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European stocks extend gains on Tuesday

 

Wednesday, January 04, 2023

The news shaping the markets today

Russia’s defence ministry said 89 military personnel had been killed in the latest rocket attack by Ukraine in Makiivka. Despite the ongoing tensions, the US dollar index traded slightly lower this morning.


Jibun’s au Jibun Bank manufacturing PMI rose to 48.9 in December, versus the flash reading of 48.8, which sent support to the JPY/USD forex pair.


Thailand’s S&P Global manufacturing PMI rose to 52.5 in December, from November’s five-month low reading of 51.1. The country recording the 12th consecutive month of growth in the manufacturing sector sent the THB/USD pair higher in forex trading this morning.


US construction spending rose 0.2% in November, after a 0.2% decline in the earlier month. However, the Dow Jones index closed slightly lower on Tuesday.


Canada’s S&P Global manufacturing PMI fell to 49.2 in December, from 49.6 in the prior month. However, the CAD/USD forex pair remained elevated after the news.

 

What’s happening: European shares recorded gains on Tuesday, as investors assessed the latest economic data.

What happened: Markets in Europe started the new year on a positive note on Monday and extended gains on Tuesday.

One of the major countries in the common bloc reported an easing in inflation in December, which provided a boost to risk sentiment.

Why it matters: European stocks recorded gains during the first session of 2023, following the release of manufacturing data from the Eurozone.

The S&P Global’s final manufacturing PMI rose to 47.8 in December, from November’s reading of 47.1, signalling some improvement in the region’s manufacturing activity amid a recovery in supply chains.

Data released on Tuesday showed that Germany’s annual consumer price inflation eased to 8.6% in December, from 10% in the previous month. The latest reading also came in below the consensus expectations of 9.1% and was the lowest since August. On a monthly basis, the country’s consumer prices fell 0.8% in December, higher than the consensus estimate of a 0.3% decline.

France’s Prime Minister Elisabeth Borne said inflation is likely to peak in the first few months of 2023 and move lower thereafter.

Investors also assessed the impact the reopening of China despite the rise in covid-19 cases in the world’s second-largest economy.

The STOXX Europe 600 gained 1.22% to reach 434.18 on Tuesday, settling at its strongest mark in around three weeks. The pan-regional index was driven by a sharp rise in European healthcare stocks. The European healthcare index added around 1.8% on Tuesday.

British markets were closed Monday and started a holiday-shortened week on a higher note. London’s FTSE 100 gained 1.37% to settle at 7,554.09 on Tuesday, amid gains in real estate and consumer discretionary shares.

Germany’s DAX 40 rose 0.8%, while France’s CAC 40 added 0.44% on Tuesday.

What to watch: Investors will continue monitoring moves by global central banks, the supply chain situation and the spread of covid-19 infections in China.

Data on services and composite PMI from the Eurozone will be released today. The S&P Global Eurozone Services PMI is expected to rise to 49.1 in December, from 48.5 in the previous month, while composite PMI is projected to improve to 48.8 in December, from November’s reading of 47.8.

The markets today

Gold will be in focus today after closing higher on Tuesday

Context: Gold recorded gains on Tuesday, reaching a six-month high.

Details: Gold prices have remained volatile over the past few trading sessions amid concerns over a slowdown in the global economy.

Despite an improvement in investor sentiment, the safe-haven metal started the new year on an upbeat note. The yellow metal climbed to its strongest level in around six months on Tuesday with a decline in benchmark Treasury yields.

US 10-year Treasury yields were close to their weakest level in a week, which lowered the opportunity cost of holding non-yielding gold.

The US dollar also gained on Tuesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, added around 1% to reach 104.52. The strength in the greenback generally exerts pressure on gold prices, as it makes commodities expensive for foreign currency holders.

Traders also focussed on prospects of further rate hikes by central banks around the world.

Gold for February delivery gained $19.90 to settle at $1,846.10 an ounce, while silver for March delivery added 20 cents to $24.24 an ounce on Tuesday.

March copper declined 4 cents to $3.77 a pound, while Platinum closed higher at $1,093.3 and palladium declined to $1,692.90.

What are expectations: Traders will focus on the release of minutes from the Fed’s recent policy meeting along with major economic reports due to be released this week.

Signs of a further slowdown in rate hikes by the major central banks could provide support to gold, as the yellow metal generally loses its appeal in an environment of high interest rates.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.03%, 0.40% and 0.70%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 130.60 and 130.71 Negative
USD/CHF – 0.9332 and 0.9338 Positive
Gold – 1850.65 and 1852.65 Negative
Natural Gas   – 3.963 and 3.998 Positive
S&P 500 – 3812.58 and 3825.21 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0568, 0.17%) Dow ($33,295, 0.05%) Brent ($82.03, -0.1%)
GBP/USD (1.1990, 0.19%) S&P500 ($3,849, 0.09%) WTI ($76.76, -0.2%)
USD/JPY (130.79, -0.17%) Nasdaq ($10,970, 0.22%) Gold ($1,852, 0.3%)

What else to watch today

Germany’s import prices, services PMI and composite PMI, France’s inflation rate, consumer confidence, car registrations, services PMI and composite PMI, Spain’s tourist arrivals, services PMI and composite PMI, Italy’s services PMI and composite PMI, UK’s consumer credit, mortgage approvals, mortgage lending and net lending to individuals, Brazil’s producer price inflation, services PMI and composite PMI, US MBA mortgage applications, Redbook index, ISM manufacturing PMI, job openings, Logistics Manager’s Index, and API crude oil stock change, as well as South Africa’s total vehicle sales.


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