US initial jobless claims fell -18k to 202k in the week ending December 30, below expectation of 210k. Four-week moving average of initial claims fell -5k to 208k.
Continuing claims fell -31k to 1855k in the week ending December 23. Four-week moving average of continuing claims fell -250 to 1867k.
US ADP private employment grew 164k in December, above expectation of 130k. By sector, goods-producing jobs rose 9k while service-providing jobs rose 155k. By establishment size, small companies added 74k jobs, medium companies added 53k, and large companies added 40. Median change in annual pay for jobs-stayers slowed from 5.6% to 5.4%, and for job-changers from 8.3% to 8.0%.
“We’re returning to a labor market that’s very much aligned with pre-pandemic hiring,” said Nela Richardson, chief economist, ADP. “While wages didn’t drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared.”
UK PMI Services was finalized at 53.4 in December, up from November’s 50.9, and the highest reading since last June. S&P Global noted continuous rise in output and new work for the second consecutive month. However, the sector also saw a slight decline in employment numbers, and there was acceleration in price charged inflation. Price charged inflation accelerated again. PMI Composite was finalized at 52.1, up from prior month’s 50.7.
Tim Moore, Economics Director at S&P Global Market Intelligence, stated, “December data indicated that the UK service sector ended last year on a high,” attributing the recovery in client demand to expectations of lower borrowing costs and an improving global economic outlook for 2024.
Moore also highlighted that business activity expectations for the upcoming year are now at their most optimistic since May of the previous year, although he pointed out that staff hiring remained a weak spot in December, with many companies yet to lift their hiring freezes.
Moore further commented on the inflationary pressures within the service sector, noting substantial input cost increases driven by strong wage pressures. This trend has led to a robust rise in prices charged across the service sector as businesses strive to protect their margins. The rate of inflation in this regard was the fastest since July of the previous year, indicating the challenges faced by service providers in managing costs while maintaining competitive pricing.
Eurozone PMI Services was finalized at 48.8 in December, up slightly from November’s 48.7, a 5-month high. PMI Composite was finalized at 47.6, unchanged from prior month’s reading, indicating continued contraction in the broader economy.
A country-by-country analysis of Composite PMI reveals varying performances. Ireland, with PMI of 51.5, experienced a two-month low, while Spain, at 50.4, reached a five-month high. Italy’s PMI climbed to a three-month high of 48.6, and Germany’s index, at 47.4, hit a two-month low. France, at 44.8, saw a four-month high, yet its service sector remains the weakest among the top Eurozone economies.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, observed that Eurozone’s service sector is undergoing a slight contraction, with job numbers marginally increasing. He stated, “It’s not quite recession territory yet for services, but the vibe is far from growth-oriented.”
Furthermore, he expressed concerns about the broader economic outlook, noting that the Composite PMI is signaling a recession in Eurozone. The bank’s GDP Nowcast model projects a consecutive contraction in the region’s output for the fourth quarter, adding credence to this recessionary warning.
In examining the service sectors of the top Eurozone countries, de la Rubia identified significant variations. Spain’s service sector is performing well, showing growth for four consecutive months. In contrast, Germany and Italy are experiencing stagnation, while France’s service sector is consistently declining, making it the worst performer in this group.
China’s Caixin PMI Services marked a significant rise to 52.9 in December from 51.5, achieving its highest level since July. Concurrently, PMI Composite, which combines both manufacturing and services, also saw an improvement, climbing from 51.6 to 52.6.
Wang Zhe, Senior Economist at Caixin Insight Group, noted that businesses are “expressing confidence” in an improved economic outlook for the coming year. This optimism is reflected in the business expectations gauge, which, despite being “about 3 points below” the 2023 average for the first 11 months, still aligns with the “historical mean” from 2012 to 2022.
Japan’s PMI Manufacturing was finalized at 47.9 in December, down from November’s 48.3, marking the most significant sector contraction since February 2023. S&P Global reports that this downturn was characterized by notable declines in both production and new orders, alongside rise in input price inflation. Despite these challenges, there was an unexpected increase in business confidence, reaching a five-month high.
Paul Smith from S&P Global Market Intelligence noted, “Market uncertainty led to reduced orders and output, especially from key export clients in China, Europe, and North America.” He also mentioned specific struggles in the electronics sector and a general lack of investment.
However, Smith acknowledged increased cost pressures, with input price inflation at a three-month high due to more expensive raw materials, particularly imports.
Looking ahead, Smith conveyed optimism among Japanese manufacturers, expecting an end to client destocking and predicting that new product launches will boost production in 2024.
