Perspective: Morning Commentary for January 19

January 19 - Stock futures are pointing to a strong open to end the short week, with all major indexes looking to start the day in the green. With this, the VIX is cooling, now falling back below 14 to hover near the 13.7 level. The U.S. dollar is correcting a bit after a strong week, falling below 103.2 after pushing to its highest level since mid-December earlier this week. Treasuries are firming, with 10-year yields pushing near 4.16% and 2-year yields nearing 4.40%. Crude oil is climbing again after yesterday's strength, with the nearby WTI contract rising above $74 this morning on the back of ongoing tensions in the Middle East and unexpectedly strong U.S. economic data. The ags are hoping to end the week on a positive note as well, with the grains reversing course from their early week losses and the livestock sector continuing its push higher. 

The U.S. government has avoided shutdown for the time being, with a stopgap bill to fund the federal government through early March being approved in Congress prior to today's deadline. For lack of a better term, this was essentially another round of kicking the can down the road, buying another six weeks for the two sides in Congress to come up with an agreement to fully fund the government. Regardless, it's still a positive for today, with House Speaker Mike Johnson saying he is "very hopeful" that Congress will be able to pass all 12 appropriation bills before the new deadline. This allows the market to put the U.S. political risks on the back burner once again and circle back as we get closer to March. 

The Word Economic Forum in Davos, Switzerland wraps up today after a week of discussion amongst business and political leaders from around the globe. The 2024 summit marked the largest attendance since the pandemic and has also been noteworthy for its focus on the world's ongoing geopolitical risks and their potential impacts on the global economy. Much of the talk from business leaders centered around how to de-risk supply chains facing potential disruptions from tensions with China, Russia, or throughout the Middle East, noting that such processes cannot be carried out overnight. Inflation was also a hot topic, with warnings of said supply chain disruptions having the potential to spark fresh inflationary pressures in 2024, as we've discussed previously. There was a mood of cautious optimism, however, with expectations for economic growth to continue in the year ahead, albeit at a slower pace than 2023. 

Artificial intelligence has also been a hot topic this week at Davos, continuing a theme of 2023. Much of the overall tone was split between excitement and caution, centered on the need for improving the accuracy of generative AI as the novelty wares off, as well as figuring out how to regulate it. The hype around AI has drawn tremendous amounts of investor interest, as evidenced by the continued strength in chip stocks. Yesterday's trade was no exception, with the surge in chip stocks pushing the tech-heavy Nasdaq 100 to an all-time high close. 

Economic concerns in China continue to persist, with reports today of leadership instructing some local governments to halt or delay some state-funded infrastructure projects. China's local governments are facing a far more serious debt problem than the central government, due in large part to their exposure to the faltering property sector, that must now be addressed. Although the Chinese economy was able to manage 5.2% GDP growth in 2023, prospects for the year ahead continue to look challenging. In an attempt to stimulate growth, Chinese delegates are hitting the road to find partners, with Chinese Foreign Minister Wang Yi in Brazil to meet with President Lula today, after making stops in Africa earlier this week, and Chinese Premier Li Qiang in Davos this week meeting with business heads from the U.S. and other countries. Obviously, with the aforementioned talk of companies de-risking from China due to the ongoing tensions, the delegates face a tough task. Because of this, China's NDRC has pledged to remove all restrictions on foreign investment access to China's manufacturing sector in an attempt to draw back some of that interest. A more detailed outline of this decision can be found in this morning's edition of China Direct, published by our Shanghai office.