January 16 - Stocks are starting the short week off on a weaker note, with all the major indexes in the red at mid-day after being closed yesterday. Mixed earnings results and a continued growth in geopolitical risks look to add uncertainty, with the VIX rising to its highest level in two weeks just above 14 at the time of writing. The dollar is starting the week off on a very strong note, pushing to one-month highs above 103.2 and adding additional downside pressure to the commodity sector. Treasuries are firmer on the day after their recent slide, with 10-year yields hovering near 4.08% and 2-year yields around 4.25%. Crude oil has fallen from its morning highs to trade in the red at mid-day, with the initial push higher following a fresh Houthi strike in the Red Sea fading throughout the day. Grains are widely lower as weakness continues following Friday's data dump from the USDA that showed the size of U.S. crops increasing, while the livestock sector is showing strength to start the week.
Escalations in the Middle East continue, with reports of an Iranian missile strike killing a prominent Iraqi businessman and his family in the Northern Iraq city of Erbil last night. While Iranian proxies have ramped up attacks on U.S. military targets throughout the Middle East since the war in Gaza began, this was Iran's first direct strike supposedly linked to the war. U.S. military officials called the attack "reckless," risking an escalation in tensions in the country and the broader region as a whole. Elsewhere, the Iran-backed Houthis struck yet another ship in the Red Sea today, drawing another retaliatory strike from the U.S. military on missile launching targets in Yemen. The ongoing escalations in the Red Sea continue to drive up shipping costs and delays in sea transit, leading to the potential for more inflationary pressures creeping back in as we progress in 2024. Unfortunately, any cooling of tensions in the region looks unlikely as we start the week.
Taiwan's pivotal presidential election took place over the weekend, with the incumbent Democratic People's Party (DPP) candidate Lai Ching-te taking the victory. This looks to keep tensions between the U.S. and China simmering for the foreseeable future, as the DPP continues to push for Taiwanese independence and closer ties to the West, much to China's ire. China did their best to support the more "Beijing Friendly" KMT party but were unable to achieve a victory in this weekend's election. In an obvious attempt to appease Beijing, U.S. President Biden on Saturday said the U.S. does not support the independence of Taiwan, despite the growth in ties between the U.S. and Taiwan in the last few years. With the island producing 90% of the world's advanced semiconductors, China will likely continue trying to find a way to keep the pressure up as the new president takes office.
The market is awaiting a tranche of Chinese economic data set to be released tomorrow (overnight in the U.S.), including China's much-anticipated Q4 GDP growth reading, industrial production & capacity utilization, retail sales, etc. Analyst expectations are for 5.3% GDP growth in Q4, which would be an uptick from Q3's 4.9% and would result in a 2023 full-year growth of 5.2%. Forecasts for 2024 continue to look weak, with expectations for GDP growth to slow over the next two years. This is shifting more focus to Chinese fiscal policymakers who find themselves in a delicate situation entering the new year. The People's Bank of China (PBOC) left rates unchanged yesterday despite market expectations of a slight cut, adding more intrigue to tomorrow's data release. As was much the case in 2023, China's economic health looks to loom large in the market's eyes in 2024.
