The global equity market rally – with US technology stocks outperforming – continues after very positive earnings reports from Netflix and ASML, the Dutch key supplier to the semiconductor industry. Mining companies and China-sensitive stocks, including European companies, are also rallying strongly after China signaled that it plans to boost its economy by lowering the reserve requirement ratio for banks.
The Nasdaq 100, as well as the European Stoxx 600, are trading almost 1% higher. Pre-market gains in the US were led by a massive 10% rise in Netflix after subscriber numbers slightly beat expectations. ASML jumped more than 7% after orders tripled for the chip equipment maker.
Although markets are hot and technically heavily overbought, we are currently seeing very positive news flow and signs of improving economic data. Inflation concerns are being pushed back and investors are expecting significant interest rate cuts before the end of the year. Signs that expectations for AI-related corporate earnings are holding up are also supporting the ongoing rally, driven in particular by the largest tech companies and AI beneficiaries on Wall Street.
The spotlight will also be on central banks. The Bank of Canada will leave interest rates most likely unchanged – the same is expected from the European Central Bank tomorrow. I don't expect the ECB to push back hopes of a rate cut too much because unlike the Fed, the ECB sees a weak domestic economy.
We see a slight weakness in the dollar as yields have fallen for now (but not only in the US), investors expect the ECB to scale back its rate cut plans and the Bank of Japan to end its negative interest rate policy soon. I see the USD continuing to be supported by the outperformance of the US economy, which will make it difficult for the Fed to stimulate the economy further by cutting interest rates.
The recent weak prices for industrial metals have also been boosted by the Chinese stimulus measures, which has also helped oil somewhat for the time being. I still see more headwinds for oil, especially if concerns about geopolitical tensions in the Middle East ease. Gold is benefiting from the temporarily weaker USD and the fall in yields.
Overall, I expect the positive market sentiment to remain for today, especially after the very positive start to the tech earnings reports, which will also keep the outperforming tech sector from losing pace. We are LONG in Meta, which is one of the top performers in pre-market US trading.
👁 ROB'S MARKET OVERVIEW:
January 24, 2024
🌐/🇺🇸 Global/US Markets ↗️ (no serious headwinds in sight; strong earnings)
Cyclical Stocks ↗️ (no serious headwinds in sight; Additional China boost)
Tech/Growth Stocks ↗️ (benefiting from strong tech earnings)
Financial Stocks ➡️/↗️
Defensive Stocks ➡️
Energy Stocks ↗️/➡️ (received China boost; overall outlook for oil & gas remains bearish)
Materials Stocks ↗️
AUD ↗️ (boosted by China stimulus & improved risk sentiment)
EUR, GBP, JPY, CHF ↗️/➡️ (limited upside potential after early gains)
USD ↘️/➡️ (weak USD to stabilize once yields stabilize)
⚒ Commodity Markets ↕️
Oil prices ↗️/➡️ (boosted by China stimulus; Upside limited)
Natural Gas prices ↗️/↕️ (boosted by China stimulus; Upside limited; volatile)
Metal prices ↗️ (boosted by China stimulus & improved risk sentiment)
Gold ↗️/➡️ (benefiting from weaker USD & lower yields)
⚡️Cryptos ↕️ (with signs of cautious buying after recent sharp selloff)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)