The Western World is in Danger

Expect Wider Divides

"The western world is in danger . . . because those who are supposed to defend the values of the west have been co-opted by a vision of the world that inexorably leads to socialism, and therefore to poverty.”

Javier Milei's speech, true to form in his unapologetic defence of capitalism, made headlines in Davos. Deglobalisation is going to be a wrecking ball – the elections in Europe this year are to be closely watched this year, as they may upend the assumptions about the international system. Wilders, Meloni etc. already have to a degree, but it will be in France and Germany where the real earthquake may hit.

A Resilient Consumer

The US consumer is stronger than you think. Very strong US retail sales in December with headline up 0.6%, twice that of November's gain. The control group +0.8% after 0.5% in November, which should translate into a decent GDP boost in Q4...how are those rate cut calculations coming?

BMO: “The December retail sales report shows ongoing strength and resilience of the U.S. consumer .. Six or more rate cuts in 2024 is unlikely, in our opinion, unless consumer spending weakens sharply in the months ahead. A healthy and robust consumer, as revealed in this report, also raises the prospects of a ‘softer’ landing for the U.S. economy in 2024.”

Gilty Pleasures

US Treasury yields flew and the 10yr hit its highest level of the year. The 1oyr gilt yield jumped its most in a year on hot UK inflation data – traders raced to price in four not five cuts this year. Rate expectations are mean reversing as expected. We hear again from Christine Lagarde today, and get the account of the December ECB meeting, US unemployment claims data and the Philly Fed are on offer for the US session.

Mixed Equity

Stocks are a bit mixed this morning in Europe after a down day Wednesday, whilst a late rally seen in Chinese stocks took indices off their lows. The Hang Seng fell 3.7% on Wednesday to hit its lowest since October 2022 while the Shanghai Composite has broken the 2022 lows. The market seems to have completely gone cold on China...growth story weakening again, the demographic picture is troublesome, seeming lack of stimulus and the big panda in the room that is the Taiwan situation. Today the Shanghai Composite hit a four-year low before swinging to a modest gain. The CSI touched a 5-year low before rallying to a gain of 1.4%, and the Hang Seng has rallied about 0.9% but remains near its lowest level in two years.

In the Charts...

Big trouble in little China – Hang Seng on the floor

Yesterday the FTSE 100 traded down 2%, on course for its worst day since July (-2.17%), before finishing down a meagre 1.48% after a late rally. All rather sad trombone look about the chart – but those MACD crossovers are working just fine, nicely and accurately signalling the rally that began early Nov and the decline since the start of the year.

Sterling continued to make gains after yesterday’s hotter-than-expected CPI Inflation reading saw traders reprice expectations for the Bank of England to cut interest rates. GBPUSD extended its run higher off the 50-day line at 1.260 to test 1.270 before easing back a touch. Cable looking like it wants to find a real move soon as it kind of drifts a bit in the range...could we see some monetary policy expectation divergence to set the hearts aflutter.

Gold cracked at where the trend support level and the 50-day line met