The U.S. Fed has continued to shrink its balance sheet over the past 10 months, bringing its total down to $7.67 trillion.

🖋 The U.S. Fed has continued to shrink its balance sheet over the past 10 months, bringing its total down to $7.67 trillion. Elon Musk’s electric vehicle maker Tesla Inc TSLA reported a rise in gross revenue and operating profit in its fourth-quarter 2023 financial report. For Bitcoin, it maintained its position for six consecutive quarters without selling. It achieved 1.4% annual economic growth in 2023, thanks to semiconductors’ good performance in the second half of the year
South Korea’s per capita gross national income rebounded by $33,000. Joshua Schiffrin, head of global trading strategy at Goldman Sachs, predicted four U.S. rate cuts in 2024. He also cited the Fed’s achievement of inflation targets, moves by European and U.K. central banks, and the possibility of an unexpected rate hike by the Bank of Japan.

The S&P 500 has left some wobbles behind and is hitting new all-time highs day after day. Data last week, in particular, has given us considerable confidence in the U.S. economy.

U.S. economic growth was reported much stronger than expected in the fourth quarter, suggesting this was not the time to worry about a recession, and PCE core prices, which the Fed is eyeing, entered the 2% range (2.9% YoY) for the first time since April 2021.

Companies’ performance is not too bad either. Earnings are not good at -1.4% year-on-year, but the outlook is still positive and expectations for earnings are still there, except for the slump in financial stocks. In particular, manufacturing PMI, which is recognized as a leading indicator of corporate profits, is recovering.

Markets will now face significant challenges starting this week. Five of the seven Magnificent companies report earnings. On top of that, the Fed’s monetary policy meeting begins Tuesday. The Fed is wary of too high expectations for recent rate cuts in the market.

Given the current strong data, investors should also be wary of the possibility of a hawkish message in the Fed’s message this week. On top of that, geopolitical risks are also growing. Oil prices are now moving away from the downtrend altogether and creating a new trend.

Given that strong growth and recovery of the asset market may result in a re-ignition of inflation, it is time to pay close attention to the overall situation. 📈 Core Issues and Asset Market Trends

✔ ️ Key Issues:

1. Earnings Season: According to LSEG, profit growth for S&P 500 companies is expected to be 4.4% in the fourth quarter. Now FactSet, which is reported by about 10%, profit growth is sluggish at -1.7% year-on-year. Netflix (NFLX), Texas Instruments (TXN) and Johnson & Johnson (JNJ) are the focus.
2. China Stimulus: Bloomberg reports that the Chinese government is working on about 2 trillion yuan ($278 billion) in stock stabilization measures in response to a slump in China’s benchmark index CSI 300, which has fallen to a five-year low.
3. Central Bank of Japan: The central bank of Japan (BOJ) announced it would maintain its yield curve control policy, which would keep short-term interest rates at minus 0.1% and allow 10-year yields to fluctuate in the minus-1% range.

✔️ Asset Market Trends:

The New York Stock Exchange started mixed without much movement, noting the fourth-quarter earnings of companies after the S&P 500 hit an all-time high the previous day (23rd, local time). (Dow -0.09%, S&P 500 +0.10%, Nasdaq +0.11%)

Treasury yields turn higher as expectations for a Fed rate cut fade. The yield on the 10-year Treasury rises to 4.13%. The yield on the 2-year Treasury rises to 4.41%. The dollar remains firm on the Bank of Japan’s dovish policy.

International oil prices turned lower, reversing gains after U.S. and U.K. attacks on the Houthi rebels. Crude oil fell 0.8% to $74 a barrel. Brent crude rose 0.03% to $79 a barrel. Gold gained 0.6% on the back of a stronger dollar, with safe-haven preference. Copper gained 0.6% on expectations of China’s economic stimulus.

🔰 Today’s Features and Focus Companies

United Airlines (UAL): EPS of $2.00, about 18% above expectations of $1.68. Revenue was $13.6 billion. UAL forecast a larger-than-expected loss for the quarter due to the 737 Max outage, but its full-year guidance beat Wall Street consensus, forecasting an EPS of $9.00 to $11.00 based on strong demand.📈 Core issues and asset market trends

✔ ️ Key Issues:

1. Semiconductor Bullish: The semiconductor sector’s strength led by Nasdaq gains, helped by strong fourth-quarter earnings from TSMC (TSM), the world’s largest chipmaker, and positive outlook from artificial intelligence.
2. Provisional Budget Passes: The U.S. Congress failed to agree on the main budget for fiscal 2024, but avoided a government shutdown by passing a two-month provisional budget. Following the Senate the previous day (18th, local time), the House of Representatives passed the budget bill.
3. Housing Market: Announcement of existing home sales that could show the health of the U.S. housing market. Mortgage rates are coming down from October’s highs, but concerns about demand persist, putting pressure on home prices.

✔️ Asset Market Trends:

The New York Stock Exchange started higher, with the semiconductor industry strengthening on TSMC’s positive outlook amid intensifying expectations for a soft landing. (Dow +0.51%; S&P 500 +0.45%; Nasdaq +0.66%)

Treasury yields remain elevated as expectations of a rate cut in the market ease. The yield on the 10-year Treasury note strengthens to 4.14%. The yield on the 2-year Treasury note rises to 4.38%. The dollar does not move much and remains stable.

International oil prices remain strong on the back of positive forecasts from OPEC and increased U.S. demand. Brent crude rose 1.16% to $79 a barrel. Gold rose 0.8% on weak dollar. Copper edged higher as concerns about the global economy eased.

🔰 Today’s Features and Focus Companies

TSMC (TSM): TSMC forecasts that the semiconductor industry will be able to move beyond last year’s inventory issues and macroeconomic challenges, with strong demand for 3 and 5 nanometers in 2024, and a boom in artificial intelligence, creating a “healthy year of growth.”