Marketmind: Parsing the peak, sidestepping a slump

A look at the day ahead in U.S. and global markets from Mike Dolan.

There’s no shortage of economic gloom about but optimists have reasons to cling to hopes of peaking interest rates and an avoidance of outright recession this year.

With the U.S. Federal Reserve, European Central Bank and Bank of England all holding first policy meetings of the year next week, Wednesday’s signal from the Bank of Canada that it plans to pause its aggressive rate hikes was a marker for some.

The hope is that if disinflation is well underway, the other major central banks will hit their ‘terminal rates’ in the first half of this year too.

“We are turning the corner on inflation,” BoC Governor Tiff Macklem told reporters, while dismissing any thought of policy easing for now.

Just how bad the underlying economy gets before the central banks are done is the other burning question.

But U.S. fourth-quarter gross domestic product numbers out on Thursday should show a fairly brisk expansion continued through the back end of last year at least, even if business surveys paint a darker picture coming into this year.

The PCE inflation readout from the GDP report should also underline the disinflation picture, with crude oil prices now declining year-on-year at their fastest pace in two years. Remarkably, the latest data shows annual U.S. M2 money supply shrank for the first time ever last year.

On the activity side, the prospect of reviving growth in China and the euro zone certainly changes the international picture. And while forecasters expect the global economy to slow down this year, they see it skirting outright recession.

Complacent or not, that picture is borne out by 2023 earnings projections in the middle of the corporate earnings season and the S&P500 full year profit outlook remains just positive, while European equivalents are actually turning up again.

With all that in mind, Wall Street futures are marginally positive going into Thursday’s earnings packed session after a flat to negative couple of days. The dollar briefly touched its lowest since last May.

Shares in electric auto giant Tesla were up almost 8% ahead of the bell after reporting a profit and revenue beat late on Wednesday and as Chief Executive Elon Musk said the firm’s aggressive price cuts have ignited demand for its EVs.

Oil major Chevron stock rose 3% in after-hours trade on Wednesday after it said it would triple its budget for share buybacks to $75 billion.

In Europe, STMicroelectronics jumped 8% after the chipmaker reported a sales beat and Finnish telecom equipment maker Nokia jumped 5% after its own beat. Spanish lender Sabadell also gained 8% following the management’s upbeat commentary on 2024 net interest income.

For the gloomsters, Britain was reliable as ever. Annual UK car production fell to the lowest in more than six decades last year, according to industry figures.

Elsewhere, Adani Group said on Thursday it is evaluating “remedial and punitive action” under U.S. and Indian laws against short-seller Hindenburg Research, which in a report accused the conglomerate of improper use of offshore tax havens.

In emerging markets, Pakistan’s rupee fell about 7% against the dollar, two days after foreign exchange companies removed a cap on the exchange rate – a move that could help convince the International Monetary Fund to resume lending.

Key developments that may provide direction to U.S. markets later on Thursday:

* U.S. Q4 GDP release and core PCE estimate, Dec new home sales, Dec durable goods orders, Dec trade balance, Dec wholesale/retail inventories, weekly jobless claims, Chicago Fed Dec activity index, Kansas City Fed Jan manufacturing index

* South Africa and Chile central bank policy decisions

* U.S. Treasury auctions 7-year notes

* U.S. corp earnings: Intel, Comcast, Visa, Mastercard, Blackstone, TRowe Price, Northrop Grumman, ADM, Dow, Eastman Chemical, American Airlines, Southwest Airlines, Alaska Air, Valero Energy, Xcel Energy, Weyerhauser, Marsh&McLennan, McCormick, Nucor etc

(By Mike Dolan; Editing by Toby Chopra)