The news shaping the markets today

Russia said its military conducted a “retaliatory strike” in the eastern Ukraine’s city of Kramatorsk. However, Kyiv officials denied claims that the strike killed 600 service members. The safe-haven US dollar index traded slightly lower this morning.

Ireland’s BNP Paribas Real Estate Construction PMI fell to 43.2 in December, from 46.8 a month ago. Despite this being the third consecutive month of contraction in construction activity, the EUR/USD forex pair remained elevated after the news.

Australia’s private house approvals declined 2.2% to 9,142 units in November, following a 1.1% decline in the previous month. However, the AUD/USD pair rose in forex trading this morning.

China’s foreign exchange reserves grew to $3.128 trillion in December, from $3.117 trillion in the earlier month, lending support to the CNY/USD forex pair.

Sri Lanka said the number of foreign tourist arrivals had climbed 2.7% year-over-year to 91,961 in December. However, the LKR/USD pair remained almost flat after the news.

What’s happening: US stocks recorded sharp gains on Friday as investors responded to the latest economic reports.

What happened: The Dow Jones index recorded its best day since November 30, after data released showed signs of easing inflation in the US.

Investors also monitored comments from Fed officials regarding upcoming rate hikes.

Why it matters: The Dow Jones index had fallen over 300 points on Thursday, following the release of upbeat ADP private payrolls data. A stronger labour market gives the US Federal Reserve more flexibility to continue hiking interest rates, which fuels recessionary fears.

However, jobs data released on Friday showed that the US economy added 223,000 jobs in December, the fewest job adds since December 2020. The figure was also lower than the 256,000 jobs added in November. However, the December job adds were still higher than market expectations of 200,000.

The unemployment rate in the country declined to 3.5% in December, compared to market estimates of 3.7%. Average hourly earnings grew 0.3% to $32.82 in the month, compared to 0.4% growth in November and below market expectations for a 0.4% rise.

Stocks garnered more gains after the ISM’s non-manufacturing PMI showed services activity shrinking in December, which raised speculations of the Fed easing its rate increases to prevent the economy from slowing down too much. The ISM services PMI fell to 49.6 in December, representing the first contraction since May 2020.

Shares of Tesla fell more than 5% in early trading on Friday after the company announced plans to cut prices of some of its vehicle models in China. However, the stock rebounded later in the session and settled higher by over 2%.

The Dow Jones index climbed around 700 points, or 2.13%, to close at 33,630.61 on Friday. The S&P 500 rose 2.28% to 3,895.08, while the Nasdaq 100 jumped 2.78% to 11,040.35.

The Dow Jones index and the S&P 500 notched their best day since November 30, with both indices adding 1.5% each in the first week of 2023.

What to watch: Investors await data on consumer inflation expectations today. US consumer inflation expectations for the year ahead are likely to remain unchanged at 5.2% in December, from the previous month’s reading.

Data on inflation rate will be released on Thursday, with analysts expecting the annual inflation rate to ease to 6.7% in December, from 7.1% in November.

The markets today

The British pound will be in focus after recording gains on Friday

Context: The GBP/USD pair rose on Friday, following the release of economic reports.

Details: The US dollar came under pressure on Friday, following the release of US jobs data and services PMI, which provided a boost to the GBP/USD forex pair.

The US dollar index, which measures the greenback’s performance versus a basket of major rivals, fell around 1.1% to 103.91 on Friday.

Other data from the UK showed the Halifax house price index rising 2% year-over-year in December, compared to 4.6% growth a month ago. The S&P Global/CIPS UK construction PMI declined to 48.8 in December, from 50.4 in the prior month, signalling the first contraction in the country’s construction sector output since last August 2022.

The Bank of England has raised interest rates nine times since December 2021 to combat surging inflation.

The GBP/USD forex pair gained about 1.5% to 1.2093 on Friday. UK stocks also extended gains for the fourth session in a row on Friday, with the benchmark FTSE 100 index rising 0.87% to close at 7,699.49 and the domestically focussed FTSE 250 index adding 0.21% to settle at 19,504.72.

What are expectations: With no major economic reports expected from the UK today, traders will focus on macroeconomic factors. Data on GDP growth, industrial production and balance of trade will be released by the UK on Friday.

Other Markets: European trading indices closed higher on Friday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 1.20%, 1.47% and 1.16%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

South Africa’s foreign exchange reserves, Germany’s industrial production, France’s balance of trade and current account, Italy’s unemployment rate, Singapore’s foreign exchange reserves, Eurozone’s unemployment rate, Mexico’s inflation rate, Canada’s value of building permits, Spain’s consumer confidence, Central Bank of Brazil’s focus market readout, as well as US consumer credit change.