January 24, 2024

“A string of PMI data will capture the market’s attention today. Investors will look to glean the outlook for growth across the developed market economies, before narrowing their focus to the US economy with Q4 GDP and core PCE inflation later this week.”

Tim Hallinan – Trading Director

Main Headlines

Donald Trump secured a decisive win in New Hampshire’s Republican presidential contest on Tuesday, bringing him a step closer to a potential rematch with Democratic President Joe Biden in November. While former UN Ambassador Nikki Haley, Trump’s sole remaining rival, pledged to continue her campaign, Trump commanded a substantial lead with 54.4% to Haley’s 43.6%, with 57% of the expected vote tallied, according to Edison Research.

According to a survey by the City of London Corporation, London has retained its position as the world’s leading financial centre, while New York slipped into second place. The survey noted improvements in London’s business ecosystem, citing the clearing of bottlenecks caused by Brexit and the COVID-19 pandemic. Regulatory efficiency, immigration policies, and the return of workers to the office were among the factors contributing to London’s continued dominance.

GBP

Despite a lack of data, shifts in risk sentiment saw sterling trade in a 0.8% range against the dollar after an initial boost evaporated rapidly in the afternoon. Meanwhile, the pound touched a four-month high against the euro yesterday, buoyed again by the prospects of a more hawkish Bank of England. Domestic price action will hang on the flash manufacturing and services PMIs this morning, which survey purchasing managers on business conditions and economic health, typically with strong predictive power for GDP growth. The economist consensus looks for a slight moderation in the rate of expansion for services and a deceleration in contracting factory activity. A wide miss or beat would likely be needed to unsettle market pricing significantly here, however. The outlook for British economic activity has improved significantly in recent months, following a surprise return to growth in the second half of Q4.

EUR

The single currency has nursed some moderate losses against most major currencies since yesterday morning, ahead of the ECB’s decision tomorrow afternoon. Worsening consumer confidence put some extra downwards pressure on the euro yesterday, although it has managed some recovery this morning. The composite eurozone PMI has done little to alter the ECB’s policy outlook this morning, landing at 47.9, down from last month’s 48.0. Economic activity in the eurozone has hovered around the same subdued levels in contractionary territory since November, although it represents more of a state of stagnation than a meaningful recession. It remains within an acceptable range for the ECB to continue the more cautious and data-dependent stance that it is likely to repeat at tomorrow’s meeting.

USD

The dollar index has slumped 0.5% in a corrective move since touching a near six-week high yesterday evening. An unexplained rally pushed the greenback to levels last seen in mid-December as investors continue to fine-tune their expectations for the Fed’s policy path this year. But a renewed upwards reassessment of the probability of a March cut to above 50% overnight sparked a 10bps slide in short-term yields, taking some of the shine off the dollar’s appeal. The US PMI data should show stability in both the services and manufacturing sectors, which have proven to be remarkably strong despite rapidly elevated borrowing costs. A stark downside surprise here would likely be required to put a Q1 cut back on the table, which would be hugely unexpected, given the continued resilience in the labour market. The Bank of Canada should give USD/CAD a jolt this afternoon in its first rate decision of the year – a recent tick up in inflation means that the ‘sustained downward momentum’ that Governor Macklem is looking for has not been achieved since Q2 last year. Although signs are positive for a move in the right direction, the tightening bias should remain, and a dovish pivot is likely some time away.

Markets

Global equities moved higher, with a late rebound in China contributing to the positive trend, driven by optimism about a potential market rescue package. European stock futures and US equity futures also rose, following the S&P 500’s record-high close, supported by positive earnings reports.

Main Economic Events (All Times CET)

9:15am.: French Flash PMIs
9:30am.: German Flash PMIs
10:00am.: Eurozone Flash PMIs
10:30am.: UK Flash PMIs
3:45pm.: Bank of Canada Rate Statement
3:45pm.: US Flash PMIs
4:40pm.: Bank of Canada Press Conference

Corporate Events

Earnings include Tesla, SAP, AT&T, and IBM

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