Optimistic data from the manufacturing sector of the Eurozone came in, and thus seem to maintain stock exchange indices near recent highs. The dollar remains weak.
According to Markit Economics, the PMI for the eurozone industry rose from 53.8 in November to 55.5 in December. This was better than the market consensus of 53 points and the biggest increase in factory activity in two and a half years. The increase in new orders accelerated production. Foreign trade also improved, as the increase in exports was the second best result in over two and a half years. It is also worth noting that production costs increased the fastest in over two years, which may exert inflationary pressure.
Stock market rises and faith in the trade agreement
As a result, an upward trend can be maintained in the stock markets, where the German DAX is growing by more than 1.6 percent, the British FTSE 100 is rising and more than 1.1 percent. In the United States, the main stock indices are growing from 0.25 to 0.31 percent.
The British pound seems to be definitely gaining on the currency market. The GBP/USD exchange rate has beaten 1.3500 and gains almost 0.5 percent. The market seems to remain optimistic about the trade agreement after the brexit, as the President of the European Commission still sees an opportunity for agreement. The PMI for the UK manufacturing sector beat the market consensus at 55.9, reaching 57.3 points in December. Thus, activity in British factories seems to be the highest since November 2017.
An important evening with the Federal Reserve
The event of the day could be the decision of the U.S. Federal Reserve on interest rates and aid programs that the Fed has launched to defend the financial sector and economy from collapse. The rate of federal funds may, by consensus, remain in the range of 0-0.25 percent. Investors may closely monitor any changes or indications regarding the future of the Fed's bond purchase program in terms of both speed and composition.
The main question may be whether the Fed will decide to increase the scale of longer-term bond purchases to limit the rapid growth of long-term market interest rates. Currently, every month the Fed buys $80 billion of government bonds and $40 billion of mortgage bonds.
Investors can monitor whether the Fed will combine bond purchases with employment and inflation. The Fed's macroeconomic projections may be crucial, as well as whether the start of vaccinations will significantly improve prospects for growth and employment. Fed decision today at 8:00 p.m., press conference at 8:30 p.m.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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