Minutes from FOMC’s December meeting indicate that some participants are concerned about the risks of stalling progress in bringing down inflation to target. Simultaneously, there is apprehension about downside risks to the economy resulting from “overly restrictive monetary policy”. Hence, a few suggested that Fed could “face a trade off between its dual-mandate goals in the period ahead”.
Significantly, the minutes indicate a consensus among participants that, considering the improved inflation outlooks, a lower target range for federal funds rate would likely be appropriate by the end of 2024. However, they also recognized “an unusually elevated degree of uncertainty” in their economic outlooks, leaving room for the possibility that economic developments might necessitate further rate increases or maintaining the current target range longer than currently anticipated.
The emphasis in the discussions was on the need for a “careful, data-dependent approach” to policy decisions. The minutes also highlighted that “it would be appropriate for policy to remain at a restrictive stance for some time,” underlining the commitment to ensure that inflation is sustainably moving towards the Committee’s objective.
Participants also discussed risk-management considerations for future policy decisions. They acknowledged that while upside risks to inflation have decreased, inflation is “still well above the Committee’s longer-run goal.” Moreover, the minutes reflected a concern about the duration for which a restrictive monetary policy would be necessary, pointing to “downside risks to the economy” associated with such a stance. A few participants raised the possibility of a trade-off between the Fed’s dual-mandate goals.
US ISM Manufacturing PMI rose from 46.7 to 47.4 in December, above expectation of 47.1. That’s still the 14th month of contraction reading.
Looking at some details, new orders, fell from 48.3 to 47.1, the 16th month of contraction. Production rose from 48.5 to 50.3. Employment rose from 45.8 to 48.1. Prices fell sharply from 49.9 to 45.2.
December PMI reading of 47.4 corresponds to an estimated decrease of -0.5% in the real GDP on an annualized basis.
Richmond Fed Thomas Barkin, in his prepared remarks for a speech, acknowledged that soft landing is “increasingly conceivable. But he also cautioned that such an outcome is “in no way inevitable.”
Barkin outlined four key risks that could potentially derail the US economy from its desired path. Firstly, he expressed concern that the economy might “run out of fuel”, implying a slowdown in economic momentum. Secondly, he pointed to the possibility of “unexpected turbulence”.
Thirdly, the risk that inflation might stabilize at a level above Fed’s 2% target. Finally, Barkin mentioned the risk of a delayed “landing”, suggesting that the economy could continue to perform better than expected, which might prolong the process of policy normalization.
Addressing the approach to monetary policy, Barkin emphasized the importance of incoming data in shaping the Fed’s decisions. He stated, “Is inflation continuing its descent and is the broader economy continuing to fly smoothly? Conviction on both questions will determine the pace and timing of any changes in rates. There’s no autopilot. The data that come in this year will matter.”
In December, Germany’s unemployment count rose by 5k to 2.703m, a figure notably lower than the anticipated increase of 20k. This increment brings the total number of unemployed in Germany to 183k higher compared to the same period a year ago. Additionally, unemployment rate inched up from revised 5.8% to 5.9%, aligning with expectations.
Andrea Nahles, chair of Federal Employment Agency, acknowledged that economic challenges of 2023 have indeed impacted the labor market, but she also emphasized the market’s relative resilience in the face of these stressors.
She noted, “If we look back at 2023, we can see that the weak economy has left its mark on the labor market — however, considering the extent of the stress and uncertainty, the labor market is still holding up well.”
Oil market experienced significant volatility on the first trading day of the year. Initially, oil prices saw an uptick, fueled by concerns over supply disruptions linked to escalating tensions in the Red Sea region, a vital gateway to the Suez Canal.
This surge was triggered by an incident where US helicopters thwarted an attack by Iran-backed Houthi forces on a vessel operated by Danish shipper Maersk in the Red Sea. Adding to the geopolitical complexities, an Iranian warship’s entry into the Red Sea, reported by the semi-official Tasnim news agency, further heightened market anxieties.
However, as the day progressed, the oil markets reassessed the situation and concluded that direct engagement between the Iranian warship and American forces was unlikely. This reassessment led to a subsiding of initial fears regarding supply disruptions, causing oil prices to reverse their earlier gains and close lower.
From a technical analysis standpoint, WTI’s rebound from 67.79 short term bottom should have completed at 76.02. Rejection below 55 D EMA keeps near term outlook bearish. Further fall is expected as long as 73.52 minor resistance holds, to retest 67.79 low. Firm break there will resume larger decline from 95.50 (2023 high) to retest 63.67 (2023 low).
