LDN - Business

Marketmind: Big Tech reports, China gets a grip, BOJ calm

[January 23, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

With Wall St stocks surfing record highs, Tuesday sees Netflix kick off a couple of weeks of Big Tech earnings updates stateside - with China stocks arresting new year losses earlier and the Bank of Japan holding the policy line.

Streaming entertainment giant Netflix is expected to report an 11% increase in revenue for 2023, with its stock up more than 40% over the past year - twice S&P500 gains, even if half that of the leading tech and digital megacaps.

But with investors now focusing on guidance for the year ahead, Netflix sounds the klaxon for a sweep of Big Tech updates coming down the pike. Tesla and Intel report later this week, Apple and Microsoft MSFT.O next week.

S&P500 futures hovered unchanged near Monday's new records ahead of the bell.

But Tuesday main market action continued to be in Asia, where a startling divergence of stock performance in China and Japan holds many in thrall.

After withering new year losses in Shanghai and Hong Kong that have added to a whopping 30% underperformance of those indexes against global benchmarks over the past year, China's stocks found a foothold at last on Tuesday after reports of official action to stabilize the alarming run.

China's cabinet said on Monday it will take forceful and effective measures to stabilize market confidence.

And today Bloomberg News, citing unidentified sources, reported policymakers were seeking to mobilize about 2 trillion yuan ($279 billion), mostly from offshore accounts of state enterprises, to fund equity buying through a China-Hong Kong stock exchange link.

Shanghai hit a four-year low before rallying 0.5%, the blue-chip CSI300 closed up 0.4% and Hong Kong's Hang Seng closed up 2.6% - its best day in two months.

But any measures to stabilize markets stand in contrast to underwhelming action to address the underlying economic funk and property bust worrying foreign and domestic investors, already rattled by deepening geopolitical rifts and investment curbs.

Donald Trump's pole position to get the Republican nomination for another run for the White House this year is also upping speculation about the risks of a resumption of U.S.-China trade tariff war that defined his relationship with Beijing during his last term in office.

New disappointment this week at the lack of further interest rate cuts from the Peoples Bank of China has added to concerns, not least as many suspect the reluctance is aimed at preventing a renewed slide in the yuan.

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A trader works inside a trading post on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 19, 2024. REUTERS/Brendan McDermid/File Photo

Amid the reports of wider market support on Tuesday, the yuan strengthened back to its best levels in a couple of weeks.

But at least some foreign portfolios and even domestic Chinese money has headed to Japan in recent months as a tech-heavy Asia alternative and regional "friendshoring" magnet in an increasingly polar geopolitical rift.

And unwriting the contrasting 10% boom in the Nikkei 225 this year has been a seeming reluctance of the Bank of Japan to "normalize" its negative interest rate policy amid ebbing core inflation which it is still aiming to sustain at 2%.

The BOJ held policy steady after a two-day meeting on Tuesday, although there were indications it may push ahead with tightening later in the year once it is convinced wage gains are solidified.

"If we get further evidence that a positive wage-inflation cycle will heighten, we will examine the feasibility of continuing with the various steps we are taking under our massive stimulus program," BOJ boss Kazuo Ueda said.

That saw the yen perk up somewhat and stopped the Nikkei in its tracks, ending the day little changed. The dollar slipped back more generally.

Back on Wall St, Treasury yields ticked back higher again - not least ahead of another week of heavy debt sales in which some $60 billion of two-year notes go under the hammer on Tuesday.

With Fed officials in a blackout period ahead of the next policy meeting this month, Fed futures pricing is gradually absorbing this year's official pushback against excessive easing expectations. The chances of a cut as soon as March have now fallen back just below 50% - even though 130 basis points of easing over the whole year is still penciled in.

Elsewhere, Bitcoin has fallen to a seven-week low, plunging below $40,000 for the first time since the launch of 11 spot bitcoin exchange-traded funds on Jan. 11. It has now lost more than 20% since the peak hit on the announcement.

Key diary items that may provide direction to U.S. markets later on Tuesday:

* U.S. Corporate earnings: Netflix, Texas Instruments, GE, Verizon, Halliburton, Lockheed Martin, Johnson & Johnson, Procter & Gamble, Paccar, Invesco, DR Horton, Intuitive Surgical, Baker Hughes, Steel Dynamics, 3M, Synchrony

* Richmond Fed Jan business surveys, Philadelphia Fed's Jan service sector survey

* U.S. Treasury auctions $60 billion of 2-year notes, sells 12-month bills

(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com)

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