As we embark on the first trading day of 2024, we extend our heartfelt wishes for a Happy New Year to our readers. Today’s market calendar features the Eurozone M3 measure of money supply for November, offering insights into the economic landscape. The decline in M3 since the initiation of the European Central Bank‘s tightening policy signals potential headwinds for the economic outlook.
The week ahead holds key releases, with final December manufacturing PMIs scheduled for various countries, including Sweden, Spain, Italy, Germany, Europe, and the UK. Eyes will be on the US for significant data releases, including the ISM manufacturing index, JOLTs, FOMC minutes, and the December Jobs Report and ISM services index on Friday.
In Europe, focus will be on the preliminary Eurozone HICP for December, set to be released on Friday. Anticipated upward movement in headline HICP to 2.9% y/y, driven by fading base effects from energy prices, will be closely monitored. Meanwhile, core inflation is expected to continue its decline to 3.3% y/y.
Key Highlights from the Holiday Period:
The ‘everything’ rally persisted between Christmas and New Year, characterized by lower yields and higher equities. Market sentiment remains buoyant, underpinned by growing expectations of monetary policy easing, with markets pricing in rate cuts for both the Fed and the ECB in 2024.
Geopolitical tensions persist, with developments such as Israel adjusting tactics in Gaza, Houthi rebels attacking pro-Israeli shipping, and ongoing talks among G7 nations regarding potential measures against Russia in response to the invasion of Ukraine.
Equities:
Equities experienced a retreat on Friday after a strong Christmas rally. The overarching theme included yields decreasing and a broad range of sectors posting gains, particularly small caps. Notably, large caps cyclicals showed minimal movement, while defensives (utilities, staples, health care, financials) outperformed.
Fixed Income:
The bond market closed on a positive note, with 10Y US Treasuries and Bunds witnessing a decline of approximately 40bp during December. The market is pricing in around 6-7 rate cuts from the ECB and the Federal Reserve in 2024, anticipating an easing cycle.
Foreign Exchange (FX):
The USD ended 2023 as a loser within G10, alongside NZD, NOK, and JPY. Notably, CHF stood out as the top performer against the USD. Looking ahead to 2024, expectations lean towards USD strength and potential Scandie weakness over the medium-term horizon.
The new year unfolds with a mix of economic data, geopolitical developments, and market dynamics shaping the landscape. As we navigate the first trading day of 2024, stay tuned for insights and updates in this ever-evolving financial landscape.
