Last week, the international market was relatively light, Europe and the United States entered holiday mode, and the situation in the Red Sea continued to attract attention.
In the market, U.S. stocks continued their year-end upward trend, with the Dow up 0.81%, the Nasdaq up 0.12%, and the S&P 500 up 0.32%. Europe's three major stock indexes were mixed, with the UK's FTSE 100 up 0.46%, Germany's DAX 30 up 0.27%, and France's CAC 40 down 0.34%.
There are a lot to watch this week, the latest US non-farm payrolls report is the first blockbuster data of the new year, which may have an impact on the Fed's interest rate cut prospects, and the Fed meeting minutes will be released, and you need to pay attention to the views on the economy and inflation. The Eurozone will release the consumer price index (CPI) for January, and the disinflationary trend may be tested. The final value of the purchasing managers' index (PMI) in Europe and the United States will be updated in December last year, and the expansion process is expected to remain weak.
The non-farm payrolls data is expected to fall
The Fed will release the minutes of its meeting this week. At last month's meeting, the Fed kept interest rates unchanged as expected, but Fed Chairman Jerome Powell's comments on interest rate cuts and the trend of interest rate dot plots at the press conference made the market extremely optimistic about the path of interest rates this year. Investors will be watching closely for any clues in the minutes regarding a policy pivot and whether there has been a change in views on inflation and the economy within the Fed.
The non-farm payrolls for December will be the most closely watched data in the coming week. With some signs of cooling in the labor market, agencies forecast 150,000 new jobs in December, down from 198,000 in November. The unemployment rate is expected to rise slightly to 3.8%. Wage growth remains resilient and is expected to rise 0.3% sequentially and 3.9% y-o-y from 4.0% previously.
For the Fed, another clue on the path of interest rates will be the outlook for policymakers on the job market. After last month's interest rate meeting, many members indicated that their concern about the job market would increase as inflation declined.
In addition to the non-farm payrolls, the Jolts job vacancies, challenger layoffs index, and ADP employment numbers, which will be released earlier, will also be the basis for external assessments of the state of the job market. At the same time, the performance of the December ISM manufacturing, non-manufacturing index, November durable goods orders, and manufacturing orders data will provide important information on the extent of the US economic slowdown at the end of the year.
Crude Oil & Gold
Oil prices fell for the first time since 2020 as concerns about the demand outlook outweighed potential supply disruptions and efforts by OPEC and its allies to limit production. The WTI crude oil front-month contract closed at $71.65 a barrel, down 21.12% in the fourth quarter of last year and 10.71% for the year. Brent crude oil closed at $77.04 a barrel, down 19.21% in the fourth quarter of last year and 10.32% for the year.
Oil prices peaked in late September last summer as OPEC+, an organization of oil producers, stepped up production cuts. Although the planned production cuts have been postponed until early 2024, oil prices have fluctuated and retreated in the fourth quarter of last year as expectations of a large supply deficit have not been realized. According to the agency, the increase in production in the United States and other non-OPEC producers has also limited the upside of crude oil. At the same time, the tension in the Red Sea at the end of the year caused concerns for a while, and oil prices came under pressure again as shipping companies considered resuming shipments.
Rebecca Babin, senior energy trader at CIBC Private Wealth, said in a note that demand concerns are hanging over the market. However, cautious sentiment has created a lower threshold for a surprise expected rebound in 2024.
International gold prices are doing well, and Fed policy expectations are shifting from tightening to easing. COMEX gold futures for January delivery on the New York Mercantile Exchange rose 0.12% for the week to $2,062.40 an ounce, up 13.34% for the year, the biggest gain since 2020.
Gold investors are expecting gold prices to hit record highs this year, when a U.S. monetary policy pivot, ongoing geopolitical risks and fundamentals of central bank purchases are expected to support the market. Marex analyst Edward Meir said: "A lower dollar exchange rate environment means gold should perform better. ”
UBS analyst Giovanni Staunovo said: "For [gold] to reach higher levels, we need to see stronger demand from investors, such as a recovery in ETF inflows." Given the weak US economic data and the decline in inflation, the Fed's stance will become more dovish going forward. ”
European inflation or rebound
The European Central Bank paused its rate hikes at the end of the year, but the market is already pricing in a rate cut. Last week, Robert Holzmann, a hawkish member of the European Central Bank and head of the Austrian central bank, cracked down on such expectations. "Even if the ECB has already experienced an unprecedented ten consecutive rate hikes, there is no guarantee that it will cut rates in 2024," he said. Monetary policy normalization has already shown its impact on slowing inflation, but it is too early to consider a rate cut. ”
Eurozone inflation fell to 2.4% in November, but the slowdown is partly due to base effects, and consumer prices are likely to pick up again in the coming months. Until it is certain that inflation is really moving in the direction of 2%, the ECB is likely to be cautious about sending any turning signal.
The upcoming release of the Consumer Price Index (CPI) for December may justify the hawkish caution within the ECB. Headline CPI is expected to accelerate to 3.0% from 2.4% last month, suggesting that inflation still has some way to go before inflation remains stable near the 2% target. Core CPI, which excludes food and energy prices, is expected to fall to 3.4% from 3.6%, focusing on the shock to the services sector.
The end of the year was not optimistic, with the UK on the verge of a recession at the end of the year after a downward revision of gross domestic product (GDP) in Q2 and Q3 2023.
The UK economy is likely to avoid a hard landing in 2024 and strengthen in the second half of the year, according to the latest agency survey, as consumers benefit from falling inflation and the easing of the long-term cost-of-living crisis. Economists generally believe that the Bank of England will achieve a soft landing for the economy next year, with a projected growth rate of 0.3%. Barret Kupelian, chief economist at PwC, said: "The outlook for 2024 is generally much better than what was expected 12 months ago. ”
What to watch for this week
