The 4th quarter reporting season has begun in the US. Davos hosts the annual World Economic Forum

The US Producer Price Index for December declined by 0.1% m/m and rose by 1.0% y/y, weaker than expectations of 0.1% m/m and 1.3% y/y. December PPI excluding food and energy declined to 1.8% y/y from 2.0% y/y in November, weaker than expectations of no change at 2.0% y/y and the smallest increase in 3 years. This raised the probability of a rate cut in March. Markets are pricing in a 7% chance of a 25 bps rate cut at the next FOMC meeting on January 30-31 and an 82% chance of the same 25 bps rate cut at the March 19-20 meeting.

Defense stocks rose Friday amid escalating hostilities in the Middle East after the US and its allies launched joint airstrikes against Houthi rebels in Yemen. As a result, shares of Northrop Grumman (NOC), L3Harris Technologies (LHX), and Lockheed Martin (LMT) rose more than 2%. Tesla (TSLA) closed down by more than 3% after it cut car prices again in China and said it would suspend production at its European plant as suppliers changed transportation routes in response to attacks on ships in the Red Sea. Wells Fargo (WFC) closed down by more than 3% after reporting a fourth-quarter non-interest expense of $15.79 billion, above consensus of $14.40 billion. Bank of America (BAC) closed down by more than 1% after reporting fourth-quarter trading revenue, excluding DVA, of $3.75 billion, below consensus estimates of $3.84 billion.

Fed officials updated their economic and rate forecasts at the December meeting, and while the median of those forecasts showed that there will likely be three rate cuts this year, FOMC member Goolsbee said they are individual forecasts and should not be taken as a group decision on future policy.

This week is the World Economic Forum in Davos, Switzerland. Davos 2024 will emphasize the following four key areas:

• Achieving security and cooperation amid rising geopolitical tensions.
• Creating growth and jobs for a new era.
• Artificial Intelligence as a driving force for the economy and society.
• A long-term strategy for climate, nature, and energy.

The threat of an expanding war in the Middle East pushed crude oil prices to a two-week high after the US and its allies launched joint airstrikes against Houthi rebels in Yemen. The oil market is also currently being heavily influenced by broad supply and demand dynamics, including rising non-OPEC production and slowing demand growth. OPEC+ oil production rose by 40,000 BPD in December, a marginal change reflecting the complex dynamics within the group. The increase in production was mainly driven by Nigeria, Iran, and Iraq. Despite this, the alliance remains below its production target, with Saudi Arabia strictly adhering to its production commitments, unlike other countries.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) jumped by 6.53% for the week, China’s FTSE China A50 (CHA50) fell by 1.47% over five trading days, Hong Kong’s Hang Seng (HK50) ended the week down by 0.35%, while Australia’s ASX 200 (AU200) ended the week positive by 0.12%.

Japan’s Nikkei 225 Index was the best performer among its peers for the fourth consecutive session, rising 1.1% to a new 34-year high as the prospect of an ultra-dovish Bank of Japan decision had traders leaning towards local equities. The Bank of Japan is expected to broadly maintain its policy stance this month.