lows, while also bracing for more earnings later this week. With cash stock markets closed for Martin Luther King Jr. Day and global liquidity especially thin, S&P 500 and Nasdaq 100 futures were down about 0.1% and unchanged, respectively, as 8:00 a.m. ET, after both underlying benchmarks gained last week as the earnings season kicked off.

Treasury cash markets are also closed on Monday, although TSY futures suggested yields are higher by about 4bps to 3.98%; the Bloomberg dollar index edged higher following weekend news that a government shutdown had been delayed until March

The market is taking a breather after it rallied in nine of the past 10 weeks, with the S&P trading near its all-time high on optimism that the Federal Reserve could start cutting interest rates as soon as March (although over the weekend Morgan Stanley warned this is unlikely as "it would take either some serious stress in financial markets or notable downside surprises to inflation, jobs, or both to get a rate cut in March"). But data released last week showed US headline inflation re-accelerated in December, boosting warnings that funding costs may stay higher for longer.

"Markets could be jumping the gun when it comes to the likelihood of March rate cuts,” said Michael Hewson, chief analyst  at CMC Markets in London.

European stocks fell as economic data from Germany underscored the ugly backdrop for corporate profits ahead of a raft of speeches by policy makers at the World Economic Forum in Davos this week. The Stoxx Europe 600 index dropped  0.3%, trading at session lows and extending a lackluster start to the year after a 13% rise in 2023. Consumer goods and carmakers led the decline after Germany’s economy dodged a recession, though the latest data showed it contracted for the first time since the pandemic last year. Germany’s 10-year yield rose about five basis points as bonds across the euro region fell as the ECB's Holzmann.

“Today’s data could encourage the ECB to speed up monetary easing but we’re now getting at the stage when bad economic news no longer translates into good news for equity markets,” said Benoit Péloille, chief investment officer at Natixis Wealth Management. In the US, market pricing for as many as six quarter-point rate cuts “can be a stretch; bad economic news will start to hurt,” he said.

Among individual stock moves in Europe, Dassault Aviation SA slumped after the French aircraft maker reported a decline in 2023 jet orders. Delivery Hero SE and Just Eat NV dropped after BNP Paribas Exane analysts recommended steering clear of Europe’s food delivery sector. Volvo Car AB extended a decline sparked Friday when it said it’s temporarily halting some production due to shipping delays caused by Red Sea attacks.

Earlier in the session, the MSCI Asia Pacific share index climbed for a third session. Stocks advanced in Taiwan after the Democratic Progressive Party won the presidential election and the more China-friendly Kuomintang gained too few seats to control the assembly. Meanwhile, the gong show that is China continued, with the CSI 300 Index swinging between gains and losses amid speculation officials may lower the required reserve ratio after the People’s Bank of China unexpectedly left the rate on its one-year policy loans at 2.5% Monday. That was contrary to expectations among economists that it would trim the so-called medium-term lending facility by 10 basis points.

“Rate cuts are likely still on the cards, but China looks to be taking a more measured approach to policy easing,” said Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong. Well they better be because otherwise Beijing is looking at a mass revolt of a population facing a grim and recessionary economy and imploding capital markets.

In FX, the Bloomberg Dollar Spot Index rises 0.2%. The kiwi is the weakest of the G-10 currencies, falling 0.8% versus the greenback. The yen drops 0.6%.

In rates, bunds fall as economists still doubt the ECB will cut interest rates as much as market pricing currently suggests. German 10-year yields rise 3bp to 2.21%.

In commodities, oil prices decline, with WTI falling 0.8% to trade near $72.10, as the risk that air strikes by the US and allies against the Houthis would ignite a wider conflict and disrupt crude flows from the Middle East was balanced by soft fundamentals. Spot gold adds 0.2%.

