Stocks were flat in early trading in Europe as markets looked ahead to US retail sales and a number of Fed speakers later in the session. The FTSE 100 was barely changed as it resists for now the temptation to strike a fresh all-time high even as we seem to hearing whispers of optimism from Davos about the world economic outlook.
It follows a mixed day on Wall Street as Goldman Sachs’ huge earnings miss weighed on the Dow, while the Nasdaq eked out a small gain. By contrast, Morgan Stanley was among the top performers on the S&P 500 after its wealth management division performed strongly. Yields are down a bit with the US 10yr back under 3.5 per cent, gold doing little as it hovers around the $1,910 area and the dollar is weaker.
Cable rallied to a fresh month high as UK inflation slid for a second month. December’s CPI inflation rate fell to 10.5 per cent, down from 10.7 per cent in the previous month and extending the decline since the 41-year high of 11.1 per cent struck in October. But it’s not coming down fast enough, leaving the Bank of England all but certain to move with another 50bps hike in February. Core inflation, however, remained steady at 6.3 per cent. We’ve talked endlessly here about the peak in inflation and how persistent core inflation is likely to be. In essence, my view is that inflation may have peaked but it is not going to come down nearly as quickly as central banks – and consumers – would like. Higher wages and structurally tight labour markets will ensure it proves sticky.
Business activity contracted sharply in New York State, according to the January 2023 Empire State Manufacturing Survey. The headline general business conditions index fell 22 points to -32.9, the lowest level since May 2020, at the height of the pandemic. New orders and shipments declined substantially, the New York Fed said, while employment growth stalled, and the average workweek shortened. Inflation pressures eased – input price increases slowed considerably and selling price increases also moderated, the NY Fed said. Does this survey point to the shift from stagflation to deflationary recession? I don’t know, some wags point out it might just be do with the Democrats in charge of the state rather than a wider problem for the US economy.
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That’s according to one potential juror in a class action lawsuit brought by Tesla investors over his famous “funding secured” take-private tweets in 2018. Anyway, a jury of people who presumably believe Musk is at least clinging to his rocker with his finger nails was selected and the trial should last a week to ten days.
Meanwhile a large debt payment for Twitter (US: TWTR) is due… presumably bankruptcy is not a viable option but it cannot be ruled out. Tesla (US: TSLA) shares ended the day 7 per cent higher even as price cuts weigh ahead of earnings on Jan 25th. Wells Fargo notes other companies in the EV space will be hit? “TSLA’s material price cuts on Friday may force an industry-wide price correction,” writes Wells’ Colin Langan. Bank of America has lowered its price target on TSLA from $135 to $130. Jefferies wins the price though – target cut to $180 from $350 but retains a buy rating. LOL. NW
Remember Christine Lagarde, the president of the European Central Bank, sounding rather hawkish in December? The ECB said interest rates would “still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2 per cent medium-term target”. This was a step-change from the “substantial progress” hailed in the October statement. Lagarde went further in the press conference, effectively outlining at least another 100bps by March. Now sources are pushing back – 50bps in Feb and just 25bps in March, perhaps. De Villeroy says this morning that there is good news on inflation as energy costs come down and he does not see a wage price spiral… the old transitionary argument in new clothes.
Oil continues to push up from the 50-day line support – GS again saying that commodities have the strongest outlook of any asset class in 2023. OPEC says rising demand in the East will offset declining demand in the West this year.
Neil Wilson is the Chief Market Analyst at Finalto
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