MHMarkets：23:30 USD Dallas Fed Manufacturing Index (JAN)

Market Overview

Review of Global Market Trend

Last Friday, the Fed's most favored inflation indicator cooled off more than expected, but the market is concerned that strong personal spending will keep policymakers cautious about cutting rates. The U.S. dollar index rebounded after the release of the PCE data and came close to recovering its intraday losses, eventually closing down 0.023% at 103.46, but recording a weekly fourth consecutive positive; 10-year U.S. bond yields accelerated upward in the U.S. trading session, eventually closing at 4.139%; two-year U.S. yields, which are more sensitive to the Fed's policy rate, closed at 4.357%.

Spot gold moved lower as market expectations for a rate cut cooled, losing the $2020 mark again and ending down 0.12% at $2018.49 per ounce for a second consecutive weekly loss. Spot silver ended down 0.49% at $22.8 per ounce.

International crude oil rose to a two-month high, posting its biggest one-week gain since the week the Israel-Hamas war broke out, as positive economic news from the world's two largest economies sparked hopes for stronger crude demand this year, and as the Houthi group's hit on a U.K. oil tanker exacerbated fears of supply disruptions. WTI crude closed up 1.4% at $78.05 per barrel, while Brent crude closed up 1.7% at $83.64 per barrel.

The three major U.S. stock indexes were mixed, with the Dow closing up 0.16%, the S&P 500 closing down 0.07% and the Nasdaq closing down 0.36%. INTC.O closed down nearly 12% after results, while WDC.O closed down 3.48%. TSLA.O and BA.N both opened lower and closed higher, closing up 0.34% and 1.78% respectively.

The major European stock indexes closed collectively higher, with the Euro Stoxx 50 closing up 1.16%, Germany's DAX 30 closing up 0.32%, and Britain's FTSE 100 closing up 1.4%.

Market Focus

1. The U.S. core PCE price index recorded an annualized rate of 2.9% in December, which was a new low since March 2021. Personal spending recorded a monthly rate of 0.7%, which was a new high since September 2023. Traders reduced bets on a Fed rate cut after the data was released. Interest rate futures showed about an 80% chance of the Fed cutting rates for the first time in May and a slightly less than 50% chance of the first cut in March.

2. Nick Timiraos: The Fed is worried that real interest rates are too high and will abandon its tightening bias this week.

5. Iran seizes a foreign ship carrying 2 million liters of smuggled diesel.

9. UNCTAD: Suez Canal trade down 42% in two months.

10. Sources: OPEC+ unlikely to decide on production policy this week.

Institutional Perspective

01

Standard Chartered Bank

【Standard Chartered Bank: The Fed only starts its interest rate cutting cycle when the economy has declined to a certain extent to hedge against larger risk events】

Wang Xinjie, Chief Investment Strategist at Standard Chartered China's Wealth Management Department, pointed out in an interview with China Business that under the varying degrees of exceeding expectations in employment and inflation data, the market's expectation of the Fed's interest rate cut has cooled down, which is also a normal correction in the market's previous expectation of a significant interest rate cut by the Fed in 2024. From the historical cycle of interest rate cuts, the Fed has only started cutting rates when the economy has declined to a certain extent to hedge against larger risk events.

02

CICC

【CICC: The Fed's monetary policy will be full of variables】

According to a research report by CICC, the overall direction of U.S. inflation is still slowing down, but there is great uncertainty in the pace, which means that the Fed's monetary policy will be full of variables. If the Fed turns to easing too early, it may lead to an already decent rebound in demand, increasing the risk of economic “non landing” and “secondary inflation”. Therefore, investors should be more cautious about their expectations of interest rate cuts. The Fed may not cut interest rates in March 2024 as expected by the market, and the expectation of six rate cuts throughout the year may also be too aggressive.

03

CITIC Securities

【CITIC Securities: Recently, it may be a better time to allocate U.S. bonds on the left side, and it is more recommended to allocate short-term U.S. bonds】

CITIC Securities Research News said that in the future, it is expected that U.S. consumption will slowly decline with the cooling of the labor market. Under the background of downward demand and debt pressure, it is expected that the growth rate of fixed assets investment will gradually decline. Due to the high size of short positions in the U.S. treasury bond bond futures market, there was a certain liquidity risk in the bond market in the first half of this year. The probability of the U.S. economy gradually cooling down this year is high, and there is a high possibility that the Fed will adopt a preventive interest rate cut around the middle of this year, with a rate cut of 75-100bps.  Recently, it may be a better time to allocate U.S. bonds on the left side, and it is more recommended to allocate short-term U.S. bonds compared to the long-term.