US EARLY MORNING: Stocks continue higher at the start of 2024; this week, attention will be on jobs data, ISM surveys and Fed minutes

US PRE-MARKETS: US equity futures have started 2024 on the front foot, continuing to rise in wake of the Fed’s December pivot towards a more dovish brand of monetary policy. There are also hopes of improving geopolitical dynamics in the Middle East, after Israel will move thousands of troops out of Gaza (though still expects the war to continue for many months), while the US will move the USS Gerald Ford from the eastern Mediterranean, helping to support the positive mood. However, crude traders remain cautious about ongoings in the region, with oil benchmarks rising on Tuesday amid fears of supply disruptions after the US sunk three vessels in the Red Sea as they repelled an attack on shipping freighters; strong holiday demand in China and continuing hopes of stimulus are also supporting oil. In fixed income, Treasury yields are rising solidly, though the shape of the curve is little changed; yields began picking up at the start of the European morning in sympathy with German Bunds, which are on course for a third straight day of losses. Today’s docket is thin for scheduled events, allowing traders to continue digesting the themes of a monetary policy pivot this year, as well as geopolitical updates. Attention will shift to US jobs data and ISM surveys this week, as well as Eurozone inflation metrics. 

STARTING 2024: With the 2024 trading calendar starting off on a quiet note, in terms of scheduled data out of Europe and the US, traders are continuing to debate how risk assets will perform this year, after the stock market surge confounded many doomsayers in 2023 as the US avoided a hard landing. The S&P closed out 2023 with gains of around 24%; Reuters cites market strategists who suggest that such a strong annual performance often carries over into the next year, underpinned by momentum and solid fundamentals. LPL Research's data going back to 1950 shows that years which follow a gain of more than 20% have seen the S&P rise by around 10% on average. Yardeni Research, which was correct in calling the 2023 rally, offers a dozen reasons to remain bullish as we start the year: 1) Interest rates are back to normal; 2) consumers have purchasing power; 3) households are wealthy and liquid; 4) demand for labour is strong; 5) onshoring boom is boosting capital spending; 6) housing is all set for a recovery; 7) corporate cash flow is at a record high; 8) inflation is turning out to be transitory; 9) the High-Tech Revolution is boosting productivity; 10) leading indicators are mostly misleading; 11) the rest of the world’s challenges should remain contained; 12) the Roaring 2020s will broaden the bull market (a brief of its research can be found here). In the near-term, the strength of the recent equity rally (Q4 saw gains of 11% alone amid the Fed pivot) may be tested by corporate earnings, with the Q4 season set to get underway (big banks begin reporting at the end of next week), while traders will also be looking to the Fed's January 31st meeting for signs that the central bank is following through on its dovish pivot made in December; money markets are pricing a little over six 25bps rate cuts this year, though the FOMC’s projections see around 75bps worth of cuts. This week’s data may contribute to how forcefully Fed officials push back on that dynamic – the BLS employment situation report for December, JOLTs data for November and the ISM surveys are all released this week.

TODAY'S AGENDA:

• Our full interactive calendar can be accessed here; a pdf version can be downloaded here.


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  DAY AHEAD: The New Year starts on a quiet note for scheduled data; final December S&P Global manufacturing PMI data is due to be released across Europe and the US. The US Day will also see construction spending metrics for November.


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  WEEK AHEAD: Later this week, attention will fall on US jobs data, with the November JOLTs data due Wednesday ahead of the BLS employment situation report for December on Friday. ISM Manufacturing data for December is also due Wednesday, as are the FOMC meeting minutes from its December confab (where it pivoted policy in a dovish direction). European traders will focus on regional inflation metrics due Thursday ahead of the aggregated Eurozone data out on Friday. Our full week ahead calendar can be accessed here. On the corporate earnings front, this week, numbers are due from Conagra (CAG), Lamb Weston (LW), Walgreens (WBA) on Thursday, while Constellation Brands (STZ) will report on Friday.