The US is closed for the MLK day holiday today, and there are no official data releases. Looking at the week ahead, along with more US earnings reports, investors this week will be focused on inflation readings in Germany and the UK, as well as a swath of political leaders and officials including Chinese Premier Li Qiang attending the annual WEF. A speech by Federal Reserve Governor Christopher Waller, after officials last week attempted to temper any expectation of a looming rate cut, will also be closely watched.

Top Overnight News

    • Japan’s two-year government bond yield declined below zero for the first time since July as global yields have fallen on expectations that major central banks from the Federal Reserve to European Central Bank will start cutting benchmark interest rates this year

    • China’s central bank held a key interest rate steady on Monday while still pumping more cash into the financial system, bucking expectations that it would cut borrowing costs to support the economy

    • The US economy is set for an unexpected fiscal boost if lawmakers back a potential deal for $70 billion worth of tax breaks for businesses and families

    • Oil steadied as the risk that airstrikes by the US and allies against the Houthis would ignite a wider conflict and disrupt crude flows from the Middle East was balanced by softening fundamentals.

    • Global shipping rates are surging as tensions rise in the Red Sea, after the US and UK conducted air-strikes against the Iran-backed Houthi militants in retaliation for their attacks on merchant ships.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly rangebound after the lack of significant catalysts over the weekend and with global markets set for a quietened session on Monday owing to the extended weekend stateside.  ASX 200 lacked direction as strength in energy and telecoms offset the weakness in miners and defensives. Nikkei 225 continued on its upward trend and briefly reclaimed the 36,000 level for the first time since 1990. Hang Seng and Shanghai Comp were choppy after the PBoC refrained from cutting its 1-year MLF rate.

Top Asian News

      • PBoC injected CNY 995bln (exp. 900bln) in 1-year MLF loans with the rate kept at 2.50% (exp. 10bps cut).

      • China's military, AI institutes and universities have over the past year bought small batches of Nvidia (NVDA) chips banned by the US from export to China, according to a Reuters review of tender documents.

      • US Secretary of State Blinken had constructive discussions on a range of issues with a Chinese minister on Friday which included areas of potential cooperation and areas of differences, while Blinken emphasised the importance of resolving cases of American citizens wrongfully detained or subject to exit bans in China and raised US concerns about human rights abuses, according to Reuters.

      • Taiwan ruling DPP’s William Lai won the presidential election with around 40% of votes which represents an unprecedented third consecutive presidential term for the DPP, although the party did not win a parliamentary majority. Furthermore, President-elect Lai said he can resume healthy and orderly exchanges with China and will use dialogue to replace confrontation, according to Reuters.

      • US Secretary of State Blinken said the US is committed to maintaining cross-strait peace and stability, and peaceful resolution of differences, while he added the US will work with Taiwan to further a longstanding unofficial relationship, consistent with the US one-China policy, according to Reuters.

      • China’s Foreign Ministry said US Secretary of State Blinken’s statement on the Taiwan election sent a seriously incorrect signal to Taiwan's independence separatist forces and seriously violated US promises that it would only maintain cultural, economic and other non-official ties with Taiwan, according to Reuters.

The Stoxx Europe 600 extends earlier losses to fall as much as 0.4%, with autos and banks driving weakness. Among cyclical sectors: banks -0.8%, autos -0.7% and retail -0.7% the laggards; travel +0.7% is a rare bright spot. US futures slightly weaker, with S&P 500 contracts down 0.1%, Nasdaq 100 futures little changed; cash trading closed for a holiday

Top European News

    • ECB’s Lane said they will have key data by June to decide on rates and that changing rates too fast can be harmful, while he added that once the ECB begins lowering rates, this would not be by a single decision of a rate cut and there would likely be a sequence of rate cuts, according to an interview with Corriere Della Serra.

Geopolitics: Middle East

    • Israeli PM Netanyahu reiterated that no one will stop Israel from fighting in Gaza until victory and they will not end the war without closing the hole on the border with Egypt, while he added they must close Gaza’s border with Egypt and are considering several ways to do this, according to Reuters.

