The news shaping the markets today

Ukraine said it had carried out a strike in Donetsk, where Russian forces were stationed, claiming to have killed 400 Russian troops. Russia contested the numbers, saying only 63 troops were killed. The ongoing war provided support to the safe-haven US dollar this morning.

China’s Caixin general manufacturing PMI declined to 49.0 in December, from 49.4 in the previous month. Despite this being the weakest reading since September, the CNY/USD forex pair remained elevated.

Singapore’s economy grew 2.2% year-over-year in the fourth quarter of 2022, higher than market expectations of 2.1%. The upbeat reading sent the SGD/USD pair higher in forex trading this morning.

Australia’s Judo Bank manufacturing PMI fell to 50.2 in December, from 51.4 a month ago. However, the country’s manufacturing sector remaining in expansion zone lent support to the AUD/USD forex pair.

Brazil reported a trade surplus of $4.8 billion in December, up from $4 billion in the year-ago period. However, the BRL/USD pair declined in forex trading this morning due to strength in the greenback.

What’s happening: Crude oil recorded gains on the last trading session of the year.

What happened: Prices of oil remained highly volatile last year, moving higher on tight supplies following the Russia-Ukraine war and declining on weakness in demand from China.

However, oil settled 2022 on a positive note, notching annual gains for another year.

Why it matters: Crude oil had risen sharply in March after Russia invaded Ukraine, which impacted global crude flows and sent Brent prices past the $139-per-barrel mark, the strongest since 2008.

However, oil prices fell sharply during the second half of the year as major central banks around the world increased interest rates, fuelling concerns over a slowdown in global economic growth.

Rate hikes by the Federal Reserve also drove strength in the US dollar, which in turn made greenback-denominated commodities more expensive for foreign currency holders, exerting pressure on the demand for oil.

China, the world’s top crude importer, recorded its first decline in oil demand in years in 2022, as the country remained under covid restrictions for most part of the year. Sentiment improved once China started easing its zero-covid policy during December.

Brent crude gained $2.45, or around 3%, to settle at $85.91 per barrel, while WTI crude closed at $80.26 per barrel, up $2.4%, on the final trading session of the year.

Crude oil recorded gains for the second straight year, with Brent adding around 10% in 2022, after a 50% surge in 2021. WTI crude gained about 7% in 2022, after adding 55% in the previous year. Both crude benchmarks had declined sharply in 2020 with covid-19 negatively impacting energy demand.

What to watch: Traders will keep an eye on global central banks, as further rate hikes could impact oil demand in 2023. Markets will also monitor China’s covid-19 situation. While oil demand in the country is likely to rebound in 2023, a recent increase in covid-19 infections has raised concerns over an immediate recovery.

Brent crude is expected to average $89.37 per barrel in 2023, while WTI crude is projected to average $84.84 per barrel.

The markets today

UK stocks will be in focus today ahead of manufacturing PMI data

Context: Although British indices closed lower on Friday’s shortened trading session, the FTSE 100 index outperformed several of its global rivals last year.

Details: UK’s economy underwent major turmoil last year, being adversely impacted by the aftermath of the Brexit and the spread of coronavirus, as well as political instability. The country also faced a cost-of-living crisis, with traders widely expecting a slowdown in the economy in 2023.

The Bank of England raised interest rates by 50 basis points to 3.5% at its recent meeting, announcing its ninth straight hike. The country’s central bank increased interest rates by 325bps in 2022 and is also likely to raise rates by 25bps in February.

Economic data released on Friday showed UK’s Nationwide House Price Index rising by 2.8% year-over-year in December, down from 4.4% in the prior month. Compared to the prior month, prices fell 0.1%, recording the fourth straight monthly decline.

The FTSE 100 fell 0.81% to close at 7,451.74 on Friday, amid losses in consumer staples, energy and industrial stocks.

UK’s benchmark index closed 2022 on a slightly higher note in contrast to the sharp decline in US and European indices. The index was driven by sharp gains in energy and mining stocks.

The domestically focussed FTSE 250 index fell 0.8% on Friday, down around 19.7% in 2022 to record its weakest performance since 2008.

What are expectations: Investors await the release of economic data on manufacturing PMI from the UK today. The S&P Global/CIPS manufacturing PMI is expected to decline to 44.7 in December, from 46.5 in the previous month.

Other Markets: US indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.22%, 0.25% and 0.10%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s consumer price index and producer inflation, Germany’s unemployed persons, unemployment change, unemployment rate and inflation rate, Mexico’s foreign exchange reserves and manufacturing confidence index, Singapore’s manufacturing PMI, Canada’s manufacturing PMI, as well as US manufacturing PMI and construction spending.