Futures Set For 4th Straight Record High On Blowout Netflix, ASML Earnings And China RRR Cut

After a three-peat of S&P records, stocks were set for 4th all time high as they extended overnight gains after an onslaught of positive earnings from technology companies reinforced the picture of a broadly robust corporate sector, while a “sudden” RRR cut by Beijing sparked hope that the Chinese rout may soon be over. S&P futures rose 0.5%, at 7:50am while Nasdaq 100 futures rose about 0.7%, lifted by a 10% surge in Netflix following blockbuster earnings as well as a rally across chipmakers and other tech firms. Tesla and IBM are due to report later. 10Y yields dropped 2bps to 4.11% while the dollar slid amid a strong rally in the yen which strengthened 0.6% as investors decided Japanese policymakers are gearing up to scrap negative interest rates soon after all. Swaps markets have ramped up bets on a 25 basis-point rate hike in April, following the Bank of Japan meeting on Tuesday.

In premarket trading, Netflix rallied as much as 11% after the firm said yesterday it signed up 13.1 million customers in the final three months of 2023, the streaming giant’s best quarter of growth since viewers were stuck at home in the early days of the pandemic. Netflix earnings were so strong they unleashed a barrage of upgrades by the trend-following momentum penguins:

• Evercore Raises target price to $600 from $500
• KeyBanc Raises target price to $580 from $545
• Barclays Raises target price to $475 from $375
• Piper Sandler Raises target price to $550 from $475
• Pivotal Research Raises target price to $700 from $600
• Guggenheim Raises target price to $600 from $500
• Goldman Sachs Raises target price to $565 from $500
• Canaccord Genuity Raises target price to $625 from $575
• Morgan Stanley Raises target price to $600 from $550
• Redburn Raises target price to $610 from $550
• UBS Raises target price to $570 from $560
• Baird Raises target price to $600 from $500
• Bernstein Raises target price to $490 from $390
• Wells Fargo Raises target price to $650 from $460
• BofA Securities Raises target price to $650 from $585
• JPMorgan Raises target price to $610 from $510
• BMO Capital Raises target price to $638 from $566
• Rosenblatt Raises target price to $554 from $404

“We’re in somewhat of a sweet spot at the moment for equities,” said Francois Rimeu, a strategist at La Francaise Asset Management in Paris. “US economic newsflow is good, growth is flat in Europe, but it’s no drama and nobody believes in the resurgence of inflationary pressures.”  He added that, “earnings in US tech and artificial intelligence are also holding up, which itself is backing the broader market.”

Meanwhile, as reported earlier, market sentiment was also boosted from China’s plan to stimulate its economy by cutting the reserve requirement ratio for banks. The move should allow Chinese banks to step up lending and their purchases of government bonds. European commodities shares rallied and the Hang Seng Index added 3.6%.

The spotlight turns now to policy meetings at the Bank of Canada later in the day and the European Central Bank on Thursday. Both are expected to keep policy rates on hold, but could signal an approximate timing for the first rate cut.

Europe’s Stoxx 600 index climbed 1%, propelled by a rally in ASML Holding NV, Europe’s most valuable technology company, after orders more than tripled; with basic resource and real estate names also outperforming. ASML surged 7% after saying orders more than tripled last quarter from the previous three months as demand for its most-sophisticated machines soared (primarily out of China which scrambled to beat new US-led chip import sanctions). Meanwhile SAP, Europe’s biggest software maker, is up 6% after it unveiled a restructuring plan that will affect about 8,000 jobs and an increased focus on artificial intelligence, moves that it said would help boost operating profit to roughly €10 billion next year.