    • Israeli military chief said it will consider letting Palestinians displaced from north Gaza to return when there is no danger to them, according to Reuters.

    • Hamas armed wing spokesman Abu Ubaida said any talks before stopping Israeli aggression are worthless and the fate of many hostages has become unknown, while the spokesman added many have been killed and blamed their fate on Israel. Furthermore, the spokesman said they have been told by several parties on resistance fronts that they will expand their strikes in the coming days, while it was also reported that Hamas aired a video showing three Israeli hostages appealing to be freed and Hamas said the fate of hostages will be disclosed on Monday, according to Reuters.

    • US President Biden and other senior US officials are reportedly becoming increasingly frustrated with Israeli PM Netanyahu and his rejection of most of the administration’s recent requests related to Gaza,according to four US officials with direct knowledge of the matter cited by Axios.

    • White House’s Kirby said a lower intensity phase of operations in the Israel-Hamas war is approaching soon.

    • US military announced US forces conducted a strike against a Houthi radar site in Yemen and said strikes are designed to degrade the Houthi’s ability to attack maritime vessels, while a Houthi spokesman said US strikes on Yemen including the latest one on a military base in Sanaa are ineffective, according to Reuters.

    • US President Biden said the US delivered a private message to Iran about Houthi attacks and the US is confident that it is well prepared. It was separately reported that Iranian President Raisi condemned US air strikes on Yemen and said that Washington’s move revealed its true nature which is aggressive and against human rights, according to Reuters and IRNA.

    • Egypt and China are closely following up on developments in the Red Sea and expressed concern over the expansion of the conflict in the region, while they emphasised the importance of uniting international and regional efforts to stop the attack on Gaza, according to a joint statement.

    • Lebanon’s Hezbollah head said it is wrong and ignorant if US President Biden thinks the Yemenis will stop confronting the Israelis in the Red Sea, while he added that what the Americans did in the Red Sea will harm all maritime navigation, according to Reuters.

    • US Central Command said an anti-ship cruise missile was fired on Sunday from the Iranian-backed Houthi military area of Yemen towards USS Laboon operating in the Red Sea, while the missile was shot by a US fighter aircraft and there were no injuries or damage.

    • Iraqi armed factions said they attacked three American bases in Iraq and Syria, according to Al Arabiya.

    • Turkey’s military said it launched air strikes against Kurdish militant positions in Northern Syria and Iraq which destroyed 24 militant targets, according to Reuters.

Geopolitics: Other

    • Ukraine promoted a peace plan at Davos on Sunday ahead of the World Economic Forum although China decided not to attend and Russia was not invited to the meeting, according to FT.
    • North Korea fired an intermediate-range ballistic missile which landed outside of Japan’s exclusive economic zone, while North Korea said that it successfully launched a mid- to long-range solid fuel ballistic missile which was equipped with a hypersonic manoeuvring unit and that the launch did not pose a threat to countries around it, according to Yonhap.
    • North Korea’s Foreign Minister travelled to Russia and led a delegation which left Pyongyang on Sunday, according to KCNA.


  • DXY remained within a tight range of between 102.30-102.55 amid the US holiday closure.

  • EUR/USD traded indecisively around 1.0950 after last week's whipsawing and lack of pertinent drivers.

  • GBP/USD price action was limited following a very quiet weekend of newsflow from the UK.

  • USD/JPY was marginally higher and reclaimed the 145.00 status amid outperformance in Japanese stocks.

  • Antipodeans were mixed on cross-related flows and after the PBoC disappointed calls for a MLF rate cut.

  • PBoC set USD/CNY mid-point at 7.1084 vs exp. 7.1684 (prev. 7.1050)

Fixed Income

    • 10yr UST futures were lacklustre and traded rangebound with US cash markets to remain closed on Monday.

    • Bund futures traded uneventfully in the absence of any major pertinent catalysts for Europe over the weekend.

