Daily Market Outlook, January 3, 2024

Munnelly’s Market Minute…

Most Asian markets experienced declines as market sentiment echoed the downbeat performance of Wall Street, even though there was no clear reason for the negative trend. Meanwhile, Japanese markets were closed for a market holiday. Hang Seng and Shanghai Comp had mixed performance, with Hang Seng experiencing losses driven by large-cap Hong Kong stocks also listed in the US with JD.com leading the charge lower shedding over 4%. Mainland China fluctuated between modest gains and losses, supported into the close by stimulus speculation in the Chinese press.

Today sees no data of note in the UK or Europe, instead focus is firmly on the US data slate.

The publication of the minutes from the December monetary policy meeting of the US Federal Reserve. During this meeting, Fed Chair Powell suggested the possibility of US interest rate cuts in 2024. This shift towards a more dovish stance has increased market optimism for significant rate cuts this year. Investors are currently expecting a high likelihood of the first cut happening as early as March, with a projected total decrease of around 150 basis points by December. One notable aspect of the December Fed update was the apparent lack of effort to warn against what some had speculated as an excessive easing in financial conditions. Prior to the update, there were suggestions that the Fed might see recent financial market movements as an unwarranted early relaxation in monetary policy. However, both the Fed's press statement and Chair Powell's comments showed little indication of such concerns. In contrast to the December policy updates from the Bank of England and the European Central Bank, the Fed seemed to support market expectations. The minutes released today will provide further insights into whether this interpretation holds. Market participants will also be eager to find hints or clues about the potential timing of rate cuts and the criteria policymakers will consider before taking action.

In terms of additional US data releases today, the noteworthy update is the ISM manufacturing index for December. In November, it remained below the critical 50 level, indicating a contraction in activity for the 13th consecutive month. This trend is likely to have continued in December, although there may be indications of a slower pace of decline. On a positive note, the reading for the larger services sector, with the December update scheduled for Friday, remains in expansionary territory, indicating overall economic growth. Additionally, the November JOLTs survey of labour market turnover will be released, providing more details on labour market conditions after stronger-than-expected employment growth.

Overnight Newswire Updates of Note

Stocks, Bonds Drop In Tandem For Worst Start To Year In Decades
Fed’s Balance Sheet Leaps Into Spotlight After Repo Volatility
IMF Chief: Fed Securing Soft Landing, Warns Of Fragmentation
UK Executives Urge BoE To Cut Rates After Confidence Sinks Lower
China Newspaper Says More Policies To Stabilise Economy Coming
RBA Sees Living-Cost Pressure Weighing On Growth, Documents Show
Banks See Higher-Rated Bonds Beating Junk For First Time Since 2020
China’s Commodities Demand Remains Resilient Despite Factory Slump
Stocks, Bonds Drop In Tandem For Worst Start To Year In Decades
China Fortune Land’s Bond Investors Get Only Partial Payment
Samsung To Kick Off Year Of AI Phones With New Launch This Month
An Israeli Drone Kills Hamas Deputy Leader In Beirut

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

EUR/USD:1.0900-05 (488M), 1.0940-50 (738M) 1.0975 (230M), 1.1000 (960M), 1.1015-25 (431M) 1.1030-35 (566M), 1.1045-55 (868M) 1.1075-85 (1.81BLN), 1.1090-00 (1.11BLN)
USD/JPY: 142.00 (241M), 142.235-25 (234M)
EUR/JPY: 153.40 (432M), 159.35 (370M)
USD/CHF: 0.8430 (555M)
GBP/USD: 1.2430 (338M), 1.2660 (284M)
EUR/GBP: 0.8690 (377M)
AUD/USD: 0.6720 (527M), 0.6670-75 (368M)
NZD/USD: 0.6150-55 (561M)