• Shares in ASML soar as much as 7.5% in Amsterdam to the highest levels in more than two years, after the chip equipment maker reported a record quarterly order intake, a sign of potential rebound in demand for advanced chipmaking gear. The surge in orders was underpinned by a comeback in extreme ultraviolet lithography systems, giving confidence for the Dutch firm’s bullish 2025 goals, according to analysts.
• Shares in SAP jump as much as 8.2% to a record high after the German software firm raised 2025 free cash flow guidance, following a restructuring program that will impact 8,000 jobs. Current cloud backlog — an indicator of cloud revenue to be booked within next 12 months — saw accelerating growth in 4Q, signaling robust demand for its cloud-based software.
• Shares in Siemens Energy soar as much as 13%, to the highest level since August, after the German renewable delivered a beat across the board in the first quarter. Strong free cashflow particularly impressed analysts, with Citi saying this reduces the threat that it will need to raise capital.
• Shares in EasyJet rise as much as 5.9% to the highest price since May 2022 after releasing a trading update for the first quarter. Analysts expect the budget airline to benefit from supply constraints in European short-haul flights and strong pricing.
• Shares in Barry Callebaut gain as much as 2.5%, after the Swiss chocolate maker confirmed its guidance, which Vontobel sees as reassuring. The firm posted better volumes than expected, analysts say.
• Shares in Puma sink as much as 8.4%, sinking to the lowest level since October 2018, after the sportswear brand reported preliminary fourth-quarter sales that missed analyst estimates.
• Shares in Abrdn drop as much as 3.8% to hit a seven-week low after assets under management fell short of expectations. It outlined plans to save £150 million in incremental savings, partly through job cuts, in an effort to improve efficiency. Citi says the new savings goal should lift expectations on the asset manager, but warned they could also make it more difficult for Abrdn to close the investment performance gap to its peers.
• Shares in Alstom fall as much as 8% and were briefly halted for volatility as investors focused on the French train manufacturer’s plans to fix its balance sheet rather than third-quarter orders which beat expectations.
• Shares in Stellantis decline as much as 1.2% as HSBC says it’s “time for a pause” and downgrades the carmaker to hold from buy, citing 2024 uncertainty.
• Shares in Wetherspoon drop as much as 3.1%, extending declines to a second straight session, after a trading update. Goodbody said the company had a strong Christmas period, but the update confirmed a “softer” January.
• Shares in Infineon, STMicro fall after US peer Texas Instruments delivered a disappointing quarterly forecast, signaling a persistent slump in demand for industrial and automotive electronic components.

Earlier in the session, Asian markets rose as stocks in Hong Kong rallied after China’s announcement to cut the reserve requirement ratio for banks. Stocks in Japan fell on the central bank governor’s hawkish tone. The MSCI Asia Pacific Index gained as much as 0.8% to head for its highest since Jan. 16, with Alibaba and Tencent among the biggest boosts, while Samsung, Toyota and ICICI Bank were key drags on the regional benchmark. Key indexes fell in South Korea and Indonesia. The Hang Seng China Enterprises Index rallied 4.1% to add to the 2.8% advance on Tuesday, its biggest two-day rally since November 2022. China’s rate cut decision is aimed at bringing more liquidity to support markets and the economy. The rate cut announcement followed a Bloomberg report Tuesday that authorities are considering a package of measures worth about 2 trillion yuan ($278 billion) to boost markets.

“Recent continuous decline in China’s A-shares makes the RRR cut a significant positive move for the capital market,” said Ma Cheng, chairman of Shenzhen Juze Investment Management Co. The decision can prevent further downside risks in the market to some extent, he added.

Japanese bonds and stocks fell as traders judged comments from Governor Kazuo Ueda as hawkish and brought forward their bets on an interest rate hike in coming months. Bank shares gained as yields spiked, while much of the market declined.

In FX, the Bloomberg Dollar Spot Index fell as much as 5.7% to 1233.20 before paring losses. The yen strengthened against the dollar as Japan’s 10- and 20-year sovereign yields jumped more than 10 basis points each before paring some of those gains. Ueda on Tuesday said he will consider ending negative rates if the price goal comes into view. Most other currencies traded in a narrow range as traders waited for the European Central Bank’s rate decision Thursday to gauge its policy outlook.

“The yen is drawing support from rising domestic yields and growing speculation the Bank of Japan will tweak its policy in coming months,” said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corp. in Tokyo. “However, the dollar is also strong amid a resilient economy, which eases speculation of an early interest rate cut by the Fed. That may keep the dollar-yen in a relatively narrow range”

The pound extended gain after the UK PMI data. It’s now only behind the Swedish krona and the Swiss franc in the G-10 scoreboard for the day. In the data, the services number in particular looked solid, beating analyst forecast with an expansionary reading of 53.8.

