Wall St. Booms as Treasury Borrowing Falls, Fed Decision Looms

Fed Meeting and Investment Optimism

The Federal Reserve will begin its two-day policy meeting later, with market participants anticipating signals of future interest rate cuts. Traders are currently predicting a quarter-point cut in the first quarter of 2023 and believe there is a 50-50 chance it may happen as soon as March. The latest rate decision precedes the release of the monthly employment report scheduled for Friday. However, there will be an update on labor market conditions with the December job openings data later today. Additionally, January consumer confidence soundings and the International Monetary Fund’s World Economic Outlook report are also due for release.

Chinese Market Contrast and Economic Challenges

While U.S. markets exude optimism, concerns persist in the Chinese market due to a struggling property market. The ongoing property market bust in China shows no signs of immediate resolution and poses threats of consumer and asset price deflation. Monday’s court order to liquidate China Evergrande, the world’s most indebted property company, has further intensified these concerns. The government’s piecemeal support measures are being overshadowed, and Chinese market sentiment continues to deteriorate. The blue-chip index, Shanghai Composite, and Hang Seng all experienced losses, with the CSI300 approaching five-year lows once again.

Other Market Movements

Oil prices experienced a sharp decline from Monday’s highs and remained lower due to worries about the Chinese market and offsetting Middle East tensions. Norway’s sovereign wealth fund, the world’s largest, reported a record profit of 2.22 trillion Norwegian crowns ($213 billion) in 2023, driven by strong returns on investments in megacap technology stocks. Furthermore, the eurozone economy narrowly avoided a technical recession in the last quarter of 2023, fueled by growth in Spain and Portugal, as well as a modest increase in Italy. Meanwhile, with the Federal Reserve decision on the horizon, the dollar remained fairly stable against major currencies.

The following events may provide direction to U.S. markets later today:

  • U.S. corporate earnings: Microsoft, Alphabet, Pfizer, GM, Marathon, Starbucks, UPS, Sysco, MSCI, HCA, Corning, Danaher, Juniper, Teradyne, Stryker, Mondelez, Chubb, Match, AMD, Equity Residential, Boston Properties, Robert Half, AO Smith, etc
  • International Monetary Fund releases updated World Economic Outlook in Johannesburg
  • U.S. January consumer confidence
  • U.S. December JOLTS job openings data
  • Dallas Fed January service sector survey
  • U.S. November home prices
  • U.S. Federal Reserve’s Federal Open Market Committee starts two-day meeting (to Jan 31)

(By Mike Dolan, editing by Sharon Singleton [email protected])