Firstly a Happy New Year to one and all. I’d like to take this opportunity to wish all TMH readers a healthy, happy and prosperous 2023 and thank you once again for all your continued support.
All prices are at 7.20 GMT/2.20 EST, with changes reflecting movement from midnight GMT
Oil - Brent and Crude March futures up three percent as they closed the year at 86 and 80.70, respectively. Oil closed what was a volatile year with a bang in illiquid holiday markets.
EQ - Asia equity futures closed the year with the Hang Seng, Nikkei and Kospi trading at 19,708, 25,743 and 294, respectively.
The Nasdaq and S&P similarly closing at 11,042 and 3868, respectively as they both had years to forget.
Gold - Gold Feb futures closed the year with gold trading at 1830. Gold spent the Festive period using the illiquid holiday markets to do some work in our 1820/25 noisy zone and has once again broken to the topside. However, caution is warranted as this is around the sixth attempt at the level over the last few sessions and without a proper break of 1835 we would remain cautious that we can gain some upward momentum. If we do 1880 is the logical next target.
FI - US yields closed 2022 with the US2y and US10y trading at 4.43% and 3.88% respectively.
European yields closed with the German 10y yields at 2.57% and Italian 10y at 4.70%.
UK gilt yields closed the year with the 10y at 3.67%.
FX - As ever, the FX market is open but in a very subdued manner. Current levels of importance have the USD index currently at 103.49, with the majors; JPY, EUR and GBP currently trading at 130.94, 1.0685 and 1.2080, respectively.
Others - Bitcoin and Ethereum had a very quiet Festive period with little of note to report. The pair currently sit at 16,717 and 1212 respectively.
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The Week Ahead
Final global PMIs for December. All the major economies will print their final PMIs for 2022 for both the manufacturing and services measures in the first few days of the year. China got the ball rolling over the weekend with some disappointing data, which saw manufacturing PMI missing both previous and consensus whilst the services component plunged to an all-time low, outwith the pandemic prints, at 41.6. Elsewhere the European prints are anticipated to pick up from the previous months but remain below the 50 boom/bust line. However, elsewhere Japan, the US and UK are all expected to show further declines below 50.
European Inflation. Big week for inflation prints in the EU with Germany printing their preliminary December figures on Tuesday where a cooling is expected with headline inflation expected to dip back down below the previous 10% level. Friday sees the wider Eurozone print its preliminary measure for the same month where once again a cooling trend is expected with the headline set to dip back below 10%. Energy costs edging lower on base effects, and a generally softer oil market is the main contributor to the softer tone. However, core is expected to print the same as last month, emphasising the stickiness in the core measure an issue which most major economies around the world are experiencing.
US ISM Surveys. Wednesday and Friday see the ISMs published for December, with both manufacturing and services expecting to show a decline, albeit with services bucking the trend and staying above the 50 line. Manufacturing went into contraction for the first time in November after a year of steady declines and the signs are it will remain depressed with a further small contraction anticipated for December. On the services side, the economy has remained more robust with the November reading showing a rebound from a near two year low in October. Expectations for Friday’s number are for a pullback again although not into previous low territory.
FOMC Minutes. The minutes from the December meeting are released on Wednesday. The meeting, as expected, saw the Fed slow their rate hiking pace with rates moving higher by 50bps rather than the 75bps which we had seen at the previous four meetings. The hike was accompanied by a hawkish statement and a higher dot plan. The key takeaways from the statement and presser were that the labour market remains tight, which feeds into the Fed’s new pressure point; “core inflation ex. goods and shelter”. Furthermore, rate hikes will continue into the new year, and no rate cuts are anticipated in 2023. Over-tightening is seen, by the Fed, as the lesser of two evils, and they wish to avoid inflation becoming entrenched. Finally, the inflation target of 2% will not be altered. Any clues as to the commitment of the committee to these key points, as a whole or otherwise, will give the markets an indication of what lies ahead in q1 from a Fed point of view.
