December 29, 2023

“Low volume trading has exaggerated price movements over the holiday period, driving strong recent gains in sterling and the euro despite an empty calendar.”

Tim Hallinan – Trading Director

Main Headlines

Maine has disqualified Donald Trump from participating in the state’s upcoming US presidential primary election in 2024. This decision was made based on his alleged involvement in the attack on the US Capitol on January 6, 2021. However, there remains an option to appeal this ruling to the state Superior Court, and until a decision is reached there, the disqualification stands suspended.

Nationwide reported a 1.8% drop in British house prices over the 12 months ending in December, marking the largest yearly decline since 2008’s global financial crisis. The housing market surged during the COVID-19 pandemic but faced challenges due to increased borrowing costs from the Bank of England’s raised interest rates. However, recent reductions in mortgage rates hint at potential stabilisation after signs of a market downturn.

GBP

Sterling notched a fresh five-month high as the dollar dipped in thin holiday trading yesterday morning. These gains were rapidly reversed throughout the rest of the session, however. The pound is on track to win 0.2% in December and over 5% in 2023 as high inflation means the Bank of England looks set to cut rates more slowly than the Federal Reserve in 2024, steering the US-UK rate differentials in sterling’s favour.

EUR

The euro has nudged lower this morning after similarly surging to a five-month high in volatile trading yesterday. A lower-than-expected flash CPI print for Spain has weighed the common currency down this morning at 3.1%, as falling euro area inflation figures continue to support the notion that the ECB will slash rates six times next year. Elsewhere in Europe, choppy trading sent the Swiss franc to its highest level against the dollar since January 2015.

USD

The US dollar is set to end a two-year winning streak after money market traders ratcheted up rate cut expectations in the last few months of 2023. Higher-for-longer rate expectations and a resilient US economy drove the dollar up in the late summer, but cooling economic data and dovish policymaker language have recently sent bond yields tumbling alongside the greenback. Unemployment claims came in broadly as expected yesterday afternoon, and the Chicago PMI is the sole key market event this afternoon.

Markets

European stocks managed a slight gain on the year’s final trading day, contributing to the best annual performance for global shares since 2019. The Stoxx Europe 600 index rose by 0.2% at the start of trading, culminating in a 13% increase for the year. In the US, futures inched higher following the S&P 500’s near all-time high on Thursday, marking a 2023 advance of nearly 25%. Additionally, the MSCI All Country World Index has surged approximately 20% throughout this year.

Main Economic Events (All Times CET)

8:00am.: UK Nationwide House Price Index
9:00am.: Swiss KOF Economic Barometer
9:00am.: Spanish Flash CPI
3:45pm.: US Chicago PMI

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