Market recap: Week of 2–5 Jan 2024

Japan earthquake

Nikkei 225: On 1 January 2024, Japan faced an Earthquake. Reflecting on the 2011 aftermath, the Nikkei 225 dropped 86 points to 10,348 yen on 11 March 2011. Subsequent concerns over the earthquake’s impact on earnings triggered a flood of sell orders. 

Within days, the index plummeted to 8,605 from 10,348. The event serves as a reminder of the market’s sensitivity to seismic events and the subsequent investor reactions. 

Stlouisfed: On 1 January 2024, Japan experienced an earthquake, prompting a look back at the impact on USDJPY after the 2011 earthquake. Following the 2011 event, the JPY appreciated significantly. From 10 March to 17 March 2011, the yen strengthened by about 5% against the USD. 

Responding to the heightened market volatility, G-7 financial authorities announced measures on Thursday, 17 March 2011. The yen swiftly rebounded, nearly returning to its pre-earthquake levels. 

Apple stock

CNBC: Apple shares dip 4% post-Barclays downgrade, citing concerns about weakening iPhone 15 sales as a potential precursor to iPhone 16 and broader hardware projections.

Meanwhile, Bloomberg reports Chinese government discouraging state employees from using iPhones, a claim denied by Chinese authorities.

Market responsiveness to both internal and external factors underscores the delicate balance in tech stocks. 

GBP/USD rally

Market Screener: HSBC’s Dominic Bunning deems the GBP/USD rally, soaring from $1.20 in October to $1.27 in late November, as ‘completely unjustified’ based on interest rate differentials.

Predicts pound’s retreat as focus shifts to overall yield spreads, anticipating GBP/USD slide towards 1.20. S&P Global Market Intelligence’s Rob Dobson notes a contraction in UK manufacturing output at year-end 2023, attributing it to tough conditions domestically and in key export markets. 

Meanwhile, the dollar gains traction on the year’s first trading day, backed by higher U.S. yields amid anticipation of crucial economic data. 

Chip stocks

Reuters: 

• U.S. chip stocks on a downward trend, PHLX semiconductor index down 2.1%.
• AMD, Qualcomm, Broadcom contribute to losses with drops exceeding 2%.
• BofA Global Research suggests exposure to Nvidia, Marvell Technology, NXP Semiconductors, ON Semiconductor.
• Chip index down nearly 7% since 27 December record high close.
• Wells Fargo recommends KLA and Applied Materials as top picks.
• Market volatility in the semiconductor sector after its strongest year since 2009.

UK politics

Bloomberg: 

• UK executives push for urgent interest rate cuts to boost the economy.
• PM Rishi Sunak hints at a general election by Jan 2025; the exact month remains uncertain.
• Conservatives trail Labour by ~20 points in polls; Sunak faces pressure to retain power.
• March Budget crucial for Tories’ fortunes, potential tax cuts in focus.

US economic outlook

Reuters: 

• Economists predict 170,000 jobs added in Dec, fewer than previous month’s 199,000.
• ADP report shows largest monthly job increase since August, private payrolls up by 164,000.
• Initial claims for state unemployment benefits drop by 18,000.
• Dollar strengthens against most currencies on Thursday, fueled by robust U.S. labour market data.
• Market expectation of multiple Fed rate cuts this year dampened.
• UBS’s Brian Rose: “In the short run, we think the dollar could gain a bit; market is too aggressive in pricing in Fed rate cuts. Our base case is the Fed will wait until May before cutting.”
• Majority of analysts (36 of 59) see a greater risk in their three-month forecast: the dollar trading stronger against major currencies than currently predicted.

Europe’s economic indicators

Financial Review: 

• ECB closely examines domestic drivers, with salaries in the spotlight.
• German inflation accelerates less than expected in December.
• Consumer prices rise 3.8%, below economists’ 3.9% prediction.
• Muted boost from energy may restrain wage demands.
• French inflation report echoes a comparable scenario earlier in the day.
• ECB aims for a faster return to the 2% inflation target.
• Trade Idea 2024: Morgan Stanley suggests shorting EURUSD.