Nevertheless, break of 73.52 will extend the corrective pattern from 67.79 with another leg through 76.02 instead.
In a CNN interview aired overnight, Kristalina Georgieva, Managing Director of IMF, provided an optimistic outlook for the US economy. She firmly stated that US is on track for “soft landing,” suggesting a scenario where the economy will experience slowdown without slipping into recession.
Georgieva attributed this positive forecast to Fed’s “decisiveness” in tightening monetary policy, which, according to her, has successfully started to mitigate inflationary pressures while avoiding a full-blown economic downturn.
In her message, Georgieva conveyed a sense of optimism for the general public, encouraging them to view the current economic scenario positively. She said, “You have a job, and interest rates are going to moderate this year because inflation is going down. Cheer up. It is a new year, people.”
US PMI Manufacturing was finalized at 47.9 in December, down from November’s 49.4.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“US manufacturers ended the year on a sour note, according to S&P Global’s PMI survey. Output fell at the fastest rate for six months as the recent order book decline intensified. Manufacturing will therefore likely have acted as a drag on the economy in the fourth quarter.
“The slowdown is spreading to the labor market. Payrolls were cut for a third month running as increasing numbers of firms grew concerned about the development of excess operating capacity. The fourth quarter has consequently seen factories reduce employment at a pace not seen since 2009 barring only the early pandemic lockdown months.
“With factories also cutting back sharply on their purchases of inputs in December, suppliers were also less busy on average, again hinting at the development of spare capacity.
“While there was some uplift in the rate of both raw material and factory gate selling price inflation, firms’ costs notably continued to rise at a pace below the survey’s long-run average to hint at historically subdued industrial price pressures.
“Given current order book trends, the overall picture from the survey is one of supply exceeding demand for many goods, which points to downside risks to production, employment and prices as we head into 2024. Potential supply chain disruptions need to be monitored, however, notably in terms of shipping, as the survey has clearly demonstrated in the past how supply chain tensions quickly feed through to higher prices.”
UK PMI Manufacturing was finalized at 46.2 in December, down from November’s 47.2. This marks the seventeenth consecutive month where the index has remained below the neutral 50 threshold, indicating ongoing contraction. According to S&P Global, key aspects such as output, new orders, and employment are all in decline. Additionally, business optimism has reached a 12-month low.
Rob Dobson, Director at S&P Global Market Intelligence, pointed out demand environment remains challenging, with new orders continuing to decline due to difficult conditions in both domestic and key export markets, particularly the European Union.
The downturn is prompting companies to adopt a more cautious approach to costs. There have been notable cutbacks in stock levels, purchasing, and employment as firms grapple with the ongoing challenges.
Eurozone’s PMI Manufacturing was finalized at 44.4 in December, up slightly from November’s 44.2. Despite this minor uptick, marking a seven-month high, the index remained below the critical 50.0 threshold, signaling a continued deterioration in operating conditions across the sector.
Country-by-country breakdown of Manufacturing PMI reveals a diverse picture. Greece stands out with a PMI of 51.3, indicating expansion and marking a four-month high. In contrast, other major economies like Ireland, Spain, Italy, the Netherlands, Germany, France, and Austria all recorded PMIs indicative of contraction, with varying degrees of severity. Notably, France registered a PMI of 42.1, a 43-month low. On the other hand, Germany rose to an 8-month high at 433.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, remarked on the “relentless slump” in Eurozone’s manufacturing sector, noting that the marginal improvement in the PMI does little to alleviate concerns about the persistent decline in activity and demand for manufactured goods. The consistent sluggishness in new orders was particularly alarming, reflecting a pervasive gloom across the sector.
According to HCOB’s Nowcast model anticipates a contraction in the Eurozone’s GDP for the fourth quarter. This projection, if realized, indicates that Eurozone may have already entered a recession as early as the third quarter.
Bitcoin soars notably today, and breaks 45k mark for the first time in nearly two years, signaling a resurgence in its medium-term uptrend. The flagship cryptocurrency could be gathering momentum to extend its medium term up trend at the start of the year.
Two key events are driving this optimism: the pending SEC approval for spot Bitcoin ETF products, with 14 applications currently under review, and the much-anticipated Bitcoin halving event, a code-embedded process that occurs every four years.
From a technical perspective, break of 44727 short term top indicates resumption of whole up trend from 15452 (2022 low). Near term outlook will stay bullish as long as 41511 support holds. Next target is 161.8% projection of 15452 to 31815 from 24896 at 51371.
In the bigger picture, upside acceleration as seen in W MACD suggests that rise from 15452 is an impulsive move. Hence, sustained break of 51371 would solidify the case that Bitcoin is ready to resume the long term up trend through 68986 historical high at a later stage.
