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Bloomberg 1 22 24

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Good morning. The tech rally is set to extend, Apple’s headset is coming and debate rages about the inverted yield curve. Here’s what’s moving markets. — Sam Unsted

Tech rally

A rally in big tech stocks helped the Nasdaq 100 to close at a record high and futures are pointing those gains extending on Friday. A brighter outlook from Taiwanese chipmaking behemoth TSMC helped the mood and lifted hopes for a broader recovery in the tech sector in 2024. Semiconductor sector names like Nvidia and Broadcom were among those benefiting and fueling the Nasdaq rally, along with the best day for Apple shares since May. Tech earnings season kicks into gear next week, with Netflix, Texas Instruments and Intel among those set to report.

Apple’s launch

Apple shares were helped along by a rating upgrade from Bank of America analysts, driven by optimism about artificial intelligence and a better iPhone upgrade cycle to come. The broker was also positive on the launch of the Vision Pro mixed-reality headset, preorders for which start on Friday to provide the first taste of consumer demand for the $3,499 device. The headsets won’t include apps for YouTube and Spotify, however, the world’s most popular video and music-streaming services respectively. Netflix too had already said it won’t launch a specific app.

Inversion normalization

Bond traders are increasingly convinced that the inversion in US Treasury yields is headed toward normalizing, though how and why this happens will mean volatility will continue. The question being asked is whether yields will sink on the short-end of the curve as rate cuts emerge, or whether 10-year yields will rise more in a higher-for-longer scenario. The Federal Reserve continues to push back against current wagers for rate cuts, with Raphael Bostic the latest to urge caution given the global uncertainty overshadowing 2024. The Fed’s Austan Goolsbee and Mary Daly are due to speak on Friday.

Bank measures

US regulators are preparing to launch a plan that would require banks tap its discount window at least once a year in order to reduce the stigma of doing so and ensure that lenders are ready for a downturn. It’s the latest response to the regional bank crisis last year, which highlighted that some lenders were not operationally set up to quickly borrow from the window in a pinch. Separately, banks borrowed a record amount from the Fed’s Bank Term Funding Program in the week to Wednesday, a tool that allows banks and credit unions to borrow funds for up to one year.

China selloff

The largest brokerage in China is said to have suspended short selling for some clients in mainland markets following the rout in Chinese stocks at the start of the year. State-owned Citic Securities made the move after so-called window guidance from regulators. A Hong Kong gauge of Chinese stocks has notched up its worst week since March, while global passive funds are adding to the pressure by joining in with the selloff. And this is all wreaking havoc in the country’s asset management sector, with mutual fund closures hitting a five-year high in another sign of deteriorating investor confidence.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.

And finally, here’s what Kristine’s interested in this morning

This week, Federal Reserve Bank of Philadelphia President Patrick Harker penned an ode to soft data and its importance in guiding central banks in their process of conducting monetary policy.

In particular, he honed in on soft data’s predictive power and how it prompted him to shift his views well before it was borne out in hard economic data:

“For example, my conversations with contacts across the Third District throughout last spring indicated that our rapid tightening of monetary policy was indeed cooling the economy. But what I also heard from them was a clear plea for time and room to breathe and adjust in the wake of the run-up in rates and continued economic uncertainties. Their reasoning quickly became evident to me as I studied the numbers and saw the localized impacts of higher rates on businesses and prospective home buyers begin to be more broadly borne out in the hard data. And I tempered my position on rate increases accordingly.”

Assuming Harker’s colleagues on the FOMC look at soft data in a similar way, it begs the question: what did they glean from such data to decide in December that it was time to signal a pivot toward rate cuts?