Perspective: Morning Commentary for January 17

January 17 - Traders are digesting a huge amount of data today, with a large number of key readings coming from both the U.S. and China, the world's two largest economies. Stock futures are pointing to a weaker open due to a multitude of factors, with disappointing news out of China and a hawkish tone from central bankers in the U.S. and Europe weighing on sentiment. The VIX is looking to push to a two-month high around 14.7, highlighting the growing uneasiness to start the day. The U.S. dollar is adding to yesterday's big gains, trading near 103.3 at the time of writing. Treasuries are also showing strength again, with 10-year yields pushing higher to trade near 4.1% while 2-year yields trade near 4.33%. Crude oil is in the red to start the day, with the nearby WTI contract hovering just below $71/barrel. The ags are mostly lower yet again, with grains continuing to add to the losses seen following Friday's data dump from the USDA that showed another improvement to yields, including record U.S. corn yields, despite all the adverse summertime weather. 

China's GDP grew by 5.2% in Q4, falling slightly below market expectations of 5.3% but still marking an improvement from the 4.9% seen in Q3. In quarter-on-quarter terms, China's Q4 GDP showed 1.0% growth, falling from the 1.5% seen in Q3. This puts China's annual GDP growth at 5.2%, finishing the year above the official target of 5.0%. However, the market isn't taking this news in stride, with a wide range of negative real estate and retail sales data taking the focus and pointing to shakier footing for the year ahead. Expectations are for official 2024 GDP targets to remain in that similar 5% range but achieving that goal looks very difficult today barring any major policy shifts. 

China's struggling property sector continues to raise concerns for the country's overall economic health due to the sector accounting for such a large portion of the country's GDP, with today's data further exacerbating the issue. New home prices in December fell by their most since February 2015, while property sales fell for the 24th consecutive month. The property sector's woes are widespread, with 62 of the 70 cities included in the NBS data showing month-on-month declines, rising from the 59 seen in November. Many real estate development projects have been canceled due to the sharp downturn in the sector, with China's embattled largest private developer, Country Garden, stating that they expect the sector to remain weak through 2024 and warned that the company could face more severe challenges in the year ahead. 

Retail sales in China slowed in December, showing a 7.4% year-on-year increase, falling from the 10.1% seen in November while missing market expectations of 8.0% and snapping a four month streak of month-on-month improvements. However, some silver linings were seen, with China's industrial production growing by 6.8% in December, beating forecasts of remaining unchanged from November's 6.6% and marking the sharpest growth since February 2022. Industrial capacity utilization rate also improved to 75.9% from the 75.6% in the month prior, climbing to its highest level since December 2022. Overall, though, the bad outweighed the good from this massive data release, sending Chinese stocks sharply lower yet again. Additionally, the concern regarding pervasive deflationary pressures within China is raising expectations for rate cuts and other fiscal support measures, weakening the Yuan. 

Another day, more escalations from Iran. We touched on their deadly Iraq strikes and fresh Houthi Red Sea attacks yesterday, then they followed that up with a deadly strike in another neighboring country--Pakistan. Iranian officials said the missiles were targeting bases of the militant group Jaish al Adl, but Pakistani officials said Iran had violated their air space and that the incident was "completely unacceptable." In the 3+ months since the outbreak of war in Gaza, the biggest fear for commodity markets has been spillover to a wider regional conflict. Unfortunately, with escalations continuing to pop up further from the fighting, that fear doesn't look to be going anywhere for the time being.