Euro-area bond yields slipped after data showed business activity contracted in January for the eighth month. Traders are now pricing in 136 basis points worth of interest-rate cuts by year-end, eight basis points more than on Tuesday. In the UK, inflation concerns were revived by a report showing private sector firms had the sharpest jump in costs in five months, partly due to disruptions from shipping delays in the Red Sea. British 10-year gilt yields rose above 4% for the first time since mid-December and the pound added 0.5%.

In the US, treasuries were higher into early US session with US 10-year yields around 4.11%, richer by 2bp on the day with bunds outperforming by 3bp in the sector and gilts lagging by around 5bp. A large block trade in 10-year note futures during London morning reinforced bund-led gains after weak German services PMI, while gilts were hit after strong UK manufacturing PMI. During Asia session, spillover to Treasuries was limited as JGBs sold off on mounting sentiment that Bank of Japan will soon take a hawkish turn.

The treasury auction cycle continues with $61b 5-year notes at 1pm; Tuesday’s 2-year note sale stopped on the screws; cycle concludes Thursday with $41b 7-year notes. WI 5-year yield around 4.005% is ~20.5bp cheaper than December’s, which stopped through by 1.4bp.

In commodities, oil prices advance, with WTI rising 0.7% to trade near $74.90. Bitcoin rises 2.2% and is back above $40,000.

Looking to the day ahead now, data releases include the January flash PMIs from the US and Europe. From central banks, the Bank of Canada will be announcing their latest policy decision. And earnings releases include Tesla, IBM and AT&T.

Market Wrap

• S&P 500 futures up 0.5% to 4,920
• STOXX Europe 600 up 0.8% to 475.23
• MXAP up 0.8% to 165.83
• MXAPJ up 1.2% to 504.61
• Nikkei down 0.8% to 36,226.48
• Topix down 0.5% to 2,529.22
• Hang Seng Index up 3.6% to 15,899.87
• Shanghai Composite up 1.8% to 2,820.77
• Sensex up 0.9% to 70,975.48
• Australia S&P/ASX 200 little changed at 7,519.19
• Kospi down 0.4% to 2,469.69
• German 10Y yield down 2.5bps at 2.33%
• Euro up 0.4% to $1.0898
• Brent Futures up 0.5% to $79.91/bbl
• Gold spot up 0.1% to $2,032.81
• US Dollar Index down 0.50% to 103.10

Top Overnight News

• China’s PBOC will lower the bank reserve requirement ratio (RRR) as of 2/5 by 50bp, a move that will unleash ~$140B of incremental long-term liquidity, and said FOMC rate cuts this year will give China more flexibility to ease policy further. FT
• China’s securities regulators have asked some hedge fund managers to restrict short selling in its stock index futures market, two sources said, as authorities seek to stabilize sinking stocks. RTRS
• Chinese authorities are tightening limits on capital outflows by restricting access to funds that invest in offshore securities as the country battles a brutal market rout. About a third of Chinese funds that invest in foreign securities under a scheme that bypasses strict capital controls have announced in stock exchange notices they have suspended or capped sales to retail investors “to maintain stable operations and protect investors’ interests”. FT
• Europe’s flash PMIs are mixed for Jan, with an uptick in manufacturing (to 46.6 vs. 44.4 in Dec and the Street 44.7) and a modest pullback in services (to 48.4 vs. 48.8 in Dec and the Street 49). S&P
• Israel and Hamas have made some progress toward agreement on a 30-day ceasefire in Gaza when Israeli hostages and Palestinian prisoners would be released, sources told Reuters, as Israel pressed ahead with its assault on southern Gaza’s main city. RTRS
• NFLX +11% pre mkt after reported extremely strong upside on Q4 subs, with paid net adds of 13.1M, blowing away the Street consensus forecast of 8.9M. Ads membership spiked nearly 70% Q/Q (ads plan now accounts for ~40% of all Netflix sign-ups in the markets where its offered). RTRS
• Tesla plans a new mass-market EV with production starting in mid-2025, Reuters reported. Its earnings are due postmarket. A senior exec at BYD said that Elon Musk’s firm will face “serious challenges” in 2024 from its rival. BBG
• Biden senior advisors will depart the White House and join his reelection campaign as the focus pivots to Nov and the likely battle against Trump. WaPo
• Apple is quietly increasing its capabilities in artificial intelligence, making a series of acquisitions, staff hires and hardware updates that are designed to bring AI to its next generation of iPhones. FT
• As expected, former President Trump won the New Hampshire primary tonight (Jan. 23) by a significant margin. The lack of a meaningful surprise in New Hampshire further reduces the odds of a momentum-driven shift, including in South Carolina—the next major nomination contest (Feb. 24), where recent polling averages show Trump with around 52% vs. Haley with 22%. GIR

