Market Report - 04/01/2024
PMI optimism in the UK; Market braces for Non Farm Payrolls release
Britain’s service sector grew at a faster pace in December than previously thought and optimism among firms hit a seven-month high, according to the UK’s purchasing managers index release this morning.
The final headline reading was 53.4 in December, the highest since June. It was up from 40.9 in November and a preliminary reading of 52.7. With the UK economy seemingly in a better place than expected, according to today’s PMI reading, Bloomberg economists are now predicting only a “shallow” recession followed by a rebound in Q2.
This positivity is welcome news for the UK economy with recent commentary suggesting the UK is falling into a technical recession. A major factor for this has been the stuttering UK Manufacturing Sector. We’re likely to get a good snapshot into how the sector is performing on Friday January 12th when Manufacturing PMI and Industrial Production is released, as well as short-term GDP Health when November’s reading is released on the same date. A fall into the negative GDP territory could see the Pound sliding against it’s peers, as a recession becomes seemingly more likely.
Alongside this, Rishi Sunak says his "working assumption" is that the nation will go to the polls in general election in the second half of the year. With the pound struggling to come to terms with a cost of living crisis and higher interest rates, what turmoil alongside this could a General Election cause?
The number of Mortgage approvals in the UK rose in November according to the Bank of England. A good indicator of future borrowing – rose to 50,100 in November from 47,900 in October. While approvals rose to the highest level since June, they remained below the long-term average. House price data is released tomorrow by Halifax which should give some further insight to the housing market and specifically the change in house prices over the past month. This data should further reveal the ongoing impact of higher interest rates and may even give the Bank of England some food for thought when looking at their next move, which is expected to pause on raising rates.
USD
Albeit a quiet data week for most major currencies; The US have the first blockbuster event in the calendar of 2024 and arguably the most important data point this week, with the Non-Farm Payrolls being released this Friday.
Last month’s print outperformed market expectations and as a result we saw the Dollar fight back against a strengthening Pound, however this week’s figure (for December) is forecasted to fall to 170k. Historically, any change from the norm in this data point has seen the Dollar move aggressively, for the better or worse.
Today’s ADP private payroll report (which usually is a good indicator for NFP’s release) was stronger than expected; it was announced that 164,000 jobs were added in the private sector, compared to last months 101,000.
Thursday, January 11th could also prove to be a key date in any economists calendar, as we get the US’ first CPI (Inflation) print. This is likely to give insight into Jerome Powell’s next monetary policy move, having decided to hold fire in last night’s FED meeting minutes, when it comes to dropping the base rate, across the pond.
From a geopolitical front, although nothing has occurred thus far, the US and China continue to flirt with conflict with the US stationing a lot of their forces in Taiwan, on the border of China. Of course, if war breaks out between the two global juggernauts, then we will see extreme currency swings which it’s important to bear in mind when reviewing hedging plans etc.
EUR
It’s a similar story in mainland Europe, cost of living crises and high interest rates continue to dominate headlines. Inflation in Germany, as tracked by the Consumer price index, matched estimates and ticked higher to an annualized 3.7% in December, up from 3.2% in the previous month. Furthermore, the CPI halted a five-month downward trend in the last month of 2023. Additionally, the CPI rose 0.1% from a month earlier. Higher inflation figures in Germany (Europe’s single largest economy) could dictate the ECB’s next move, do they pause or continue with potential interest rate cuts as they look to eradicate the price crisis in Europe?
It is going to be key to keep an eye on the other European powerhouse economies’ inflation figures which are due to be released in the week commencing January 8th to get a much more accurate picture on how Christina Lagarde may act in the next European Central Bank interest rate decision.
In conclusion, the early part of 2024 is likely to be dominated by talks of interest rate movements, much like the narrative of 2023, however geo-political events such as tensions between countries and General Elections will begin to dominate headlines and aggressively move markets as the year rumbles on.
Abacus FX is well positioned to support your business and help navigate the everchanging landscape as we continue to go through economic turmoil and international tensions.