China’s Economic Woes and Global Uncertainties Cast a Shadow

In the latest market analysis by Mike Dolan, Wall Street faces a somber mood as speculation on premature interest rate cuts takes a back seat to concerns about China’s economic slowdown. Global markets, seemingly reverting to a ‘glass half empty’ perspective for 2024, grapple with edgy inflation updates, stubborn central bankers, and a mixed start to the earnings season.

Geopolitical tensions in the Red Sea, U.S. election-year uncertainties, and congressional budgetary debates further dampen the spirits in bond and stock markets. With global stocks showing losses of around 1.5% for the year, China’s recent economic data release, indicating a 5.2% growth in 2023, failed to lift sentiments. The data, coupled with issues like a property sector downturn and declining birth rates, exacerbates concerns about China’s economic challenges.

In the U.S., the Federal Reserve’s potential rate cuts remain a subject of speculation, with futures markets suggesting a two-thirds chance of a rate cut as early as March. However, Fed Governor Christopher Waller emphasizes the need for caution, citing the U.S. being “within striking distance” of the 2% inflation goal. Treasury markets show restiveness, with rising yields and increased attention on the $2 trillion of new Treasury debt sales anticipated this year.

Oil prices, influenced in part by China’s growth worries, provide some relief to bond markets with a slip, resuming annual losses of over 10%. Wall Street stock futures stay in the red following Tuesday’s lower close, impacted by a mixed readout on fourth-quarter reports from Morgan Stanley and Goldman Sachs.

Boeing faces challenges as its stock slumps by almost 8% to a two-month low, following the Federal Aviation Administration’s indefinite extension of the grounding of its 737 MAX 9 airplanes. December retail sales and updates from regional U.S. banks take center stage in today’s diary, alongside a lineup of Fed speakers and key economic indicators.

Key Diary Items for Wednesday:

  • U.S. Corporate Earnings: US Bancorp, Citizens Financial, Charles Schwab, Discover Financial, Kinder Morgan, Prologis
  • U.S. Economic Indicators: December retail sales, industrial production, import and export prices; January NAHB housing market index; Canada’s December producer price index
  • Federal Reserve Actions: Release of Beige Book on economic conditions; speeches by Federal Reserve Board Governor Michelle Bowman, New York Fed President John Williams, and Fed Vice Chair for Supervision Michael Barr
  • World Economic Forum in Davos: European Central Bank chief Christine Lagarde speaks
  • U.S. Treasury Auctions: 20-year bonds