December brought mixed signals from China’s manufacturing sector, as indicated by two key indices: Caixin PMI and official NBS PMI. Caixin PMI Manufacturing slightly increased from 50.7 to 50.8, surpassing expectations of 50.4, suggesting a marginal yet steady expansion in the manufacturing sector. Notably, Caixin highlighted that both output and new orders are rising at faster rates, indicating increased production and demand within the industry.
However, the same period saw a dip in official PMI Manufacturing, which fell from 49.4 to 49.0. This decline suggests contraction in the sector, contrasting with optimism reflected in Caixin PMI data. The difference between these two indices can be attributed to their varied focus groups; Caixin PMI typically surveys small and medium-sized enterprises, while NBS PMI is more reflective of larger, state-owned companies.
Wang Zhe, Senior Economist at Caixin Insight Group, emphasized the improved economic outlook for the manufacturing sector, with expanding supply and demand, and stable price levels. Yet, he also pointed out significant challenge in employment, highlighting businesses’ cautious approach in areas like hiring, raw material purchasing, and inventory management.
On the other hand, NBS PMI Non-Manufacturing showed a slight improvement, rising from 50.2 to 50.4. This marginal increase suggests a modest expansion in China’s services sector.
Swiss KOF Economic Barometer rose modestly from 96.7 to 97.8 in December, slightly above expectation of 97.3. KOF said, ” The outlook for the Swiss economy for the start of 2024 therefore remains subdued despite a further improvement.”
KOF also noted that the barometer’s increase was primarily driven by positive developments in the manufacturing sector and indicators related to private consumption. However, indicators in other economic sectors remained largely unchanged from the previous month.
Japanese Yen is poised to be December’s best performer in the currency markets. Its strength is primarily driven by growing expectations that BoJ will eventually exit its long-standing negative interest rate policy in 2024. Yen’s performance is particularly noteworthy against Dollar (USD/JPY) and Sterling (GBP/JPY), both of which are top movers for the month, with the possibility of ending down more than 700 pips.
The strengthening of Yen comes amidst a broader context where other major global central banks, such as Fed, ECB, and BoE, are expected to start loosening their monetary policies or, in some cases like SNB, BoC and RBNZ, maintain unchanged rates.
BoJ Governor Kazuo Ueda has recently softened his typically dovish tone, acknowledging that the likelihood of a rate hike in 2024 is “not zero.” He also emphasized the importance of the Spring wage negotiations and the need for wage hikes to “broaden” from large companies to small businesses. This change in stance has contributed further to Yen’s rally, with April being viewed as a probable timing for rate hike. Yen could see further gains if incoming information in Q1 solidifies this expectation.
Technically, USD/JPY’s fall from 151.89 is seen as the third leg of the consolidation pattern from 151.93. Further decline is expected as long as 144.94 resistance holds. Next target is 61.8% retracement of 127.20 to 151.89 at 136.63, sustained break there will pave the way to 127.20 support (2022 low).
At the same time, USD/CNH is undergoing similar development. The pair is having a second attempt to break through 38.2% retracement of 6.6971 to 7.3679 at 7.1117. Sustained trading below this level will strengthen the case that fall from 7.3679 is the third leg of the consolidation pattern from 7.3745, aligning with the outlook of USD/JPY. In this case, deeper fall would be seen to 61.8% retracement at 6.9533, with prospect of having a take on 6.6971 support.
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US PMI services finalized at 51.4, some New Year cheer
US PMI Services was finalized at 51.4 in December, up from November’s 50.8. PMI Composite was finalized at 50.9, up from prior month’s 50.7.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“Some New Year cheer is provided by the PMI signalling an acceleration of growth in the vast services economy, which reported its largest rise in output for five months in December. The improvement overshadows a downturn recorded in manufacturing to indicate that the overall pace of US economic growth likely accelerated slightly at the end of the year.
“Some support to financial services in particular is coming from the recent loosening of financial conditions amid growing hopes of interest rate cuts in 2024. Growth nevertheless remains subdued by standards seen over the spring and summer, with the struggling manufacturing sector dampening demand for business-to-business services and consumers remaining far less inclined to spend on luxuries such as travel and recreation than earlier in the year.
“The more challenging demand environment has dampened firms’ pricing power, squeezing service sector selling price inflation to the lowest for over three years on average during the fourth quarter. With sticky service sector inflation being a key area of concern among Fed policymakers, the slower rate of price increase in December is welcome news.”
Full US PMI Services final release here.