Someone would like to say 'new year, new me', but at the beginning of 2023 the problems familiar from 2022 persist. We are still facing high inflation, high interest rates and many sectors of the economy are struggling. Can we expect a change in these trends in the near future?
Macroeconomic data
On Monday after New Year's Day, most stock exchanges were not yet active, but we learned two important readings. The PMI industrial business sentiment indicator for Germany came in at 47.1 points. Although it turned out to be slightly worse than analysts' predictions, it also continued its upward trend for the fourth consecutive month. The same indicator for China came in at 49 points (48.8 points were expected), maintaining the level of the past few months. In contrast, Chinese equities appear to be outperforming all other global markets. The price of the iShares MSCI China ETF (MCHI) rose more than 49% from its lows, which may have been dictated by investors' valuation of the Chinese government's move away from the zero-COVID policy.
Source: Conotoxia MT5, MCHI, Weekly
Tuesday showed us industrial business sentiment in the UK. The PMI came in at 45.3 points (44.7 expected), down from the last reading. It seems that the mood for the former British empire is not so optimistic, and the weakening sterling may be a confirmation of this. On the same day, we learned that unemployment in Germany, instead of rising by around 15,000 as analysts had expected, started to fall by 13,000. This was the first month-on-month decline since June 2022. There was also an air of optimism on the inflation side. CPI price dynamics in Germany fell for the third month in a row, to 8.6% y/y. (9.1% y/y was expected). We could see the reaction to this data in Germany's largest index, the DAX (DE40), which has risen by more than 4% since Monday.
Source: Conotoxia Mt5, DE40, Daily
On Wednesday we saw another reading of the PMI for manufacturing, this time for the US economy. It came in at 48.4 points (48.5 expected), continuing the downward trend started in January 2022. The key report of the day, however, seemed to be the FOMC meeting report. It highlighted the following sentences: "The restrictive policy stance will need to be maintained until incoming data provide confidence that inflation is on a sustained downward path to 2%, which is likely to take some time. In the face of persistently and unacceptably high levels of inflation, several participants commented that historical experience warns against premature monetary easing'. In doing so, the authors of the report noted that the current trajectory of inflation appears to be heading in the expected direction.
On Friday, we will know US non-farm employment data along with the unemployment rate, which is expected to remain unchanged at 3.7%. For European economies, Friday's CPI inflation readings could be key. Analysts' consensus is for a fall to 9.7% year-on-year from 10.1%.
The stock market
The optimism that has emerged on the stock exchanges seems to be strongest in the consumer goods sector. The value of The Consumer Discretionary Select Sector SPDR® Fund (XLY), which reflects the listing of this sector, rose by 2.59%. However, this may be a natural unwinding after strong declines and a position as one of the outsiders last year. The sector includes companies such as Amazon (Amazon) and Tesla (Tesla), among others. The latter's shares have had one of the worst years in their history.
Source: Conotoxia MT5, XLY, Daily
On the downside, the energy sector seems to be pulling out. The value of the Energy Select Sector SPDR Fund (XLE), which replicates its quotes, has fallen by 3.9% since the beginning of the week. The declines could be linked to drastic falls in the price of natural gas, which has returned to pre-Ukraine war levels. We wrote more about this in Tuesday's commentary.
Source: Conotoxia MT5, XNGUSD, Daily
What can we expect next week?
After a series of the fastest interest rate hikes by the Fed, we could expect further moves raising the cost of money in the US. This week's biggest gains were seen in the US dollar/Japanese yen pair. The USD/JPY exchange rate has risen by 1% since the beginning of the week, and the Japanese currency was the weakest against the major currencies. It should be recalled that Japan's central bank is the only one that has not yet raised interest rates. However, following the announcement of monetary tightening, we could expect such moves and a potential strengthening of the yen.
Source: Conotoxia MT5, USDJPY, Daily
The situation could change for the EUR/USD pair, where it fell by 0.8%. The dollar's strengthening came immediately after the publication of the Fed report, or so-called minutes. Announcements of further interest rate rises and a positive approach to the current inflation path may have encouraged investors to buy the USD.
The cryptocurrency market has seen a gentle rebound, but there is still no upward trend. The value of bitcoin (BTCUSD) has risen by 1.8% since the beginning of the week, while the second-largest cryptocurrency ethereum (ETHUSD) has risen by 4%. The situation in the stablecoin market does not seem to be favourable either, as, according to the Stablecoin Printer profile, December 2022 was the first month in which no new stablecoins were added to circulation. This caused the capitalisation of this market to fall by 2.8% on a monthly basis. It seems that without the development of a base of digital currencies to trade, it is difficult to expect clear increases and a change in trend here.
Source: Conotoxia MT5, ETHUSD, Daily
What can we expect next week?
In the coming days, we will learn key macroeconomic data and, as such, this could be a valuable test of sentiment for many markets. On Thursday, we will find out what core inflation and CPI were in the United States. Analysts forecast a decline in the rate of CPI price growth to 6.7% y/y. (previously 7.1% y/y). Such a reading could bring a wave of optimism.
With the end of next week, we begin the Q4 2022 results period. Among the key companies that will be the first to report results are the major banks: JPMorgan (JPMorgan), Bank of America (BankofUS), BlackRock (BlackRock), or Citigroup (Citigroup). The insurance market giant UnitedHealth (UntdHealth) will also publish a report.
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
