January 02, 2024

“Sterling notched its best performance since 2017 last year ahead of a highly uncertain global interest rate easing cycle in 2024, the evolution of which is set to determine the direction of the currency markets this year. The economic calendar bursts back into life this week after a quiet holiday period, with US non-farm payrolls and Eurozone CPI the headline market events.”

Tim Hallinan – Trading Director

Main Headlines

Jared Bernstein, the chair of the White House Council of Economic Advisors, said on Sunday that higher consumer spending during the holiday season, real wage gains over the past nine months, and a surge in consumer confidence indicate a positive beginning for 2024 in the US. The Conference Board reported on December 20 that US consumer confidence rose to a five-month high in December. This positive development aligns with the nearly 14% increase in the University of Michigan’s benchmark Consumer Sentiment Index, marking its most substantial jump in over three decades. Notably, for most of Biden’s term, the Michigan index had reflected widespread pessimism among households regarding the economy.

The British arm of Aldi reported an 8% increase in holiday sales, surpassing £1.5 billion for the first time in the four weeks leading up to December 24. Aldi and its smaller rival Lidl GB both noted their busiest trading day on December 22, with Aldi welcoming over 2.5 million customers on that day. Lidl GB reported an even higher sales increase of 12% during the same period.

GBP

Sterling has inched higher this morning, as it exits 2023 over 5% stronger against the US dollar in its best performance since 2017. Stickier inflation, a stronger-than-expected British economy, and accelerated rate cut expectations from the Fed combined to propel the pound in the second half of the year, and holiday period volatility saw sterling spike to a five-month peak last week before slightly to current levels. The BRC Shop Price Index stalled at its lowest since June 2022 in December, remaining at 4.3% year-on-year retail price growth as in November, signalling sticky inflation. This week’s macroeconomic calendar is relatively quiet for sterling despite busy diaries elsewhere, although final revisions to the purchasing manager surveys – a leading indicator of economic growth – begin with the final manufacturing PMI this morning.

EUR

The euro is trading flat in today’s session, having fallen 1% from last Wednesday’s rally driven by thin holiday trading volumes. The euro notched similar gains in 2023, rising 3% against the greenback and climbing well clear of its below-parity lows from late-2022.  A series of European final manufacturing PMIs this morning has been initiated by a slight downwards revision to the Spanish figure, with Italian, French and German to come before the consolidated print later this morning. Private loans and money supply data will give a further indication into credit conditions today, but investors will be firmly focused on Friday’s CPI inflation print for December, when markets will look to adjust the enormous 158bps of rate cuts priced into this year.

USD

The dollar index stands firm this morning as it snaps its two-year winning streak with a 2% decline last year, following a 5% plunge in Q4 as markets ratcheted up expectations for Fed rate cuts. Market pricing currently predicts an 85% chance that a first rate cut comes in March, with a cumulate six rate cuts by the end of the year. The US calendar bounces back this week, kicking into high gear tomorrow with a sequence of crucial labour-focused macroeconomic data this week that includes the JOLTS Job Openings Survey, FOMC meeting minutes, ADP non-farms, unemployment claims, non-farm payrolls, and wage growth. For today, however, investors have the final manufacturing PMI this afternoon for their next clues on the US economy.

Markets

On the first trading day of the year, Chinese shares exerted downward pressure on Asian equities, driven by weaker-than-expected factory data and a speech from President Xi Jinping highlighting economic headwinds. Meanwhile, Bitcoin and gold experienced surges as the positive market risk sentiment from December continued into 2024, fuelled by optimism for an accelerated global easing cycle this year.

Main Economic Data/Central Banks/Government (All Times CET)

10:00am.: Eurozone Final Manufacturing PMI, M3 Money Supply and Private Loans
10:30am.: UK Final Manufacturing PMI
3:30pm.: Canadian Final Manufacturing PMI
3:45pm.: US Final Manufacturing PMI
4:00pm.: US Construction Spending

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