5 Things You Need to Know to Start Your Day: Americas

Good morning. More work for the Fed as inflation ticks up, US airstrikes in the Red Sea lift oil prices and fuel fears of escalation, and we [View in browser]( [Bloomberg]( Good morning. More work for the Fed as inflation ticks up, US airstrikes in the Red Sea lift oil prices and fuel fears of escalation, and we’re due some big Wall Street earnings. Here’s what’s moving markets. — [Charlotte Hughes-Morgan](. US inflation picks up The Federal Reserve has [more work to do]( before it can consider cutting rates after yesterday’s CPI data came in slightly hotter than expected. Federal Reserve Bank of Cleveland President Loretta Mester said it was premature to consider cutting interest rates as soon as the US central bank’s March meeting. Yesterday’s data showed inflation [picked up]( in the year through December, with higher housing costs driving more than half  the price gain and goods prices halting their month-long decline. The consumer price index rose 3.4% from a year earlier, the most in three months, while prices excluding food and energy cooled only slightly less than forecast to 3.9%. Market reaction was somewhat limited but a [single block trade]( in the fed funds futures market, struck as the dust settled following the inflation reading, was the biggest ever seen of its kind. Red Sea conflict The price of oil jumped as the US and its allies launched [airstrikes]( against Iranian-backed Houthi rebels in Yemen, stepping up retaliation for attacks on ships in the Red Sea. Global benchmark Brent rose more than 3% to above $80 a barrel as investors tried to gauge the chance of the escalation in hostilities sparking a broader conflict in the Middle East. The Houthi attacks on commercial shipping have already disrupted flows of fuel and goods through the vital waterway, with [concerns mounting]( that the drop in shipments could become even bigger. On the other hand, [gold edged higher]( after the airstrikes boosted haven demand. They were by far the most [wide-ranging military action]( undertaken by the US since Hamas’ Oct. 7 attack on Israel ignited its operation to clear militants in Gaza. Hear more on our [Daybreak podcast](. Bitcoin bonanza What a week it’s been for Bitcoin. On Thursday, the first [US exchange-traded funds]( investing directly in the largest digital currency finally went live after a landmark [approval]( from the SEC. The batch of almost a dozen funds got off to a strong start, with some $4.6 billion of shares changing hands in a frenetic first day. Records were broken as The Grayscale Bitcoin Trust saw the largest-ever first-day turnover for an ETF. Bitcoin at one point on Thursday surged past $49,000 to levels last seen in 2021 before falling back below $46,000 as of 10:30 GMT Friday. Even with regulators’ blessing, however, it’s up to firms whether to offer trading in the Bitcoin-linked products and some including [Vanguard]( still seem reluctant to jump into a volatile asset class. China’s deflation cycle Meanwhile, China’s consumer prices marked their [longest streak of declines]( since 2009, extending a deflation that may require more government support to reverse. The consumer price index slipped 0.3% in December from a year earlier, in line with economists’ expectations for a third straight month of declines. Exports also fell — the first annual drop since 2016 for what has historically been a major pillar of growth for the economy. “China needs to act boldly to break the deflationary cycle. It will fall into a negative spiral otherwise,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group. Most analysts surveyed by Bloomberg expect China’s central bank to [lower the rate]( on its one-year policy loans next week for the first time since August, as well as inject more cash into the financial system to meet funding demands. Big bank earnings We’ll get a spate of fourth-quarter earnings reports from Wall Street behemoths today, including BlackRock, Bank of America, JPMorgan and Citigroup. Some big lenders have recently lamented the [ongoing revenue slump]( due to sluggish dealmaking activity. [Citigroup]( has already warned that fixed-income and equities trading revenue for the fourth quarter could drop as much as 20% from the third quarter. But, as Kristine notes below, the prospect of lower interest rates should [offer some relief](. Delta Airlines also reports. We’re also due December producer price index inflation figures after Thursday’s CPI data, and the Fed’s Neel Kashkari speaks at the Regional Economic Conditions Conference. Finally, a reminder that [Taiwan]( goes to the polls on Saturday for its presidential and parliamentary elections, with potentially significant repercussions for geopolitics. What We’ve Been Watching This is what’s caught our eye over the past 24 hours. - Large backers of private equity are asking for their[money back]( - [Watch](: Why the cost of money is about to go up - [Goldman Sachs]( is No. 1 in stocks trading again after a years long fight - The $1.2 trillion US travel industry is [plummeting]( - The world’s biggest [Uranium miner]( warns of a production shortfall - House Speaker[Mike Johnson]( weigh reneging on budget deal - Retailers can manage the Red Sea [shipping delays]( — for now And finally, here's what Kristine is interested in this morning At the culmination of the first full trading week of 2024, so many things appear to have changed across the globe -- yet still remain the same. In the US, earnings season kicks off in earnest with JPMorgan, Citigroup and Bank of America leading the slew of bank results, often used by investors as a barometer for the health of consumers and businesses. Yet while the emerging prospect of lower interest rates is expected to [offer relief]( to these banks and their customers, analysts are increasingly focused on how they'll manage a future that's looking more uncertain. Earnings previews are littered with mentions of costs, including those related to staffing, underscoring the implicit question of whether the finance industry will need to [shed more jobs.]( Chinese stocks are garnering focus as a potential [reversal trade]( after a year riddled with disappointment over the nation's post-Covid reopening. Yet concerns over geopolitical and economic risks attached to China remain, most imminently crystallized in this weekend's [Taiwan election](. While the prospect of war between China and Taiwan remains remote, such a scenario is likely to cost the global economy [$10 trillion](, according the Bloomberg Economics. The nature of such risks, however unlikely, is perhaps why some US pension funds have decided it's time to start [cashing out of China]( for good. Meanwhile, in Europe, bonds are suddenly hot again. Sales by governments from Spain to Belgium and the UK have seen [blockbuster demand](, presumably as investors anticipate the arrival of much-anticipated rate cuts from the European Central Bank. Yet as we've seen from recent commentary from policymakers, a move toward lower rates is [far from certain](. After all, inflation rates for the region's biggest economies remain north of 3% -- a far cry from the ECB's target. There's also the lingering risk of [ballooning budget deficits](, which are bound to hang over any bond bull. With investors across the globe grappling with endless caveats and contradictions pertaining to the 2024 outlook, how does one navigate the coming year? The answer lies in what's in between -- the gaps in expectations. Will bulls overzealously banking on rate cuts for both stock and bond gains be proven wrong, and therefore need to reverse course? Will bears prove too extreme in expecting geopolitical risk or a softer labor market to significantly crimp growth, and therefore miss out on a major rally? The process of how these gaps get resolved will be where the trading opportunities are. [Kristine Aquino]( is managing editor for Bloomberg Markets Today. Follow her on X at [@krisaqnews](. Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Tell us what you want to see in the Five Things newsletter! 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