The USD strengthens, oil prices rally, equity markets are mixed, and US yields rise on the first trading day 2024. The USD strengthens, and US yields rise as money markets adjust expectations that the Fed Reserve may not ease the total 150 basis points in 2024. Oil prices rallied as tension in the Middle East intensified after Iranian warships were dispatched to the Red Sea after the US Navy sank three Houthi boats over the weekend. Equity markets are mixed, with Asian and UK equities starting the year down while European equity markets are up. Elsewhere, Bitcoin climbed above $45k for the first time in two years as expectations increase that the US will approve an EFT as soon as Jan 10th. Today sees a light day of economic releases with just CAD & US S&P Global Manufacturing PMI to focus on intraday. We expect investors to be somewhat sidelined ahead of Tuesday's US ISM manufacturing PMI & the FOMC Minutes and the critical US Jobs data out on Friday.
In other news. Japan earthquake death toll rises to 48 as military joins relief effort. US Navy helicopters sink 3 Houthi militant ships after a shipping container attack in the Red Sea. The US pressured the Netherlands to block China-bound Chip machinery. Israel's top court strikes down law overhauling the judiciary. Global minimum tax on multinationals goes live to raise up to $220bn, after years of OECD talks at least 15% from January. The eurozone economy likely entered a recession in 2023 after the PMI results. German liberals narrowly voted to stay in Scholz's fractious coalition. After two planes collide, a Japan Airlines plane catches fire at Tokyo's Haneda airport.
In currency markets. JPY weakens against its G10 peers following the earthquake on Monday. China's yuan weakens as further policy easing is expected. The USD firms on higher yields as markets adjust bets that the Fed will not ease the 150 bps in 2024 as initially anticipated. EUR & GBP slip as PMI data remains bearish below 50. CNY weakens 0.55%, while Asian currencies ease 0.25 % on average vs. USD. Trading currencies start 2024 under pressure, with CHF tumbling 0.75%, JPY & NOK falling 0.55%, ZAR dropping 0.4%, NZD & SEK weakening 0.3%, and AUD flat vs. USD.
In commodity markets. Oil prices strengthened by 2.5%, natural gas prices rallied by 4%, gold prices firmed by 0.65%, silver prices gained by 0.9%, while wheat, copper, and soybean prices are unchanged.
CAD prices hold steady in early trading as investors balance a strengthening USD being offset by rallying oil prices. Intraday CAD S&P global manufacturing PMI, which sees data derived from surveys of senior executives of private sector companies, is expected to remain in bearish territory below 50. With the lack of other key economic today, we anticipate the loonie will hold within its current range ahead of the Fed minutes on Tuesday.
EURCAD weakened in early trading as firmer oil prices helped support the loonie, while Eurozone PMI data highlights that the EU has entered into recession.
EUR continues its bearish trend, weakening through 1.1000 on the first trading day 2024. The euro remains on the back foot as the bearish momentum continues amid the combination of a strengthening USD and as the eurozone PMI, despite improving, continues to show that the EU remains in a technical recession. The euro should find some support on dips towards 1.0950 as the ECB maintains its rhetoric that it is too early to lower interest rates. We anticipate the Euro will steady as investors will remain somewhat sidelined ahead of the FOMC minutes on Tuesday.
GBPEUR advances in early trading despite UK final manufacturing PMI data missing estimates in December.
GBP tumbles over 80 bps amid weaker PMI data and a strengthening USD. The combination of a strengthening USD as investors reduce bets that the Fed will not ease the anticipated 150bps in 2024, prompted a resurgence of USD on the first trading day 2024. This adds to GBP selling pressure as December's S&P Global/CIPS Manufacturing PMI data weakened to 46.2 vs. the expected 46.4. A break of 1.2650 is expected to open the way for the pound to extend its weakness towards 1.2500 next.
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