ASML cancels shipments to China

In the final trading day of 2023, US equity markets saw a modest decline, but the S&P 500 managed to secure a slight weekly gain, extending its positive streak to nine weeks. Defensive sectors, particularly consumer staples and healthcare, led the day. December showcased broad leadership across asset classes and S&P 500 sectors, with real estate surging about 8%. The Bloomberg U.S. Aggregate Bond Index continued its positive momentum, rising around 4%. Small-cap stocks, notably the Russell 2000 Index, impressed with an over 12% gain in December. Bond yields showed mixed movement, with the 2-year Treasury yield dropping to approximately 4.25%, while the 10-year yield edged higher, settling around 3.88%.  In the Euro Area, the Stox x 50 capped the year on a robust note, closing near a 23-year peak, and notching an impressive 19% annual gain.  This stellar performance was fuelled by strong showings in the technology and retail sectors. 

Summary for 02.01.2024 

• Asian shares began 2024 on a subdued note, influenced by disappointing Chinese economic data and a major earthquake in Japan. China’s CSI 300 index declined by 1.1%, reflecting ongoing economic challenges. Japanese markets were closed for a week-long holiday. Overall, markets awaited indications of US interest rate cuts, with expectations of early cuts driving gains in December, contingent on upcoming U.S. economic data. 
• European shares are poised to climb, while US equity futures remain steady on Tuesday, looking to sustain the momentum from a robust 2023 despite concerns about potential challenges in 2024. 
• Oil prices in Asia rebounded slightly on Tuesday amid ongoing conflict between US forces and the Iran-backed Houthi group in the Red Sea. Reports of US strikes against the Houthis, who retaliated citing the Israel-Hamas conflict, led to tensions. Despite disruptions in shipping routes earlier, oil prices faced a dismal end to 2023, marked by over 10% annual losses due to concerns over sluggish demand and ample supply. Bargain buying, potential OPEC+ production cuts, and optimism over early Fed rate cuts offered some support. 
• Chinese manufacturing activity exceeded expectations in December, according to the Caixin Manufacturing Purchasing Managers Index (PMI), growing to 50.8. This contrasts with the government survey indicating contraction in the sector. The Caixin survey, focusing on smaller private enterprises, suggests modest improvement, but analysts highlight challenges, including subdued inflation and employment concerns. Despite meeting the 5% growth target for 2023, caution persists regarding China’s economic growth in 2024. 
• Chinese President Xi Jinping vowed to enhance economic growth and job creation, acknowledging challenges faced by some companies and citizens in 2023. In a rare admission of domestic headwinds, Xi recognized difficulties for enterprises and individuals in finding jobs and meeting basic needs. Analysts noted that Xi’s address did not significantly impact expectations, with the market anticipating a central bank rate cut in the first quarter of 2024 to boost the economy. 
• Iran dispatched a warship to the Red Sea after the US Navy destroyed three Houthi boats. The Alborz destroyer traversed the Bab El-Mandeb strait, a narrow choke point between the Red Sea and the Gulf of Aden, on Monday, Iranian state media said without providing further information on the vessel’s mission. Iran’s foray into the Red Sea a day after the US action compounds a highly volatile situation in the channel that handles about 12% of the world’s commerce. 
• Bitcoin surged 6% to $45,168.6, reaching its highest level since April 2022, amid speculation of a US SEC approval for a spot ETF. The SEC’s January 10 deadline for Ark and 21 Shares’ ETF application could set a precedent. BlackRock also applied, and Grayscale seeks to convert its GBTC into a spot ETF. Analysts caution that while ETF approval may boost capital inflows, the crypto industry’s loss of faith and regulatory challenges could limit the anticipated bull run. 
• ASML Holding reportedly cancelled some machine shipments to China at the request of the US President Joe Biden’s administration. The request came weeks before new export bans on the high-end chipmaking equipment were set to take effect, with US officials asking ASML to halt pre-scheduled shipments. 
• Danone has signed an agreement to sell its premium organic dairy units, Horizon Organic and Wallaby, in the United States to investment firm Platinum Equity. The sale is part of Danone’s portfolio review and asset rotation program, allowing the company to focus on health-focused brands. Danone will retain a minority stake, and the deal’s financial details were not disclosed. The sale will impact Danone’s 2024 financials, representing a strategic move following the company’s exploration of options for its US organic dairy activity. 
• BNP Paribas is set to compensate between €400-€600 million to France’s CLCV consumer group for misleading practices in its Swiss-franc mortgages. The bank’s unit, BNPPF, concealed risks in its Helvet Immo loan, resulting in a guilty verdict. The loan, signed in 2008-2009, saw higher repayments when the euro fell against the Swiss franc after the 2008 financial crisis. 
• HSBC Continental Europe has successfully completed the sale of its retail banking business in France to My Money Group’s subsidiary, Crédit Commercial de France (CCF). The transaction, which received all necessary regulatory approvals, was finalised on 1^st January. My Money Group, backed by Cerberus, anticipates total assets exceeding €30 billion and a robust solvency position with a CET1 ratio exceeding 15% after the acquisition. The deal, initially proposed by HSBC in June 2021 at a nominal price of one euro, faced delays last year due to regulatory capital concerns. 
• DoorDash, known for delivering restaurant meals, aims to diversify beyond its core business by investing in expanding outside the US and broadening its services beyond restaurants, according to CEO Tony Xu. The company is looking for ways to invest its growing cash reserves. 
• Ant Group, the Chinese finance giant, has fulfilled its pledge to remove controlling stakeholders, including co-founder Jack Ma, aligning with regulatory expectations. The People’s Bank of China confirmed this shift, signalling a major concession by Ma and a potential easing of regulatory pressures. The restructuring dilutes Ma’s control without affecting daily operations, marking a pivotal moment in response to regulatory changes in China’s tech and finance sectors. 
• The share sale plan between China Evergrande New Energy Vehicle Group and US-listed NWTN has lapsed, as the parties did not agree to extend the long stop date beyond the last day of 2023. The previously announced agreement involved Evergrande New Energy Vehicle issuing 6.18 billion new shares to NWTN for the equivalent of $498.2 million. 
• In the week ahead, markets will closely watch labour-market indicators. JOLTS job openings on Wednesday reflect a gradual decline in 2023, indicating easing labour-market conditions. Friday’s employment-situation report includes nonfarm payrolls, average hourly earnings, and the unemployment rate. Despite a modest drop in job openings, the 8.7 million in October compared to 6.5 million unemployed suggests a labour supply-demand gap. Outside the US, attention turns to inflation rates in Euro Area, manufacturing PMIs in various countries, and service PMI data.