- Harry Bennett
- January 10, 2023
- 9:07 am
- 10 min read
The New Year spurs optimism across the Equity Markets!
Indices
Futures
Forex
– A risk on sentiment was prominent towards the latter half of what marked the first trading week of 2023. U.S. stock markets were boosted by hopes of a “softer landing” as inflation retracts and job growth came in better than expected. The S&P 500 and DJIA were up 1.7 and 2.3% for the week.
– The Dollar Index ($DXY) saw a big bearish reversal on Friday and looks to have slipped below their most recent low. It looks like the index will retest the 61.8% Fibonnaci retracement of its yearly highly and low (chart below).
– A strong jobs report showed the unemployment rate in the US dropped to 3.5% in December 2022, falling below market expectations at 3.7%. This was the lowest rate since February 2020. According to ADP, the private sector added 235,000 jobs in December with the service sector leading the way.
– European yields remain choppy despite stabilising towards the end of last week, the German 10 year yield dropped more than 35 bps last week its largest weekly fall since 2011. German 10y closed at 2.211% and Italian 10y at 4.21%.
– Inflation in the Euro Zone dropped for a second consecutive month in December. Headline inflation, which includes food and energy costs, came in at 9.2% year on year in December.
– Analysts do not expect a change in tone from the European Central Bank (ECB). President of the ECB, Christine Lagarde flagged another 0.5% hike in February and a subsequent rise possible in March 2023, solidifying the stance from the ECB moving through the first quarter.
– Equities in the EU and UK have been firm, within the last 5 trading sessions the DAX was up 4.79% with the FTSE 100 up 3.67%. The later is currently trading at a post covid high around the 7,720 mark. The strength in the FTSE has been driven by the energy and utility space.
– The next Bank of England base rate decision is scheduled for the 2nd February 2023. The current 3.5% is expected to rise to 4.5% by the end of Q1 2023. UK inflation has since fallen to 10.7% from its recent highs but the cost of living pressure remains.
– Freight booking cancellations are increasing at the ports of Shanghai and Shenzhen as factories battle with workers getting COVID. Congestion is also mounting at he Ports of Ningbo and Qingdao as well. Hospital infrastructure is under immense pressure as 88 million people in Henan province alone have been infected.
– Data released on Friday showed Japan’s core consumer inflation hit a fresh 40 year high as businesses past rising costs on to their consumers. This is adding further pressure on the central bank to reduce their massive monetary stimulus.
– Gold prices reached 8 month highs last week pushing past resistance at 1,850.0 (chart Below). A move above this area now looks to hit the next area of resistance at 1,880. China are the largest consumer of this precious metal, perhaps explaining the rally moving towards Lunar New Year (22nd January).
Conclusion
Positive U.S. data coupled with China’s abandonment of its Zero Covid policy is stirring hopes of a recovery. The (China) world’s largest importer of commodities may have a huge positive impact on import flows. However, they will first need to overcome this initial spike in cases and economic set back. The murky waters around the macroeconomic landscape remain and investors should be vigilant of false market signals. An undeniable slowdown in economic growth and recessionary pressures will present challenges in the U.S.,Eurozone and UK markets.
Written by:
Harry Bennett
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