Five Things You Need to Know to Start Your Day: Americas
By Charlotte Hughes-Morgan
January 12, 2024 at 5:30 AM CST
Good morning. More work for the Fed as inflation ticks up, US airstrikes in the Red Sea lift oil prices and fuel fears of escalation, and we’re due some big Wall Street earnings. Here’s what’s moving markets. — Charlotte Hughes-Morgan.
US inflation picks up
The Federal Reserve has more work to do before it can consider cutting rates after yesterday’s CPI data came in slightly hotter than expected. Federal Reserve Bank of Cleveland President Loretta Mester said it was premature to consider cutting interest rates as soon as the US central bank’s March meeting. Yesterday’s data showed inflation picked up in the year through December, with higher housing costs driving more than half the price gain and goods prices halting their month-long decline. The consumer price index rose 3.4% from a year earlier, the most in three months, while prices excluding food and energy cooled only slightly less than forecast to 3.9%. Market reaction was somewhat limited but a single block trade in the fed funds futures market, struck as the dust settled following the inflation reading, was the biggest ever seen of its kind.
Red Sea conflict
The price of oil jumped as the US and its allies launched airstrikes against Iranian-backed Houthi rebels in Yemen, stepping up retaliation for attacks on ships in the Red Sea. Global benchmark Brent rose more than 3% to above $80 a barrel as investors tried to gauge the chance of the escalation in hostilities sparking a broader conflict in the Middle East. The Houthi attacks on commercial shipping have already disrupted flows of fuel and goods through the vital waterway, with concerns mounting that the drop in shipments could become even bigger. On the other hand, gold edged higher after the airstrikes boosted haven demand. They were by far the most wide-ranging military action undertaken by the US since Hamas’ Oct. 7 attack on Israel ignited its operation to clear militants in Gaza. Hear more on our Daybreak podcast.
Bitcoin bonanza
What a week it’s been for Bitcoin. On Thursday, the first US exchange-traded funds investing directly in the largest digital currency finally went live after a landmark approval from the SEC. The batch of almost a dozen funds got off to a strong start, with some $4.6 billion of shares changing hands in a frenetic first day. Records were broken as The Grayscale Bitcoin Trust saw the largest-ever first-day turnover for an ETF. Bitcoin at one point on Thursday surged past $49,000 to levels last seen in 2021 before falling back below $46,000 as of 10:30 GMT Friday. Even with regulators’ blessing, however, it’s up to firms whether to offer trading in the Bitcoin-linked products and some including Vanguard still seem reluctant to jump into a volatile asset class.
China’s deflation cycle
Meanwhile, China’s consumer prices marked their longest streak of declines since 2009, extending a deflation that may require more government support to reverse. The consumer price index slipped 0.3% in December from a year earlier, in line with economists’ expectations for a third straight month of declines. Exports also fell — the first annual drop since 2016 for what has historically been a major pillar of growth for the economy. “China needs to act boldly to break the deflationary cycle. It will fall into a negative spiral otherwise,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. Most analysts surveyed by Bloomberg expect China’s central bank to lower the rate on its one-year policy loans next week for the first time since August, as well as inject more cash into the financial system to meet funding demands.
Big bank earnings
We’ll get a spate of fourth-quarter earnings reports from Wall Street behemoths today, including BlackRock, Bank of America, JPMorgan and Citigroup. Some big lenders have recently lamented the ongoing revenue slump due to sluggish dealmaking activity. Citigroup has already warned that fixed-income and equities trading revenue for the fourth quarter could drop as much as 20% from the third quarter. But, as Kristine notes below, the prospect of lower interest rates should offer some relief. Delta Airlines also reports.
We’re also due December producer price index inflation figures after Thursday’s CPI data, and the Fed’s Neel Kashkari speaks at the Regional Economic Conditions Conference.
Finally, a reminder that Taiwan goes to the polls on Saturday for its presidential and parliamentary elections, with potentially significant repercussions for geopolitics.
Kristine Aquino is managing editor for Bloomberg Markets Today. Follow her on X at @krisaqnews.
https://www.bloomberg.com/news/newsletters/2024-01-12/five-things-you-need-to-know-to-start-your-day-americas