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  REVIEW - CHINA OFFICIAL PMI: China's official manufacturing PMI eased to 49.0 in December (exp. 49.5, prev. 49.4), the weakest since June, as new orders fall 0.7 points to 48.7 in the month; export new orders fell 0.5 points to 45.8. Pantheon Macroeconomics said that "the outturn in December indicates manufacturing activity is deteriorating further, with demand conditions softening at a faster pace, both at home and abroad." Pantheon also noted that producer profit margins appear to be under further pressure in December as raw material purchase prices are rising at a faster pace (+0.8 points in the month to 51.5) while producer prices rose at a slower rate (+0.5 points to 47.7), and Pantheon continues to expect China to export deflation in early 2024, especially for manufactured goods. "Overall, the impact of the recent fiscal stimulus is yet to be felt in the economy," it wrote, adding that while it expects construction and manufacturing activity to pick up in the Spring, external demand conditions from China’s key trading partners are expected to be sluggish in the near term, and will further hamper manufacturing production in China. "In any case, the authorities are prioritising structural rebalancing of the economy over sheer GDP growth and the benefits of these policies, such as industrial upgrading will only appear in the longer run." Pantheon argues that China is expected to continue relying on fiscal policy, but we should not expect any "bazooka stimulus" seen during the Great Financial Crisis. Meanwhile, the official non-manufacturing PMI rose to 50.4 (prev. 50.2); the composite inched lower to 50.3 from 50.4.

EQUITY NEWS:

TECH:

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  OpenAI (not listed) - Annual Recurring Revenue at Microsoft (MSFT)-backed OpenAI has soared to USD 1.6bln, The Information reports, up from USD 1.3bln in mid-October, with the company maintaining its momentum in selling AI to enterprises–despite the 20% growth already seen over two months, and amid a leadership crisis in November–warding off competitors targeting its customers.


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  OpenAI (not listed), Gannett (GCI), IAC (IAC), News Corp (NEWS) - Major players in the US media industry engaged in private negotiations with OpenAI regarding licensing their content, NYT reports. Recently, NYT filed a lawsuit against OpenAI and Microsoft, accusing them of copyright infringement for using its content without consent in AI development. Prior to legal action, discussions had been ongoing for months between these companies, including Gannett, News Corp, IAC, and the News/Media Alliance, aiming to reach agreements on content licensing terms.


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  Apple (AAPL) - Cautious mention in the FT, which notes that this year, Apple faces significant legal challenges from the US and EU that could impact its USD 85bln-a-year services business. A US antitrust trial involving Google revealed payments of over USD 26bln in 2021 to secure default search engine status on Apple devices. Potential ramifications include ceasing payments to Apple, possibly accounting for a quarter of Apple's services revenue. Additionally, the iPhone maker has faced increased scrutiny by the Biden administration around its App Store dominance, prompting changes in the EU.


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  ASML Holding (ASML) - The Dutch chipmaker has cancelled shipments of some of its machines to China after a request from the US, weeks before an export ban came into effect, Bloomberg reports. ASML said its license has been partially revoked by the Netherlands government, reiterated that the license revocation will not impact its financial outlook.

COMMUNICATIONS:

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  Paramount (PARA), Comcast (CMCSA) - Paramount secured a deal with Comcast to extend its carriage agreement for its cable channels and CBS-owned stations; move prevents potential blackouts for CBS stations and Paramount channels on Comcast, Variety reports, adding that while specifics weren't disclosed, the agreement likely continues the existing deal from January 2022.


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  Nokia (NOK) - Q4 and FY23 results, due January 25th, Nokia said it expects to miss FY23 targets due to delayed license renewals in Nokia Technologies. Q4 proved somewhat more challenging than expected given on-going customer spending constraint, but profitability in its networks businesses was expected to remain within the comparable operating margin guidance range, it said, adding that it has seen clearly improving order trends in Q4, particularly in the Network Infrastructure unit.


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  T-Mobile (TMUS) - After last week's announcement by SoftBank of an acquisition of 48.8mln shares of T-Mobile stock (equivalent to around USD 7.6bln worth), T-Mobile received a positive mention in Barron's; the newspaper said that the company is the best telecom stock for 2024 as it looks poised to continue gaining market share.


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  DoorDash (DASH) - DoorDash is looking to use its financial clout to diversify beyond its core business of delivering restaurant meals to home diners, as the US group seeks ways to invest a growing cash pile, FT reports.

INDUSTRIALS:

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  Maersk (AMKBY) - Global container shipping giant Maersk said it was pausing all sailing through the Red Sea for 48 hours after an attack on by Iran-backed Houthi militants on a container vessel; US helicopters repelled the attack, sinking three ships and killing 10 militants, Reuters reported.