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following a similar lead from the US with participants digesting earnings, recent hawkish BoJ comments and Chinese support pledges ahead of this week’s risk events. ASX 200 lacked direction as gains in the commodity-related sectors were offset by losses in financials, tech and defensives. Nikkei 225 was pressured amid the upside in Japanese yields and a more hawkish tone from BoJ Governor Ueda. Hang Seng and Shanghai Comp were somewhat mixed with outperformance in Hong Kong following the slew of recent support pledges by Chinese authorities, while the mainland was choppy and briefly wiped out its earlier gains after the PBoC continued to drain liquidity through OMOs, but then staged a mild comeback later in the session.

Top Asian News

• PBoC Governor says will use various policy tools to keep liquidity reasonably ample, will improve credit structure, and step up support for private firms and small firms; Will keep CNY exchange rate basically stable.
• PBoC says it will cut its RRR by 0.5ppts from Feb 5th and will continue to use liquidity injection tools; PBoC Governor says RRR levels are still relatively high; RRR cut is to release CNY 1tln into the economy

European bourses, Stoxx600 (+1.3%) started the session on a very strong footing, after pre-market news that China is to cut its RRR by 0.5ppts; with additional help from index heavyweights SAP (+7.2%) and ASML (+6.1%) post-earnings. European sectors have a strong positive tilt; Tech takes the top spot after strong earnings from SAP and ASML, whilst Basic Resources benefit from RRR cuts, helping to lift metals prices. US equity futures are firmer across the board, albeit with gains of a lesser magnitude than their European counterparts.  

Top European News

• Hedge fund Qube reportedly builds a USD 1bln short bet against German stocks, according to Bloomberg; shorts include Volkswagen (VOW3 GY) and Deutsche Bank (DBK GY)

FX

• A soft session for the DXY thus far amid the broader risk appetite in the market, a pullback in bond yields, the post-PMI EUR strength, and the firmer JPY due to continued tailwinds from the BoJ yesterday.
• EUR is firmer in the aftermath of the flash PMIs which were ultimately mixed whilst the commentary suggested the data aligns with the sentiment of the ECB hawks.
• The Pound is bolstered by the UK Flash PMI metrics which topped expectations across the board, whilst the commentary suggested that the strong data may “deter” the BoE from cutting rates as early as expected.
• DXY down to a test of 103.00, but holding, while EUR/USD eclipsed 1.09 and GBP/USD bested 1.2750.
• Yen is the G10 outperformer amid a continuation of the hawkish tailwinds from yesterday’s BoJ press conference; USD/JPY pivoting 147.50.
• Antipodeans hold an upward bias amid the broader market risk tone coupled with a PBoC RRR cut aimed at releasing liquidity to bolster the Chinese economy.
• PBoC set USD/CNY mid-point at 7.1053 vs exp. 7.1825 (prev. 7.1117).

Fixed Income

• USTs are bid, having printed its own 111-17+ peak on the German PMI data. Attention turns to the region’s own PMIs later, alongside the next leg of the week’s supply, after a well-received 2yr outing, supported by indirect demand.
• Bunds were initially steady around 134.00 before being bolstered by the region’s Flash PMIs; on the release a 134.42 peak printed just shy of the round 134.50 and yesterday’s best at 134.55.
• Gilts were initially moving in tandem with EGBs throughout the morning. After UK PMI’s printed firmer across the board and noted a rise in factory costs, a hawkish move occurred with Gilts now in the red and sliding to a 98.30 trough, pressured further on the 2028 DMO outing.
• UK sells GBP 4bln 4.50% 2028 Gilt: b/c 2.86x (prev. 2.53x), average yield 3.946% (prev. 4.041%) & tail 1.2bps (prev. 0.9bps)