    • 10yr JGB futures extend on recent gains amid the presence of the BoJ in the market for almost JPY 1.2tln of JGBs, while 2-year JGB bond yields briefly returned to negative territory and printed its lowest since July 2023.


    • Crude futures were rangebound as demand-related woes offset the geopolitical risk premium.

    • Iraq set February Basrah medium crude OSP to Asia at minus USD 0.80/bbl to Oman/Dubai average and to Europe at minus USD 5.15/bbl vs dated Brent, while it set the price to North and South America at minus USD 1.00/bbl vs ASCI, according to SOMO.

    • Iraq’s Oil Minister said the oil market suffers from many challenges that affect its stability and that OPEC+ is working to limit these factors by taking the measures necessary, according to Reuters.

    • Qatar appears to have halted sending LNG tankers through the Bab el-Mandeb Strait after US-led airstrikes on Houthi targets raised risks in the key waterway, according to Bloomberg.

    • Spot gold edged marginal gains amid an uneventful dollar and with US participants on an extended weekend.

    • Copper futures nursed some of last week's losses but with the rebound capped by PBoC-related disappointment.

DB's Jim Reid concludes the overnight wrap

It’s a US holiday today (Martin Luther King Day), so it will be a very quiet start to the week. My wife was away at a spa weekend so I’m worn out from shouting at the kids non-stop for 2 days so its a shame I’m not in the US for a break. Although it’ll be quiet, we do have the Iowa Caucus during what is a brutally cold spell in the state with -25C forecast for the vote tonight that traditionally kick-starts the election campaign. The key things to watch are whether Donald Trump can get above the psychological 50% share of the Republican vote (the level recent polls suggest he’s hovering around in the State), and/or how close either Ron DeSantis or Nikki Haley can get to him. While there is clearly a long way to go until November, this will give us some early idea of how successful and deep into the primaries Donald Trump’s opposition for the nomination might go.

Staying with politics, on Saturday, Lai Ching-te of the incumbent DPP won the presidential election in Taiwan, as expected, with 40.1% of the vote, ahead of KMT’s Hou Yu-ih. Attention is likely to turn to the risks of increased tensions between Taiwan and mainland China, with Bejing’s officials having referred to Lai as a “troublemaker” and “separatist” ahead of the election. So far there hasn't been any escalating rhetoric from the winning party or from China so markets will probably see the immediate tail risk as reduced although this is something that probably bubbles under the surface for a long time ahead. For more information on the context of what is at stake, Marion Laboure and Cassidy Ainsworth-Grace published a presentation pack on the election and surrounding issues last week. See the full report here . The other geopolitics to watch out for are those around the US/UK strikes against Houthi rebels in Yemen towards the end of last week.

In terms of the rest of the week ahead, the highlight is likely to be US December retail sales on Wednesday which will have a impact on Q4 GDP forecasts and momentum into Q1. Housing starts and permits (Thursday) and existing home sales (Friday) will also sharpen those forecasts. The latest UoM consumer survey is out Friday, including the latest inflation expectations series which has moved markets in recent months. Our economists point out that in a week of lots of Fed speak, Waller tomorrow (11am EST) might be the most important as his dovish shift in November helped spark the momentum towards the Fed’s dovish pivot. Earnings season will also slowly build in the US too this week. In addition, US lawmakers will vote after today's holiday on yet another stopgap spending bill to avert a partial government shutdown this Saturday. It seems they are pushing this into March. So no doubt we'll be in a similar position again then.

In Europe, UK labour market indicators (tomorrow), inflation data (Wednesday) and retail sales (Friday) will be of interest, especially the CPI data. Over in the continent, notable indicators will include industrial production for the Eurozone today and the ZEW survey for Germany tomorrow. Davos also kicks off today so expect lots of headlines and Canada Goose jackets on your business TV screens.

