In focus today
Today’s centre of attention will be the US. At 16:00 CET, ISM manufacturing and JOLTs are released. Consensus points to a modest uptick in ISM, though some early indicators suggest a print below 50 and thus still contracting. In respect of the jobs report on Friday, JOLTs will be key to follow. The most recent figures from October showed some cooling in labour markets, and another benign print would bring comfort for the Fed. Lastly, FOMC minutes are released in at 20:00 CET. We believe that it is imperative to follow whether some of the participants have been more worried about the recent easing in financial conditions than what Powell hinted.
In Europe, Germany will release unemployment figures for December, while Denmark’s FX reserve for December will be released in the afternoon.
In Asia, final Nikkei manufacturing PMI for December and Caixin service PMI are scheduled to be released overnight.
Economic and market news
What happened yesterday: The first trading session of the year was characterized by markets lowering expectations for rate cuts in 2024. Rising yields provided headwinds to equities – particularly tech stocks which fell more than 2% for the day. Oil prices rose in the early hours of the session following Iran’s decision to deploy a warship in the Red Sea. However, the gains were erased amid interest rate jitters and risk-off sentiment outweighing geopolitical uncertainty. Thus, Brent ended the session down by 3% (USD75.7/barrel).
Yesterday was very light on macro data. The M3 measure of money supply for November proved to be quite uneventful, printing -0.9% y/y (prior: -1.0%). Moreover, the majority of final manufacturing PMIs for December was marginally revised.
China: Similarly to Western equities, Chinese stocks were weaker overnight, though tech stocks gained little amid signs indicating easing restrictions imposed on the industry. In light of geopolitics, Taiwan spotted Chinese balloons near a Taiwanese air base. This puts China in the geopolitical spotlight – in particular due to the episode with the US last year and the upcoming election in Taiwan. Additionally, the geopolitical uncertainty related to the conflict in the Red Sea is beginning to have a measurable impact on global supply chains. For instance, the Shanghai Containerized Freight index has risen 60% over the past two weeks due to the conflict in the Red Sea.
Equities: Equities started the new year on a quite weak note. Equities were mostly lower which accelerated into the US session with S&P 500 -0.6% and Nasdaq -1.6% as big tech came up for sale. However, this was not investors taking home profits from equities, but much more rebalancing back into defensives. Telecom, pharma and staples were even up 2%, outperforming semis by 5p.p. No certain trigger behind it, but manufacturing weakness in December is probably one explanation. Cyclicals outperformed defensives by 30% in 2023, hence risk reward is stretched. We recommend finding beta in small caps instead of large cap cyclicals. US futures are continuing lower this morning.
FI: The global bond market continued the sell-off that began late last week with 10Y US Treasuries rising some 5bp and 10Y Bunds rising 5bp.
FX: The USD had its best trading day since October as EUR/USD fell back below 1.10 as risk sentiment soured on the back of rising US yields. Scandies had a tough session, in particular the NOK which lost close to 2% vs the USD, feeling the hurt not only from risk sentiment but also lower oil prices. At the other end of the risk spectra, the CHF continued on the strong end to 2023 with a solid first session of 2024.
