January 3, 2023

“The general take from central banks around the globe is that as we come into 2023, rates will have to rise further and remain at elevated levels for some time before inflation will return to target levels.”

Tim Hallinan – Trading Director

Main Headlines

Global asset managers are facing a long-delayed reckoning in 2023 as falling assets force them to cut costs and make tough decisions about where to invest for growth. Revenues were down across the industry last year, after a record 2021, as falling markets across almost all asset classes hit both management and performance fees. In the US, total assets in mutual and exchange traded funds dropped 17 per cent between the start of 2022 and the end of October, the most recent figures available from the Investment Company Institute showed.

Train passengers face another week of chaos on Britain’s railways as the series of bitter and long-running industrial disputes drags into the new year and looks set to disrupt the return to work after the Christmas holidays. Rail users have been warned to “only travel if it is absolutely necessary” between Tuesday and Saturday, with large parts of the network shut down and skeleton services expected to operate elsewhere. About 40,000 RMT members will stage walkouts on Tuesday, Wednesday, Friday and Saturday, in a dispute over pay, job security and changes to working practices.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. Millions of low-income households in Britain will receive payments totalling up to £1,350 spread over at least 12 months, the government announced on Tuesday as part of its measures aimed at easing the cost-of-living crisis. The pace of store closures in the UK accelerated in 2022 as Covid-era support measures were withdrawn, with rationalisation rather than insolvency the main reason for shops shutting, according to a study.

EUR

Euro is weaker than most major currencies in the early morning trade. The EU has offered free Covid-19 vaccines to China to help Beijing contain a mass outbreak of the illness following its decision to end strict nationwide pandemic-related restrictions. Fading supply chain problems helped ease the downturn in Germany’s manufacturing sector in December, although weaker demand continues to weigh on sentiment. S&P Global’s final Purchasing Managers’ Index for manufacturing, which accounts for about a fifth of Germany’s economy, rose to 47.1 from November’s 46.2.

USD

The dollar is well bid against most major currencies overnight. The biggest buyers of US junk loans are expected to shrink their exposure to the $1.4tn market in 2023, as the Federal Reserve’s campaign of interest rate rises sparks rating downgrades and defaults. US Representative Kevin McCarthy struggled to beat back hard-line conservative opposition and secure enough votes to give him the speakership when the new House of Representatives convenes with a narrow Republican majority.

Markets

Stocks rose and futures signalled gains for US equities on their first day of trading in 2023. The yen gave up its gains while gold traded at the highest level in more than six months. Contracts on the S&P 500 rose, and European equities climbed after tepid trading in thin volume on Tuesday. Stocks in Hong Kong and mainland China stocks rallied after initial declines. Investors are kicking off 2023 with tempered expectations after sharp swings last year saw 20% in value wiped out from global equities, the worst showing since the financial crisis. Bonds lost 16%, the biggest decline since at least 1990 for one leading measure, as central banks hiked interest rates to slow inflation.

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

8:00 a.m.: Turkey Dec. CPI
9:30 a.m.: Switzerland Dec. PMI Manufacturing
9:55 a.m.: Germany Dec. Unemployment
10:30 a.m.: UK Dec. S&P Global/CIPS Manufacturing PMI
2:00 p.m.: Germany Dec. CPI
UK rail union begins a new wave of strikes

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