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  Delta Air Lines (DAL) - Delta plans to scale back pilot hiring in 2024, aiming for about half the number recruited in 2023, WSJ reports. This shift marks a slowdown in the extensive hiring spree by major carriers since the travel demand surge post-COVID-19. Despite the reduction, hiring remains elevated compared to pre-pandemic years, with over 13,000 pilots hired in 2023 and a similar projection for 2024, the report adds.


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  Airlines - The Airlines for America trade association called on DoT officials to address private plane impact and air traffic controller shortages causing holiday flight disruptions, urging officials to balance commercial and private aviation traffic to reduce delays and cancellations for travellers, Reuters reports.


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  RTX Corporation (RTX) - RTX was awarded a USD 344.6mln Air Force contract modification to a previously awarded contract for StormBreaker Production.

ENERGY:

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  China Crude Imports - China announces 2024 crude oil import quote to rise +60% Y/Y to 179mln/MT (prev. 118.8mln), Reuters reports citing sources.


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  ExxonMobil (XOM) - Exxon has formally exited the West Qurna 1 oilfield in southern Iraq, handing operations to PetroChina as lead contractor, Reuters reports.


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  TotalEnergies (TTE) - Total announced the start of production from the second development phase of the Mero field on the Libra block. Mero-2 includes the Sepetiba FPSO, and has a production capacity of 180k BPD.

CONSUMER:

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  Chinese Auto Names - China auto giant BYD reported 526K fully EV sales in Q4, with some reports noting that this is likely tohave edged out Tesla (which is seen shipping around 480k EVs in Q4), BBG reports. Li Auto December deliveries +137.1% Y/Y at 50.35K, and +184.6% Y/Y in Q4 at 131.8K; NIO saw 18,012 deliveries in December (+13.9% Y/Y), and 50K in Q4 (+25% Y/Y). XPeng December deliveries +78% Y/Y at 20.1K, and +171% Y/Y at 60.1K in Q4.


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  Tesla (TSLA) - Is scheduled to release quarterly vehicle production and delivery numbers BMO today; analysts expect the US EV maker to have delivered 1.82mln vehicles globally in 2023 (+37% Y/Y), and around 473k units in Q4, according to Reuters. In 2024, Elon Musk has previously suggested that Tesla could achieve 2mln vehicle deliveries, ex any disruptions, though recently warned that higher borrowing costs could impact demand.


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  Li Auto (LI) - Li Auto expects to launch its flagship family MPV "Li MEGA" on March 1st, with deliveries seen commencing in the early part of the month.

HEALTHCARE:

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  Pharma, Pfizer (PFE), Sanofi (SNY), Takeda Pharmaceutical (TAK) - Major pharmaceutical companies like Pfizer, Sanofi, and Takeda intend to increase prices on over 500 drugs in the US in January, Reuters reported citing data by healthcare research firm 3 Axis Advisor. The report adds that the expected price hikes come as the industry gears up for the Biden Administration to publish significantly discounted prices for 10 high-cost drugs in September, and as it continues to contend with higher inflation and manufacturing costs.


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  Johnson & Johnson (JNJ) - A Federal Judge in New Jersey permitted Johnson & Johnson shareholders to proceed with a class-action lawsuit which alleges the pharma company hid asbestos contamination in its talc products, causing cancer. Shareholders of JNJ from February 22nd 2013 to December 13th 2018 can pursue securities fraud claims together, despite J&J's plea for a shorter class period due to certain events not presenting new information impacting stock prices.


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  AstraZeneca (AZN) - Positive mention in Barron's; the newspaper said the company was looking much better heading into 2024, and the stock was a buy. Separately, Beyfortus approved in China for the prevention of RSV disease in infants.


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  IQVIA (IQV) - A US court upheld the FTC's decision to block IQVIA's acquisition of DeepIntent citing potential harm to competition. DeepIntent's CEO has previously said that the company would remain independent had the regulator's intervention failed.

FINANCIALS:

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  T. Rowe Price (TROW) - CEO says worst is over after it saw its heaviest annual outflows, according to the FT, which adds that growth for the active manager, which has USD 1.4tln AUM, is not expected to turn positive until 2025 at the earliest.


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  HSBC (HSBC) - The bank is set to release an international payments app, aiming to compete with existing providers such as Revolut and Wise. The new app will be initially offered in the UK, will look to expand to Europe in the coming months, Bloomberg reports.

02 Jan 2024 - 09:30- Fixed IncomeData- Source: Newsquawk