Market recap: Week of 22–26 Jan 2024

Central bank rate decisions

Bloomberg, Reuters:

Bank of Japan:

• Expected to maintain current policy
• Focus on Governor Kazuo Ueda's assessment of sustainable inflation progress
• No immediate end to the world's last negative interest rate

Bank of Canada:

• Predicted to keep interest rates unchanged
• Economy in "recessionary territory"
• Analysts anticipate a cautious approach to interest rate decisions

European Central Bank (ECB):

• Interest rates likely to remain steady on Thursday
• Market attention on insights into the timing of rate cuts
• Reuters poll: 45% expect rate reduction next quarter
• Median expectation: 100 basis points of cuts in 2024, bringing the deposit rate to 3.00%

Pensions & investments

Bank of America Fund Managers Survey Highlights

Interest rates outlook:

• Only 3% of surveyed managers in January anticipate higher rates.
• Majority predict rate cuts in the first half of 2024.

Manager insights:

• Surveyed 256 fund managers overseeing $669 billion in assets.
• Global growth expectations over the next 12 months at a net -40%. A notable improvement from December's net -50%.

Market sentiment:

• Managers express a cautious outlook on global growth.
• Despite remaining bearish, the shift indicates increased optimism. 

Insights from Bill Gross, former CEO of PIMCO

Bloomberg and Market Watch:

Insights from Bill Gross, former CEO of PIMCO

• Bill Gross' Advice to Federal Reserve:
  • Recommends halting the balance sheet wind-down.
  • Urges interest rate cuts in the coming months to steer clear of a recession.
• Gross' Investment Preferences:
  • Highlights stocks' expensiveness relative to real yields.
  • Favors conservative investments: high-dividend stocks (banks, tobacco) and M&A arbitrage.
• Counterpoint from Wall Street:
  • Longtime strategist optimistic about the S&P 500.
  • Anticipates a potential 5% surge in the coming months.

Kitco updates

• Position overview:
  • Net long positions in gold: 83,229 contracts. minimal change from the previous week.
  • Price movement:
    • Gold prices consolidating within $2,050-$2,000/ounce range.
• Speculators' response:
  • Doubts arise amid hawkish comments from Fed officials lead to aggressive cuts in gold long positions.
• Analyst insights (TD Securities):
  • Speculators cite high cost of carry and extended opportunities.
  • Treasury market sell-off in the latter part of the CFTC reporting period.
• Fed's stance and gold outlook:
  • Analysts suggest an unlikely trend towards $2,200 average price until Fed dovish signals emerge.

Bank of Canada rate predictions

Wall Street Journal: 

• Economist consensus:
  • Widely expected to maintain main interest rate.
  • 10 out of 14 economists foresee rate cuts before end of June.
• Concerns raised:
  • Weak consumer spending and business investment could impact price pressures.
  • Caution urged to avoid premature cuts and potential inflation risks.
• Expert insights:
  • Tu Nguyen from RSM Canada warns against early cuts, emphasising past central bank efforts.
  • Carl Gomez of CoStar Group suggests the economy is possibly in or near a recession.
• Anticipated timeline:
  • Analysts foresee the first rate cut potentially in H1 and the earliest in April.

Bank of Japan updates

Japan Times and Reuters: 

• Current monetary settings:
  • BOJ maintains ultra-easy monetary settings.
• Shift in conviction:
  • Signals growing conviction towards phasing out stimulus.
  • Suggests a nearing end to negative interest rates.
• Governor Ueda's remarks:
  • BOJ Governor Kazuo Ueda expresses confidence in Japan's ability to sustainably achieve the 2% inflation target.
  • Cites steady rises in service sector prices.
• Market impact:
  • Hawkish tilt prompts Japanese yen rebound.
  • Short-term government bond yields reach a one-month high.
  • Investors foresee an increasing chance of ending negative rates in March or April.
• Upcoming focus:
  • Markets closely monitoring annual wage negotiations, concluding in mid-March.
• Consensus among analysts:
  • Six out of eight analysts predict the lower end of the greenback's range to be between ¥130 and ¥135 against the yen.

Federal Reserve and PYMNTS

Bank Term Funding Program update from Fed:

• Federal Reserve update:
  • Bank Term Funding Program (BTFP) ceases new loans on March 11.
  • Rate on new BTFP loans adjusted, aligning with interest rates on reserve balances.
  • Immediate implementation; all other program terms remain unchanged.
• Initially costly BTFP borrowing due to anticipated higher rates.
• Shift in rate expectations makes borrowing attractive, leading to a surge in recent record-high borrowing.
• Banks can borrow from BTFP, deposit funds at the Fed, earning higher rates on reserve balances.
• Analysts note banks exploiting positive arbitrage, evident in Nov 2023's yield drop and BTFP asset increase.
• Fed's move may reverse recent bond yield downtrend, signaling a potential upward trend.

US stocks

Barrons and the Wall Street Journal: 

• Barrons : US stock indexes finished mixed
• Treasury Auction update:
  • Weak reception for the $61 billion 5-year Treasury notes auction.
  • Awarded yield at 4.055%, 2 basis points above pre-bidding yield, signaling low investor demand.
  • 10-year yield reaches 4.171%, up from Tuesday's (23 Jan) close at 4.138%.
• S&P edges higher on Wednesday (24 Jan).
• Earnings season reveals mixed company performances:
  • Netflix surges on strong subscriber growth.
  • AT&T slides.

The Guardian & Apple News:

• China impact: Apple's iphone shipments dipped 2.1% in Q4 2023. 
• EU changes: Apple adapts to Brussels laws, allowing app downloads outside its store.
• iPhone adjustments: More browser choices, alternative payments, and App Store options. 
• Developer benefits: Accepting new terms reduces Apple's cut from 15-30% to 10-20%.
• Stock update: Apple Inc. shares slipped 0.17% to $194.17.

Interest rates

Wall Street Journal:

• Key interest rate maintained at record high. 
• Deposit rate held at 4% for third consecutive meeting.
• Door open to rate cuts in spring. 
• Christine Lagarde: "Slight decline in wage growth is directionally good."
• Key data awaited in April-May; Lagarde downplays dates.
• Analyst View: Likelihood of pre-summer rate cut increases.
• Euro dips, Eurozone shares climb.