US Labour Report. December payrolls are released on Friday, and as per usual, the market will no doubt get itself into a right old kerfuffle! Expectations are for a 200k print which, if my memory serves me right, seems to be what the market has been looking to print for the last few reports? Anyway, remember they tend to overcook their estimates as they pray for a poor number so the Fed will pivot and the liquidity taps will return! Well, thus far they have failed to get what they want with estimates missing in 11 of the last 12 prints and the market overegging the pudding for the last 8 months in a row. Definition of madness and all that I guess. Lets see what Friday brings. Inflation wise, the average hourly earnings are expected to dip a touch but still remain elevated at 5% for the YoY figure.
Some points of note from the weekend
ECB’s Lagarde reiterated more of the same from the December ECB meeting with calls for higher rates to curb inflation as wages are rising faster than expected and this must not be allowed to feed inflation. However, she believes that the recession in the Eurozone will likely be short lived and shallow.
In China, the PBoC stated that they would step up the implementation of monetary policy to stabilise and stimulate economic growth, employment and price levels.
President Xi speaking on state television claimed to have defeated an “unprecedented challenge” when referring to the Covid pandemic. This comes as the UK, France and Spain join other countries in insisting upon a negative test for arrivals from China. In reference to the economy Xi felt that it was resilient, full of potential and its long term economic fundamentals remain unchanged.
In Japan, press reports suggested that the BoJ is weighing up raising its inflation forecasts closer to 2% for the fiscal year 2024. This would be seen as a further measure to help lay the groundwork for a move, by the Bank, away from its ultra loose monetary policy.
The Day Ahead
Little of note today with major Western equity markets closed and most of the major centres still off for the Festive break. German and European final manufacturing PMI measures for December in the morning with the Australian print late in the evening.
Early doors tomorrow the Chinese print, which will be of much interest given the poor PMIs which printed over the weekend.
In an otherwise quiet day always good to recap on the last week of the year, for what it was, with the excellent FXMacro Guy’s review. In addition, a podcast from a couple of our favourite contributors at TMH with Alf and Andreas discussing their thoughts for the year ahead.
FxMacro Guy - Review of week 52/2022
2023 Global Macro Outlook - Alfonso Peccatiello & Andreas Steno Larsen
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Christophe Barraud - Top 10 Macro/Financial Charts of the Week – w52 (2022)
- - The Overshoot's 2022 Year in Review
- - Goodbye, Twitter
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All times in GMT (EST+5 / CEST-1 / JST-9)
Germany S&P Global Manufacturing PMI Final Dec consensus 47.4 vs previous 46.2 (08.55 GMT)
EU S&P Global Manufacturing PMI Final Dec consensus 47.8 vs previous 47.1 (09.00 GMT)
Australia Judo Bank Manufacturing PMI Final Dec consensus vs previous 51.3 (22.00 GMT)
China Caixin Manufacturing PMI Dec consensus 48.8 vs previous 49.4 (01.45 GMT)
German Unemployment Change Dec consensus 15k vs previous 17k (08.55 GMT)
German Unemployment Rate Dec consensus 5.6% vs previous 5.6% (08.55 GMT)
UK S&P Global/CIPS Manufacturing PMI Final Dec consensus 44.7 vs previous 46.5 (09.30 GMT)