Commodities

• WTI and Brent are both firmer as a function of broader risk appetite (supported by the PBoC RRR cut coupled with positive stock earnings), with a softer Dollar also lending a helping hand; WTI & Brent Mar’24 tested/bested USD 75.00/bbl and USD 80.00/bbl respectively.
• Precious metals are mixed with gold flat intraday but spot silver gaining despite the lack of an obvious catalyst; XAU remains within yesterday’s USD 2,019.67-2,037.97/oz range.
• Base metals are higher across the board and bolstered by the PBoC’s RRR cut but unleashes some CNY 1tln into the world’s second-largest economy.
• Magnitude 5.3 earthquake strikes Antofagasta, in the Chile region, according to EMSC; GFZ says magnitude 5.24 strikes Northern Chile

Earnings

• Netflix Inc (NFLX) – Q4 2023 (USD): EPS 2.11 (exp. 2.22), Revenue 8.83bln (exp. 8.71bln), Streaming paid net change +13.12mln (exp. +8.91mln). Sees Q1 paid net additions to be down sequentially but to be up from Q1 23 net paid additions of 1.8mln. Sees Q1 EPS USD 4.49 (exp. 4.09). Sees Q1 revenue USD 9.24bln (exp. 9.28bln). FY24 forecasts. Sees 2024 double-digit revenue growth ex-FX. Sees free cash flow of about USD 6bln (exp. 6.03bln). Sees operating margin 24% (exp. 22.7%). “In FY24, we expect a high single-digit percentage year over year increase in content amortization”. Continues to expect 2024 cash spend on content of up to USD 17bln. (Netflix IR) Shares rose 8.7% after-hours on strong net additions with soft EPS offset by strong Q1 EPS guidance. Shares +10.1% in pre-market trade.
• Texas Instruments Inc (TXN) Q4 2023 (USD): EPS 1.49 (exp. 1.46), Revenue 4.08bln (exp. 4.12bln). GUIDANCE: Q1 revenue view 3.45-3.75bln (exp. 4.09bln). Q1 EPS view 0.96-1.16 (exp. 1.42) COMMENTARY: Sequential decline in automotive and increasing weakness across industrial. (Texas Instruments) Shares -4% in pre-market trade
• ASML (ASML NA) – Q4 (EUR) Revenue 7.237bln (exp. 6.906bln). Bookings 9.19bln (exp. 3.57bln). Net Income 2.048bln (exp. 1.868bln); Sees Q1 net sales between 5-5.5bln (exp. 6.23bln); “there are some positive signs” on semiconductor market recovery. OTHER METRICS: Gross Margin 51.4% (exp. 50.8%). 2023 dividend +5.2% Y/Y to EUR 6.10/shr. “In the fourth quarter, we did not purchase any shares under the current 2022-2025 share buyback program.” GUIDANCE: Sees 2024 net sales to be similar to 2023 “in spite of the positive signs”. Sees Q1 net sales between 5-5.5bln (exp. 6.23bln). Sees Q1 gross margin between 48-49%. Sees R&D costs of around EUR 1.070bln and SG&A costs of around EUR 300mln. COMMENTARY: “Although our customers are still not certain about the shape of the semiconductor market recovery this year, there are some positive signs.” “Industry end-market inventory levels continue to improve and litho tool utilization levels are beginning to show improvement.” “Our strong order intake in the fourth quarter clearly supports future demand.” (ASML) CFO says “as the impact of export regulations will have on the 2024 sales, we believe that will be somewhere between 10% to 15% of the China system sales in 2023.” Shares currently higher by around 6.5% in Europe / as such US peers are benefitting in the pre-market: AMD +2.3%, NVDA +1.1%
• SAP (SAP GY) – FY23 (EUR): Revenue 31.207bln (exp. 31.225bln), Non-IFRS Basic EPS 5.01 (exp. 5.20). Non-IFRS Operating profit 8.721bln (exp. 8.523bln). Cloud revenue up +20% Y/Y. Cloud revenue backlog +25% Y/Y. FCF -4% Y/Y. Q4 Revenue 8.47bln (exp. 8.35bln). Q4 Operating profit 2.51bln (exp. 2.53bln). GUIDANCE: Co. does not provide Q1 revenue guidance. Co. said the 2024 outlook anticipates accelerating cloud revenue growth. Co. sees FY24 cloud revenue between EUR 17-17.3bln (exp. 17.207bln). Sees FY24 cloud and software revenue 29.0-29.5bln (exp. 29.477bln). SAP adjusted FY25 guidance and now sees FY 25 Free cash flow of approximately EUR 8.0bln (prev. EUR 7.5bln). Co. reaffirms FY25 cloud revenue and total revenue guidance. (SAP) Separately, Co. plans a restructuring that will affect some 8,000 jobs as the Co. focuses on AI. (Newswires) Shares are currently +5.5% in European trade / as such US peers such benefitting in the pre-market: Cloudflare +2.6%, Snowflake +3.5%

