ASX 200 to fall, S&P 500 lower as rate cut bets ease, gold prices sink

ASX 200 futures are trading 20 points lower, down 0.27% as of 8:30 am AEDT.

S&P 500 SESSION CHART

MARKETS

• Markets continue to lean towards risk off amid rising yields, US dollar strength and elevated geopolitical tensions
• S&P 500 finished lower but well off session lows of -1.07%
• Bond yields bounced for a second straight session, the US 10-year hits a 1-month high of 4.1% while the 2-year returns to 4.35%
• Gold sold off amid rising yields and US dollar, hits 1-month low
• Markets are pricing in ~157 bp of Fed rate cuts in 2024, down slightly from ~165 bp before Fed Waller’s speech on Wednesday
• "With the world awash in geopolitical strife, we’re monitoring commodity markets for signs of both inflationary shocks and a weakening global economy … History suggests the US economic expansion may last until mid-2026. We’re watching for developments that could cut it short." – Yardeni
• Sell-side firms continue to lift S&P 500 forecasts (Bloomberg)
• Traders betting on a March interest-rate cut by the Fed may be relying too heavily on history (Bloomberg)
• US dollar has biggest rally in 10 months on Fed cut uncertainty, strong US retail sales data and geopolitical tensions (Bloomberg)
• Fund managers turning to riskier assets amid growing soft landing expectations (FT)

STOCKS

• Tesla cuts Model Y prices in Germany (Reuters)
• Spirit Airlines shares dive 22% after federal judge blocked JetBlue’s proposed US$3.8 billion acquisition (CNBC)
• Rivian shares down 8% after Deutsche Bank downgraded the stock to a hold citing efforts to grow gross margins may take longer than expected (CNBC)

CENTRAL BANKS

• ECB's Lagarde says rate cuts likely in summer, later than market expects (Bloomberg)
• ECB's Simkus says investors are too hopeful when it comes to the prospect of lowering interest rates imminently (Bloomberg)
• Economists unanimously expect BOJ to hold next week, two-thirds expect a rate hike by April (Bloomberg)

GEOPOLITICS

• US launches new strikes against Houthi targets in Yemen after missile strikes Greek vessel (Reuters)
• US stepping up diplomatic efforts to the intensifying hostilities between Israel and Lebanon's Hezbollah (FT)
• Ukraine President Zelensky makes passionate address at Davos for additional aid (Guardian)

CHINA

• China GDP growth meets government's 2023 target (Bloomberg)
• China property metrics worsen as new home prices fall at fastest pace since early 2015 (Reuters)
• China resumes publishing youth unemployment, showing notable improvement since last publish in June (Bloomberg)

ECONOMY

• Traffic through Suez Canal drops to lowest level since 2021 blockage (Bloomberg)
• US retail sales rise at strongest pace in three months, up 0.4% month-on-month in December and 5.6% year-on-year (Bloomberg)
• UK inflation picks up unexpectedly in December (Bloomberg)
• Japan manufacturer confidence falls for first time in four months amid concerns about weak China demand (Reuters)
• Singapore exports fall back into contraction amid slump in electronics exports (Straits Times)
  
  

China's Population Problem

China reported some rather grim population data on Wednesday, including:

• Population fell for a second consecutive year, down 0.15% or 2.08 million people to 1.41 billion in 2023
• Population fell by 850,000 in 2022, which marked the first decline since 1961 during the Great Famine of the Mao Zedong era
• Total deaths rose 6.6% to 11.1 million, the highest level since the 1974 Cultural Revolution
• New births fell 5.7% to 9.02 million
• Birth rate at record lows of 6.39 births per 1,000 people

Iron Ore Headwinds

Iron ore prices are down around 13% from 3 January highs of US$143 a tonne – A rally that likely defied all expectations. The latest data from China sets a worrisome tone for the steelmaking commodity:

• China's new home prices in December fell at the fastest pace since February 2015
• Prices of new homes in 70 medium and large cities fell 0.4% month-on-month after a 0.3% drop in November
• China's real estate investment fell 9.6% year-on-year in 2023, widening from the first 11 months
• The above data triggered a broad-based selloff across Chinese property developers on Wednesday, most of which fell 8-12%
• China's crude steel output was 67.44 million tonnes in December 2023, down 14.9% year-on-year and the lowest print since December 2017

The only bit of encouraging data was China's coking coal imports (a primary steelmaking ingredient) rose 24% month-on-month.