The Morning Hark - 2 Jan 2024

Today’s focus...Chinese contradictions, Bitcoin and Gold have wings and The Week Ahead.

Jan 02, 2024

Overnight Highlights

Prices are at 7.05 GMT/2.05 EST, with changes reflecting movement from midnight GMT

Happy New Year to all our TMH readers! We wish you a happy, healthy and prosperous year and we look forward to accompanying you along the winding and undulating roads which the markets will take us on throughout 2024. TMH

Oil - Oil firming up again overnight with Brent and Crude March futures up close to two percent at 78.60 and 73.10 respectively. Red Sea tensions continue to give oil that underlying bid tone for now at least. The US navy have started to repel some of the Houthi rebel attacks as they look to protect the supply routes.

EQ - Asian equity markets mixed to start the year with the Nikkei having a knee jerk sell off on the earthquake news before recovering its losses to be close to where we closed the year at 33,300. The Hang Seng however down close to two percent to start the year with the futures currently at 16,750. The index starts the year as it finished last year, when it lost 14%, on the back-foot. Mixed PMIs seems to be the catalyst this time with the official readings over the weekend showing a worrying contraction trend. However today’s private sector survey was more encouraging. Which ever survey you believe growth is fairly tepid at best in China and all eyes will be on the Taiwan elections in a couple of weeks followed by the early February Lunar New Year for some hint of a stimulus package from the authorities.

The US indices off to a quiet start in Asia. The S&P currently at 4820 whilst the Nasdaq is at 17,010.

Gold - Gold edging a touch higher with Feb futures now at 2085 and looking to start the year by testing that recent high spurred on by the prospects of first quarter rate cuts from the Fed.

FI - Global yields flat overnight with the US2y and US10y currently at 4.25% and 3.93% respectively.

European yields closed the year a touch firmer from where we left them last year wiith the German 10y at 2.01% and the Italian 10y yield at 3.75%.

UK gilt 10y closing similarly at 3.54%.

FX - Quiet FX session to start the year with the USD a touch firmer with USD Index currently at 101.49. The JPY, EUR and GBP currently sitting at 141.55, 1.1030 and 1.2735 respectively.

FX option expiries wise little of note.

Others - Bitcoin and Ethereum both still riding the ETF is a coming trade as we start the year. The pair up over five percent at 45,250 and 2380 respectively. Bitcoin earlier hitting a 21 month high at 45,500.

Much chatter over the last two days that the SEC is set to notify the 14 asset managers who are vying to issue a spot Bitcoin ETF. Notification is expected today or tomorrow with a possible launch date set for the week after.

Big year for the digital asset space with the adoption and issuance of ETFs seen as a large step forward and of course there is the next Bitcoin halving happening in early Spring. Lyn Alden as ever lays the year out ahead for Bitcoin in her usual simple, concise and informed manner in the piece below.

WhatBitcoinDid - Lyn Alden “The Year of the Bitcoin Bull”

Macro Themes At Play

Recap

Last week was all about Japanese data and ING have a good recap of the week’s events for those with an interest. Albeit the data pales into insignificance given the events surrounding the recent earthquakes in the country.