Geopolitics

• A one-month Gaza truce is the focus of intensive mediation efforts by Qatar, US and Egypt, according to Reuters citing sources. It was later reported that Hamas is open to releasing some Israeli hostages for a pause in the fighting, according to mediators cited by WSJ.
• US and UK, with support from Australia, Bahrain, Canada, Netherlands and New Zealand, conducted additional strikes against eight targets in Houthi-controlled areas of Yemen, according to a UK government statement. Furthermore, a US official also announced that the US carried out a new strike against two Houthi anti-ship missiles in Yemen.
• White House National Security Adviser Sullivan spoke with Sweden’s Landerholm about commitment to supporting Ukraine, while they also discussed Houthi attacks in the Red Sea and the Gaza conflict.
• US is deeply concerned regarding arrests of Democratic opposition in Venezuela, according to the State Department.
• North Korea fired multiple cruise missiles into the Yellow Sea, according to the South Korean military.
• Reports of imminent agreement with Hamas on detainees are untrue, according to Sky News Arabia citing IDF radio

US event calendar

• 07:00: Jan. MBA Mortgage Applications, prior 10.4%
• 09:45: Jan. S&P Global US Composite PMI, est. 51.0, prior 50.9
• 09:45: Jan. S&P Global US Services PMI, est. 51.5, prior 51.4
• 09:45: Jan. S&P Global US Manufacturing PM, est. 47.6, prior 47.9

DB’s Jim Reid concludes the overnight wrap

Starting with the US political news overnight, former President Trump won the New Hampshire Republican primary with 54.6.% of the vote, ahead of former South Carolina Governor Nikki Haley on 43.6% (with 87% of vote counted as I type). While Trump’s winning gap is a little narrower than had been suggested by recent opinion polls, the result puts him in a historically strong position to win the Republican nomination. In the history of modern primaries, whenever a Republican has won both Iowa and New Hampshire, as Trump now has, they’ve always gone on to secure the nomination. Last night Haley suggested that her campaign would continue into the South Carolina primary on February 24 (which is preceded by the Nevada Caucus on February 8). The FiveThirtyEight polling average of South Carolina gives Trump a more than two-to-one lead over Haley, so she has a large deficit to overcome in her home state.

When it came to markets, yesterday saw a relatively quiet session as both the S&P 500 and 10yr Treasuries saw their narrowest trading ranges of the year so far. In the end, risk assets managed to maintain their recent advance, with the S&P 500 posting its fourth consecutive gain (+0.29%) to another all-time high, whilst Euro HY spreads reached their tightest level in nearly two years. On the other hand, sovereign bonds lost ground both in the US and Europe, with the 10yr Treasury yield up +2.4bps to 4.13% and the 10yr bund yield (+6.1bps to 2.35%) rising to its highest since early December.

The focus on rates is likely to heat up over the coming week, since the Bank of Canada are deciding on policy today, followed by the ECB tomorrow, and then the Fed in a week’s time. Doubts persist about the chances of a March rate cut from the big central banks, but these did tick up slightly yesterday. For the Fed, the chance of a cut by March fell to just 38% at the intraday low yesterday, but this rose to 49% at the close, with most of this rise appearing to follow some dovish interview comments by former St Louis Fed President Bullard. When it comes to 2024 as a whole, 137bps of cuts are now priced in by the December meeting, up from the near-two-month low of 133bps on Monday. So that’s still a sizeable amount of cuts expected this year, particularly in a non-recession scenario, but a notable shift back since the intraday peak on January 12, when 170bps of cuts were priced in for 2024.

With the slight increase in pricing of cuts, the 2yr Treasury yield was down -2.1bps yesterday. But these short-end moves did not prevent a broader sovereign bond sell off on both sides of the Atlantic, particularly at the long end of the curve, with the 30yr Treasury yield up +4.3bps to 4.36%. The bond sell-off was stronger in Europe, as yields on 10yr bunds (+6.1bps), OATs (+6.4bps) and BTPs (+7.8bps) all moved higher, whilst those on 10yr gilts (+8.2bps) saw the biggest increase.