German Inflation Rate MoM Prel Dec consensus -0.4% vs previous -0.5% (13.00 GMT)
German Inflation Rate YoY Prel Dec consensus 9% vs previous 10% (13.00 GMT)
Canada S&P Global Manufacturing PMI Dec consensus vs previous 49.6 (14.30 GMT)
US S&P Global Manufacturing PMI Final Dec consensus vs previous 47.7 (14.45 GMT)
Japan Jibun Bank Manufacturing PMI Final Dec consensus vs previous 49 (00.30 GMT)
Swiss Inflation Rate MoM Dec consensus -0.2% vs previous 0% (07.30 GMT)
Swiss Inflation Rate YoY Dec consensus 2.9% vs previous 3% (07.30 GMT)
Germany S&P Global Services PMI Final Dec consensus 49 vs previous 46.1 (08.55 GMT)
EU S&P Global Services PMI Final Dec consensus 49.1 vs previous 48.5 (09.00 GMT)
US ISM Manufacturing PMI Dec consensus 48.5 vs previous 49 (15.00 GMT)
US ISM Manufacturing Employment Dec consensus vs previous 48.4 (15.00 GMT)
US ISM Manufacturing New Orders Dec consensus vs previous 47.2 (15.00 GMT)
US ISM Manufacturing Manufacturing Prices Dec consensus 42.5 vs previous 43 (15.00 GMT)
US FOMC Minutes (19.00 GMT)
Australia Judo Bank Services PMI Final Dec consensus vs previous 47.6 (22.00 GMT)
China Caixin Services PMI Dec consensus vs previous 46.7 (01.45 GMT)
UK S&P Global/CIPS Services PMI Final Dec consensus 50 vs previous 48.8 (09.30 GMT)
US S&P Global Services PMI Final Dec consensus 44.4 vs previous 46.2 (14.45 GMT)
Japan Jibun Bank Services PMI Final Dec consensus vs previous 50.3 (00.30 GMT)
Germany Factory Orders MoM Nov consensus -0.5% vs previous 0.8% (07.00 GMT)
Germany Retail Sales Nov consensus 0.9% vs previous -2.8% (07.00 GMT)
EU Inflation Rate MoM Flash Dec consensus % vs previous -0.1% (10.00 GMT)
EU Inflation Rate YoY Flash Dec consensus 9.7% vs previous 10.1% (10.00 GMT)
EU Core Inflation Rate YoY Flash Dec consensus 5% vs previous 5% (10.00 GMT)
EU Retail Sales MoM Nov consensus 0.5% vs previous -1.8% (10.00 GMT)
EU Retail Sales YoY Nov consensus -3.3% vs previous -2.7% (10.00 GMT)
EU Economic Sentiment Dec consensus 94.5 vs previous 93.7 (10.00 GMT)
Canada Employment Change Dec consensus 5k vs previous 10.1k (13.30 GMT)
Canada Unemployment Rate Dec consensus 5.2% vs previous 5.1% (13.30 GMT)
Canada Average Hourly Wages YoY Dec consensus % vs previous 5.4% (13.30 GMT)
US NFP Dec consensus 200k vs previous 263k (13.30 GMT)
US Unemployment Rate Dec consensus 3.7% vs previous 3.7% (13.30 GMT)
US Average Hourly Earnings YoY Dec consensus 5% vs previous 5.1% (13.30 GMT)
US ISM Non-Manufacturing PMI Dec consensus 55 vs previous 56.5 (15.00 GMT)
US ISM Non-Manufacturing Employment Dec consensus vs previous 51.5 (15.00 GMT)
US ISM Non-Manufacturing New Orders Dec consensus vs previous 56 (15.00 GMT)
US ISM Non-Manufacturing Prices Dec consensus vs previous 70 (15.00 GMT)
US Factory Orders Dec consensus -0.9% vs previous 1% (15.00 GMT)
Cook (16.15 GMT)
Lane (16.15 GMT)
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Happy New Year !!!!!
Brilliant thank you. Interesting your thoughts on the proverbial tug of war over projected rates. Typically that's how these things work I guess. Was it 91 rates peaked at 17.5% by 92 they were 3%.
More interesting is what will happen with inflation when industrials and possibly energy cools. I think inflation will spike, still too much stimulus in the economy. 40 years of falling rates inflating asset prices is going to create a cussion under rising costs for a large demographic. Rates are well below the rate of inflation and the fed are using laging indicators. They should be looking at consumption.