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Wednesday, January 03, 2024

Today’s headlines

What’s happening: The British pound recorded losses against the US dollar on Tuesday, after having gained around 6% in 2023.

What happened: Strength in the US dollar index, which measures the greenback’s performance versus a basket of major peers, exerted pressure on the sterling.

However, the British pound moved higher versus one of its major peers during Tuesday’s session.

Why it matters: The GDP/USD forex pair had surged to around a five-month high of 1.2825 in late December amid weakness in the US dollar. The sterling gained approximately 6% versus the US dollar in 2023 on economic data coming in better than feared and prospects of the Bank of England keeping interest rates higher for longer.

The trend reversed on the first trading day of the new year, as UK’s latest inflation report fuelled speculations of the Bank of England beginning to cut rates earlier than was previously expected. The BoE, which started rate hikes ahead of other major central banks, is still seen lagging the US Federal Reserve and the European Central Bank in cutting interest rates.

The BoE had held its benchmark interest rates after 14 rate hikes in a row to combat high inflation. Markets have now fully priced in a rate cut by 25 basis points (bps) in May and cuts of around 140 bps in 2024.

Data released by the British Retail Consortium on Tuesday showed UK’s annual shop price inflation coming in at 4.3% in December, the same pace as in the 12 months to November, which was the weakest since June 2022. Food price inflation eased to 6.7%, while non-food inflation rose to 3.1%.

The S&P Global manufacturing PMI for the UK fell to 46.2 in December, from the preliminary reading of 46.4 and versus November’s seven-month high of 47.2. This marked the seventeenth consecutive month of the country’s manufacturing sector remaining in the contraction zone.

The US dollar index gained over 0.8% to 102.20 on Tuesday, after having declined by more than 2% in 2023.

The GBP/USD forex pair fell around 0.9% to 1.2619 on Tuesday. However, the GBP/EUR forex pair added around 0.1% to 86.72.

The FTSE 100 settled lower by 0.15% at 7,721.52 on the first trading day of the year, after hitting a seven-month high in the previous session.

What to watch: With no major economic reports from the UK today, investors will focus on economic data from the US.

Data on services PMI, composite PMI and money supply M4, due to be released on Thursday, will also remain in focus. M4 money supply in the UK, which rose by 0.3% to £2.989 trillion in October, is expected to increase by 0.1% in November. Analysts expect the S&P Global/CIPS UK services PMI to increase to 53.7 in December, from 50.9 in the prior month, while composite PMI is projected to rise to 51.7 in December, from 50.7 a month ago.

The markets today

US stocks will be in focus today ahead of a basket of major economic reports

Context: US stocks closed mostly lower on the first trading day of the new year, following a strong 2023.

Details: Wall Street stock indices closed 2023 on a strong note, with the S&P 500 ending the year with nine straight weeks of gains. Easing inflation and the Federal Reserve signalling interest rate cuts in 2024 fuelled investor risk sentiment.

Tech stocks were among the top performers last year, which took the Nasdaq 100 higher by almost 54%, its strongest annual performance since 1999. Shares of Nvidia jumped 239% and Apple’s stock surged 48% in 2023. The Dow Jones index notched a gain of 13.7% in 2023, also hitting a record high during the year.

The 10-year Treasury yield, which surged above 5% at one point last year, ended 2023 below 3.9%. The 10-year yield approached the 4% mark again on Tuesday, triggering some profit booking after a strong 2023.

Shares of Apple fell around 3.6% on Tuesday, after analysts at Barclays downgraded their rating from Equal-Weight to Underweight. Tesla’s stock edged lower despite the company reporting strong delivery numbers for the fourth quarter.

On the economic data front, the S&P Global manufacturing PMI fell to 47.9 in December, from a preliminary reading of 48.2.

The S&P 500 fell 0.57% to settle at 4,742.83 on Tuesday, while the Nasdaq 100 tumbled 1.68% to close at 16,543.94 on Tuesday. The Dow Jones index bucked the trend and gained 25.50 points, or 0.07%, to close at 37,715.04.

What to watch: Investors await the release of economic data on manufacturing PMI and job openings from the US today. Analysts expect the ISM manufacturing PMI to increase to 47.3 in December, from 46.7 in November. The number of job openings, which fell by 617,000 from the prior month to 8.733 million in October, is projected to increase to 8.75 million in November.

The release of minutes from the Fed’s latest meeting will also remain in focus today.

Other Markets: European indices closed mixed on Tuesday, with the CAC 40 and STOXX Europe 600 Index down by 0.16% and 0.11%, respectively, and the DAX 40 up by 0.11%.

The news shaping the markets

Ukraine’s foreign minister asked Western nations to deliver advanced weaponry and to increase sanctions on Russia. The news sent the RUB/USD forex pair lower this morning.


Australia’s CoreLogic Home Value Index increased 0.4% in December, easing from a 0.6% rise in the prior month, which exerted pressure on the AUD/USD forex pair.


Canada’s S&P Global manufacturing PMI declined to 45.4 in December, from 47.7 a month ago. This marked the eighth straight month of contraction in the country’s manufacturing sector and sent the CAD/USD pair lower in forex trading this morning.


Brazil’s S&P Global manufacturing PMI fell to 48.4 in December, from 49.4 in November, exerting pressure on the BRL/USD forex pair.


US construction spending rose by 0.4% to an annual rate of $2,050.1 billion in November. This also came in lower than market expectations of a 0.6% increase and sent the US dollar lower this morning.

What else to watch today

Türkiye consumer price index, producer prices and total vehicle sales, Spain’s unemployment change, number of foreign tourist arrivals, Germany’s jobless rate, number of unemployed persons and unemployment change, Mexico’s foreign exchange reserves, business confidence and government budget value, Brazil’s current account and foreign direct investment, US MBA mortgage applications, Redbook index and number of job quits, as well as Singapore’s manufacturing PMI.


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