For equities, the overall picture was one of relative stability. The S&P 500 saw its narrowest trading range of 2024 so far, advancing again (+0.29%) to a new all-time high, whilst Europe’s STOXX 600 (-0.28%) saw a small decline. There were some strong performances from those with earnings announcements, including Verizon (+6.70%), United Airlines (+5.31%) and aerospace/defence manufacturer RTX (+5.33%). There were also a few laggards, including homebuilder DR Horton (-9.24%), whose results weighed on the broader homebuilder segment. Tech stocks outperformed, with the Magnificent 7 (+0.61%) also reaching a new all-time high. That means the YTD picture for 2024 is looking increasingly similar to 2023 so far, since the Magnificent 7 are already up +4.07% since the start of the year, whereas the equal-weighted S&P 500 is lagging behind with a -0.71% decline. So the rally continues to be a relatively narrow one.

After market close, we saw a strong set of Q4 results reported by Netflix, which saw its highest quarterly subscriber growth since the early phase of the pandemic. Netflix shares were up nearly +9% in extended trading. By contrast, chipmaker Texas Instruments lost ground in after-hours trading after announcing lower-than-expected sales and profit guidance for Q1. Overnight, S&P 500 (+0.22%) and NASDAQ 100 (+0.36%) futures are higher.

Asian equity markets are mixed this morning with the Hang Seng (+0.90%) leading gains across the region for a second consecutive day on a tech-fuelled rally led by Alibaba (+6%) after reports indicated that its founder Jack Ma bought $50 million of its shares listed in Hong Kong through the fourth quarter. In mainland China markets are lower though with the Shanghai Composite (-0.15%) and CSI (-0.25%) lower again.

The Nikkei (-0.9%) is trading in negative territory extending its previous session losses following yesterday’s hawkish tilt from the BOJ Governor as he signalled more progress towards an eventful end to Japan’s negative rate policy. 10yr JGB yields are up +5.5bps.

Early morning data showed that Japan’s December exports (+9.8% y/y) beat expectations for a +9.2% increase, against a -0.2% contraction previously, with its trade balance unexpectedly turning in a $62.1 billion surplus compared with a $122.6 billion deficit expected by Bloomberg. Meanwhile, Japanese flash PMIs were stronger with services at 52.7 and up from 51.5 last month, helping to lift the composite a point. Elsewhere, Australia’s factory activity expanded for the first time in 11 months as the manufacturing PMI for January rose to 50.3, up from December’s level of 47.6. Meanwhile, service sector activity contracted at a slower pace, with the services PMI at 47.9 compared with December’s 47.1.

Looking forward, one of the main highlights today will be the rest of the flash PMIs from the US and Europe, which will give us an initial indication of how the major economies are performing in 2024. Over in Europe, yesterday saw some encouraging signs from the ECB’s latest Bank Lending Survey (BLS). Aggregate BLS conditions for Q4 recovered to their least negative level since the start of the ECB’s hiking cycle in summer 2022, suggesting that the peak drag from ECB tightening may be behind us. During 2023 the BLS consistently pointed to downside risks for growth, but its latest expectations are consistent with euro area PMIs moving back towards the 50 level, so an upside signal compared to the 47.6 composite print last month. See our European economists’ full reaction to the BLS, including how it could influence ECB thinking, here. Otherwise today, the European Commission are set to announce an economic security package, which our research colleagues in Frankfurt have published a chartbook about (link here).

Finally, the other data yesterday leant on the negative side, with the European Commission’s consumer confidence reading for the Euro Area unexpectedly falling back in January. According to the preliminary reading, consumer confidence was down to -16.1 (vs. -14.3 expected), which reverses the last two months of gains. Separately, the Richmond Fed’s manufacturing index was down to -15 in January (vs. -8 expected), which is the lowest it’s been since May 2020 at the height of the pandemic.

To the day ahead now, and data releases include the January flash PMIs from the US and Europe. From central banks, the Bank of Canada will be announcing their latest policy decision. And earnings releases include Tesla, IBM and AT&T.