ING - Japan Data Recap

The Week Ahead

Final December PMIs. China and Australia seemed to have shown the way with manufacturing continuing to disappoint but the service sector starting to show some signs of life. Indeed manufacturing is pretty much, apart from China, expected to be in contraction across the major economies. Services however should be expansionary mode in Japan, the UK and US but with the Eurozone continuing to lag behind.
US ISMs. Similar theme for the ISMs with manufacturing expected to confirm a whole year in contractionary mode although services are expected, in contrast, to have spent the whole year in expansion albeit mildly so. The component parts will give us more colour on the state of the US economy especially in terms of the potential for that much vaunted soft landing.
FOMC Minutes. For once these should be interesting with the December meeting been seen as the Powell Pivot with the #DotPlotMayhem and the catalyst for the continued stocks rally and subsequent steep sell off in US yields and the USD into the year end. Remember the dots had previously shown the Fed rate profile as having a further 25bp hike and subsequent 50bps of cuts for 2024.This was adjusted to no hike and 75bps of cuts for 2024 which the market then took the liberty to double! The minutes hopefully will give some colour as to the discussion on this alteration as well as the breadth of differing opinions that are seen on the committee at present. As things stand of the 19 members; 2 voted for no cuts in 2024, 1 for 25bps, 5 for 50bps, 6 for 75bps, 4 for 100bps and 1 for 150bps. As we said at the time 125bps looks like the shoo-in given no one voted for that! Powell had also flagged that the minutes will elaborate further on the discussion the FOMC members had surrounding the “when to cut” question which may help the market determine whether March is realistically a “live meeting”. MSN - Multiple Challenges for the Fed in 2024
German/Eurozone Inflation Report. Seasonal price pressures are expected to be the main reason for an uptick in inflation in December. Indeed this has been well flagged by the ECB that December would see such an uptick in inflation after the last few months of dramatic drops we have seen in both headline and core. The German and Eurozone headline numbers are both expected to reverse the recent trend and see inflation tick back up with the Eu YoY potentially getting back above 3% again. Encouragingly Eu core YoY is expected to tick a touch lower which will encourage the ECB and, unfortunately for them, the market’s enthusiasm for earlier rate cuts.
Canadian Labour Report. A further uptick is expected for the unemployment rate mainly due to the labour force growing at a faster pace than job vacancies. Also worrying for the Bank of Canada is the elevated nature of wage growth where 5% annual growth is well above the Bank’s 2% inflation target.
US NFP. As ever the big beast! Always a hard number to get a handle on and the market has consistently underestimated the US labour market’s resilience over the last couple of years. Yet again last month’s 199k print beat expectations by some way but was below the year’s average of around 240k. However NFP is still trending at a decent growth rate which suggests that, whilst the labour market is cooling, it is not collapsing and hence encouraging the markets that the “soft landing” scenario is attainable. More good news expected from average hourly earnings where the YoY rate is expected to dip below 4% for the first time since the autumn of 2021.
Trump Court Decision. The Supreme Court has to rule, by the end of the week, on the Colorado’s Supreme Court’s decision to make Trump ineligible to be on the state’s ballot for the Republican primary which takes place in early March. Whatever the outcome it is going to be politically divisive and set the tone for the political year ahead in the US. From a market’s viewpoint it feels like if the decision is upheld then we should see a short term relief rally. However if the Court were to overturn the decision uncertainty will plague the markets. Trump2 would be seen as more of the same in terms of tax cuts and tariffs which would eat into business confidence. On a geo-political front further isolationist policies would be expected from him with Ukraine military aid in immediate jeopardy, some cosying up to fellow “strong men” leaders and of course a continuation of his battles with Nato. In the middle of his “term” it would fall on Trump2 to appoint a new Federal Reserve Chair with Powell having to step down in 2026. Okay not for this year but can’t be good for markets to have that uncertainty hanging over them. Although having said that all bets would be him appointing an uber-dove!

The Day Ahead

Over the weekend the Chinese kicked off the final prints for the global December PMIs and it looks like the year will finish on a familiar theme with manufacturing PMIs, in the main, remaining in contraction but with some signs of life for the service sector. The Chinese Manufacturing PMI fell for a third straight month to 49, and indeed having its steepest fall in 6 months. 8 out of the last 9 months have been in contraction.

Non-Manufacturing had a slight uptick to 50.4 making it a full year of mild expansion for the sector.

Overnight we had the Australian Manufacturing PMI which was revised a touch lower at 47.6, its lowest level for the year and indeed since the pandemic.

The Caixin version of the Chinese Manufacturing PMI showed a little more life to it with a beat of previous and expect add to 50.8, its highest print since August. The underlying measures were impressive too, with new orders rising at their fastest pace since February and output at a seven month high.

The rest of the day is taken up with the final Manufacturing PMIs for the other major global economies and little else so plenty of time to catch up on some reading.

