Rise and shine everyone.

We’re almost at the finish line for the year, and what year it has been. One thing that’s been on everyone’s minds recently is the +$5 trillion of money market funds (MMFs). There was an extraordinary amount of flow into MMFs this year, to the tune of $1.35T.

With the probability of a recession lower for next year, and the Fed starting to normalize policy, we just may see these funds rotate into equities, more so than bonds, particularly in an election year. According to GS, a decline in recession probabilities sees MMFs deployed into investments.

We still see the probability of a recession at 50% for next year, higher than most forecasts but, we’re likely to see the Fed starting to cut rates before a recession is announced.

US Equity Futures are mixed this morning with only the Nasdaq trading higher so far. The Japanese Yen has strengthened considerably after Governor Ueda’s hints at a change in policy. USD/JPY is now trading around 140.

With that, the US Dollar Index is lower at 100.6. Gold remains flat while Oil and Bitcoin are lower. Yields are higher across the curve in the US and Europe.

Asia and Australia

• Asian markets are mostly higher with the exception of Japan.

• China and Hong Kong are seeing renewed enthusiasm in their markets with the Shanghai Composite closing almost +1.4% higher today. Hong Kong equities led with a recovery in mainland properties as well as a continued extension of prices in tech stocks following the China government’s Monday softening of tone regarding online gaming restrictions amid the approval of 105 new games. **It’s interesting given that the FT published a headline article saying 90% of the money that flowed into Chinese stocks in 2023 has now left the country. That’s $33B.

• Japan's preliminary industrial production for November showed a MoM decrease of 0.9%, which is better than the expected 1.6% decline. YoY the decrease was 1.4%, less than the anticipated 2.1% drop. Japan's retail sales rose by 1.0% MoM, surpassing the expected 0.5% increase. YoY, retail sales grew by 5.3%, slightly higher than the forecast of 5.0%.

• Bond Investments by Japanese abroad decreased by 167.40 billion yen in the week ending December 23 of 2023.

• Industrial Production in South Korea increased 5.3% from a year earlier in November of 2023, the fastest gain since May 2022, accelerating from a downwardly revised 0.9% increase in the previous month.

Europe, Middle East, Africa

• European markets are lower today.

• ECB’s Holzmann, a hawkish member from Austria, emphasizes that it is premature to consider rate cuts at this time. He also states that there are no assurances of rate cuts in 2024. Furthermore, he notes that the ongoing normalization of monetary policy is already having an effect in decelerating inflation.

The Americas

• Yesterday’s $58B 5Y US Treasury Note Auction saw relatively strong demand. This pushed yields lower.

• Apple will be able to sell the latest Apple Watches after an import ban was temporarily paused by an appeals court on Wednesday, in a major victory for the iPhone maker.

• Fed Fund Futures now show that there’s a 87.5% probability that they Fed will ease in March; of which 14.1% is looking at a 50 bps cut. That would likely be too optimistic here.

Chart of the Day:

Turkish Dollar bonds have been among the best investments this year.

Calendar

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)