Moving on to Asia, the focus in Japan will be on the national CPI release on Thursday and China’s Q4 GDP and December economic activity indicators on Wednesday. Check out the full week ahead calendar at the end as usual with key data, speaker and earnings releases flagged.

Asian equity markets are mostly trading higher this morning with the Nikkei (+1.16%) again leading gains, while Chinese stocks are recovering from earlier losses with the CSI (+0.17%) and the Shanghai Composite (+0.36%) moving higher even after the PBOC left its medium-term policy loans rate unchanged (more on this below). Elsewhere, the KOSPI (-0.07%) is swinging between gains and losses with the Hang Seng (-0.15%) seeing minor losses. US stock futures are flat with cash Treasury trading closed due to today's holiday.

Coming back to China, the PBOC defied market expectations for a cut as it held the rate on some 995 billion yuan ($139 billion) worth of one-year medium-term lending facility (MLF) loans intact at 2.50%. The MLF was last cut in August 2023, from 2.65%.

Recapping last week now. Despite the upside surprise to the CPI on Thursday, investors grew increasing confident that the Fed is likely to cut rates soon, with the CPI details suggesting more moderate PCE inflation, the Fed’s preferred gauge. This momentum continued on Friday after data showed a greater-than-expected decline in the PPI. US December PPI fell -0.1% (vs 0.1%) month-on-month and rose 1.0% in year-on-year terms (vs 1.3% expected). With some measures in the PPI, like healthcare and portfolio management, also captured in the core PCE, a weaker PPI therefore implies a softer core PCE print and greater justification for the Fed to cut rates. Off the back of this, investors raised their expectations of a 25bps Fed cut by March, rising from 78% to 83% on Friday, up from 63% at the start of the week. And 168bps of cuts are now priced it by end-2024, 30bps more than a week earlier. So that’s nearly seven 25bps cuts now expected by the market from the Fed this year.

With the soft producer price data reinforcing Fed cut bets, 10yr Treasury yields declined by -2.6bps on Friday, and -10.6bps on the week to 3.94%. The short-end outperformed, as 2yr yields fell -10.2bps to 4.15% (-23.7bps week-on-week), their lowest level since last May. The bond rally was driven by real rates, with the 10yr real yield down -15.7bps and the 2yr -32.2bps on the week. By contrast, 10yr breakevens (+4.1bps Friday and +5.1bps over the week), reached their highest level since November at 2.28%. Over in Europe, 10yr bund yields fell -5.0bps on Friday but rose +2.8bps in weekly terms.

Equities fluctuated on Friday but rallied over the week, supported by the rates rally. The S&P 500 gained +1.84% last week (+0.08% Friday), ending the week just 0.3% below its record high at the start of 2022. Soft earnings releases by several US banks on Friday drove the S&P 500 Banks index down -1.27% on Friday, and -3.37% in weekly terms. The tech-heavy NASDAQ outperformed, up +3.09% over the week (+0.02% on Friday) in its largest weekly move up since the start of November. Gains were largely driven by the tech giants, as the Magnificent Seven index of megacap stocks rose +4.25% (-0.16% on Friday). In Europe, the STOXX 600 jumped +0.84% on Friday but traded near flat (+0.08%) on the week.

Lastly in commodities, geopolitical risks returned to the fore after the US and UK launched air strikes against Houthi rebels in Yemen. With risks escalating for Red Sea commercial shipping, Danish fuel-tanker company, Torm, announced its intention to pause transits through the Southern Red Sea on Friday. These developments drove Brent Crude prices above $80/bbl in early trading on Friday, before finishing the day at $78.29/bbl (+1.14% on the day). That said, they were down slightly (-0.60%) on the week after an earlier decline on news of Saudi Arabia lowering its selling price. WTI crude similarly rose +0.92% on Friday to $72.68/bbl but was down -1.53% on the week. Rising geopolitical risks in the Middle East also saw gold rally +1.72% on Friday (+0.18% on the week)


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