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Main Highlights Ahead

All times in GMT (EST+5 / CET-1 / JST-9)

The main highlights for the week ahead ahead in terms of data and speakers:

Tuesday

Germany HCOB Manufacturing PMI Final Dec consensus 43.1 vs previous 42.6 (08.55 GMT)

EU HCOB Manufacturing PMI Final Dec consensus 44.2 vs previous 44.2 (09.00 GMT)

UK S&P Global/CIPS Manufacturing PMI Final Dec consensus 46.4 vs previous 47.2 (09.30 GMT)

Canada S&P Global Manufacturing PMI Final Dec consensus vs previous 47.7 (14.30 GMT)

US S&P Global Manufacturing PMI Final Dec consensus 48.2 vs previous 49.4 (14.45 GMT)

Wednesday

German Unemployment Rate Dec consensus 5.9% vs previous 5.9% (08.55 GMT)

German Unemployment Change Dec consensus 20k vs previous 22k (08.55 GMT)

US JOLTs Job Openings Nov consensus 8.85m vs previous 8.733m (15.00 GMT)

US ISM Manufacturing PMI Dec consensus 47.1 vs previous 46.7 (15.00 GMT)

US ISM Manufacturing Employment Dec consensus vs previous 45.8 (15.00 GMT)

US ISM Manufacturing New Orders Dec consensus vs previous 48.3 (15.00 GMT)

US ISM Manufacturing Prices Dec consensus 48.3 vs previous 49.9 (15.00 GMT)

US FOMC Minutes rates held steady at 5.25% and #DotPlotMayhem (19.00 GMT)

Australia Judo Bank Services PMI Final Dec consensus vs previous 46 (22.00 GMT)

Thursday

Japan Jibun Bank Manufacturing PMI Final Dec consensus vs previous 48.3 (00.30 GMT)

China Caixin Services PMI Dec consensus vs previous 51.5 (01.45 GMT)

Germany HCOB Services PMI Final Dec consensus 48.4 vs previous 49.6 (08.55 GMT)

EU HCOB Services PMI Final Dec consensus 48.1 vs previous 48.7 (09.00 GMT)

UK S&P Global/CIPS Services PMI Final Dec consensus 52.7 vs previous 50.9 (09.30 GMT)

German Inflation Rate MoM Prel Dec consensus 0.2% vs previous -0.4% (13.00 GMT)

German Inflation Rate YoY Prel Dec consensus 3.8% vs previous 3.2% (13.00 GMT)

US ADP Employment Change Dec consensus 113k vs previous 103k (13.15 GMT)

Canada S&P Global Services PMI Dec consensus vs previous 44.5 (14.30 GMT)

US S&P Global Services PMI Final Dec consensus 51.3 vs previous 50.8 (14.45 GMT)

Friday

Japan Jibun Bank Services PMI Final Dec consensus vs previous 50.8 (00.30 GMT)

German Retail Sales MoM Nov consensus -0.5% vs previous 1.1% (07.00 GMT)

German Retail Sales YoY Nov consensus -0.5% vs previous -0.1% (07.00 GMT)

EU Inflation Rate MoM Flash Dec consensus % vs previous -0.6% (10.00 GMT)

EU Inflation Rate YoY Flash Dec consensus 3% vs previous 2.4% (10.00 GMT)

EU Core Inflation Rate YoY Flash Dec consensus 3.5% vs previous 3.6% (10.00 GMT)

Canada Unemployment Rate Dec consensus 5.9% vs previous 5.8% (13.30 GMT)

Canada Employment Change Dec consensus 12k vs previous 24.9k (13.30 GMT)

Canada Average Hourly Wages YoY Dec consensus % vs previous 5% (13.30 GMT)

US NFP Dec consensus 163k vs previous 199k (13.30 GMT)

US Unemployment Rate Dec consensus 3.8% vs previous 3.7% (13.30 GMT)

US Average Hourly Earnings MoM Dec consensus 0.3% vs previous 0.4% (13.30 GMT)

Canada Ivey PMI s.a. Dec consensus vs previous 54.7 (13.30 GMT)

US Factory Orders MoM Nov consensus 2.3% vs previous -3.6%(15.00 GMT)

US ISM Services PMI Dec consensus 52.6 vs previous 52.7 (15.00 GMT)

US ISM Services Employment Dec consensus vs previous 50.7 (15.00 GMT)

US ISM Services New Orders Dec consensus vs previous 55.5 (15.00 GMT)

US ISM Services Prices Dec consensus vs previous 58.3 (15.00 GMT)

US Supreme Court Ruling on Colorado’s Supreme Court ruling that Trump was ineligible to be on the state’s ballot.

Good luck.

The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.

The Morning Hark