More fun at the fair

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There was a bit of something for everyone yesterday: economics, politics, geopolitics, and earnings.  In the end, yesterday, equities ended lower; bond yields were higher, the dollar higher, oil was down, as was gold, Vix up. We could start with Donald Trump, as his victory in Iowa caucuses with slightly more than half the vote probably came as little surprise but suggests he is most likely to be a shoo-in as the Republican party representative, and if he can keep himself out of jail probably the favorite to come back once again as the leader of the free world. Rishi Sunak had another difficult day as the prime minister faced a revolting Conservative party over his Rwanda bill, finagling getting it across the line with a little help from the rest of parliament. Tory divisions on migration were available for all to see.

On the economic front, Fed member Christopher Waller, in a speech this week, confirmed the Fed does expect to cut rates this year. Probably no surprise, but with a strong labour market and a resilient economy, he played down the idea that the Fed will move aggressively, as has been the case in previous economic cycles. The market remains convinced that the Fed will be more proactive in cutting rates, and members protest too much. ECB members have also been playing down expectations for the pace of rate cuts this year, this is despite the disappointing economic growth from Germany yesterday, confirming the economy shrank last year. It does seem noteworthy that an economy reliant on exports in a world where hopes are for a soft landing, is struggling.

 Chinese economic growth disappointed last year as hopes that the easing of COVID restrictions would boost the flagging economy failed to materialise, and a property sector crisis, falling exports, and deflationary pressure all combined to hinder growth. Data released on Wednesday continues to reflect a mixed bag for the world’s second-largest economy. There are some signs as the government continues to introduce measures to boost growth that this year may see something of a recovery. The economic surprise index has been ticking higher recently, and economic growth came ahead of expectations for the fourth quarter year over year at 5.2%, according to official figures, ahead of the 5% target.

On the earnings front, both Goldman Sach’s and Morgan Stanley had numbers that just about met expectations, but those expectations were not great. Boeing shares continue to suffer from the consequences of their latest 737 incident, which has once again shaken investor confidence. On the other hand, chip stocks had a good day as AI optimism came to the fore again.

Tensions in the Middle East remain as Houthi rebels continue to attack cargo ships traveling in the Red Sea. Iran’s Islamic Revolutionary Guard Corps (IRGC) launched ballistic missiles at what it claimed were Israeli “spy headquarters” in Iraq’s Kurdish region and hit targets allegedly linked to ISIL (ISIS) in northern Syria, saying it was defending its security and countering terrorism.

Later today, the release of the Fed Beige Book provides anecdotal information and an economic analysis of current economic conditions in each of the twelve Federal Reserve Districts. As for the UK, we shortly get the latest inflation data, where predictions remain for a further drop in prices.