Round up of today's market news *

North American News

Market Wraps Up Robust Week with a Symphony of Gains and Divergent Harmonies

The financial markets wrapped up this robust week with a somewhat diverse performance. The Nasdaq Composite rose by 0.4%, and the Dow Jones Industrial Average saw a modest gain of 0.2%. In contrast, the S&P 500 closed nearly unchanged from the previous day, while the Russell 2000 experienced a decline of 0.8%. Afternoon trading witnessed a brief spike, likely tied to the substantial quarterly options and futures expiration, leading to heightened activity and heavy volume at both the NYSE and Nasdaq.

Noteworthy strength was observed in mega-cap stocks, growth equities, and semiconductor shares, with the Vanguard Mega Cap Growth ETF (MGK) securing a 0.4% gain, the Russell 3000 Growth Index posting a 0.4% increase, and the PHLX Semiconductor Index climbing by 0.5%. On the other hand, the equal-weighted S&P 500 retreated by 0.7%. Decliners maintained a more than 2-to-1 advantage over advancers at the NYSE and a 3-to-2 lead at the Nasdaq.

Within the S&P 500, three sectors closed higher, primarily driven by strong performances from their mega-cap constituents, while eight sectors experienced declines. The information technology sector recorded the most significant gain, advancing by 0.7%, whereas the utilities sector faced the most substantial setback, registering a loss of 1.7%. Despite selling efforts, which were attributed in part to concerns about stocks being overbought in the short term, the scale of the decline remained moderate given the recent substantial market gains. Notably, the S&P 500 closed 14.6% higher than its late October low.

The prevailing negative sentiment was also influenced by comments from New York Fed President Williams, a voting member of the FOMC, during a CNBC interview. His remarks appeared to diverge from Fed Chair Powell’s statements earlier in the week. Williams suggested that it is premature to consider the timing of rate cuts, while Powell indicated that the committee discussed the appropriate timing to ease policy restraint at this week’s meeting.

Closing Numbers For US Indices:

Dow +56.81 at 37305.16,
Nasdaq +52.36 at 14813.92,
S&P -0.36 at 4719.19

US November services PMI from S&P Global 51.3 vs 50.6 expected

The US November services and manufacturing PMIs from S&P Global

Prior was 49.4
Manufacturing 48.2 vs 49.3 expected (prior 49.8)
Composite index 51.0 vs 50.7 prior
Cost pressures gained momentum as input prices increased at the quickest pace since September
Although firms continued to pass through higher costs to customers, and at a strong rate, the overall pace of prices charged inflation softened from November
Employment improves, highest since September

Comments in the report from Chris Williamson, Chief BusinessEconomist at S&P Global Market Intelligence:

“The early PMI data indicate that the US economy picked up a little momentum in December, closing off the year with the fastest growth recorded since July.

“Looser financial conditions have helped boost demand, business activity and employment in the service sector, and have also helped lift future output expectations higher.However, the increased cost of living andcautious approach to spending by households and businesses means the overall rate of service sector growth remains far short of that witnessed during the travel and leisure revival back in the spring and summer.

“Manufacturing meanwhile remains a drag on the economy, with an increased rate of order book decline prompting factories to reduce production, cut back on headcounts and scale back their input buying.

“Despite the December upturn, the survey therefore signals only weak GDP growth in the fourth quarter.

“The survey’s selling price gauge, which tends to leadchanges in consumer price inflation, remains sticky but ata level which is indicative of CPI running only modestly above 2%.Service sector input cost inflation, a keygauge of core inflation, once again remained notably elevated by historical standards, though even here the average rate of increase in the fourth quarter has been the lowest since mid-2020.”

Empire Fed Manufacturing index for December -14.5 vs 2.00 estimate

NY Fed Empire manufacturing index for December 2023

Prior month +9.1 (the expectations was for a decline of -2.8).
The Empire manufacturing was the lowest since August

Details:

New orders -11.3 vs -4.9 last month
Shipments -6.4 vs +10.0 last month
Prices paid 16.7 vs +22.5 last month
Prices Received 11.5 vs +11.1 last month
Employment -8.4 vs -4.5 last month
Average Employee workweek -2.4 vs -3.8 last month
Unfilled orders -24.0 vs -23.2 last month
Delivery times -15.6 versus -6.1 last month.
Inventories -5.2 vs +9.1 last month

Looking six-month forward:

The six-month business conditions rose to 12.1 from -0.9 in November
new orders 11.3 versus 4.6 last month
shipments 15.8 versus 10.8 last month
unfilled orders 5.2 versus 0.0 last month
delivery time -1.0 versus -9.1 last month
inventories led by four versus -10.1 last month
prices paid 25.0 versus 32.3 last month
prices received 27.1 versus 32.3 last month
number of employees 10.9 versus 16.5 last month
average play workweek 10.4 versus 12.1 last month
capital expenditures 4.2 versus 3.0 last month
technology spending 8.3 versus 0.0 last month

US November industrial production +0.2% vs +0.3% expected

US November IP data

Prior was -0.6% (revised to -0.9%)
Manufacturing output +0.3% vs +0.4% expected
Prior manufacturing output -0.7% (revised to -0.8%)
Capacity utilization 78.8% vs 79.1% prior

US CBO boosts 2023 US GDP growth forecast to +2.5% from +0.9% in July

A good snapshot on how US growth forecasts have improved
2024 US GDP forecast unchanged at 1.5%
2025 GDP seen at 2.2% vs 2.4% prior
2023 core PCE seen at 3.4% vs 4.1% in July forecast
2024 core PCE seen at 2.4% (same as FOMC forecast)

Deutsche Bank on Powell’s “breaking out the punchbowl early”

Deutsche Bank warnings of a potential harder landing due to the lagged impact of policy tightening

Deutsche Bank response to the FOMC/Dots/Powell presser on Wednesday is a note titled: “December FOMC: Powell breaks out punchbowl early at the holiday party.”

Says the new developments don’t impact their base case for rate cuts next year:

Powell’s dovish tone Wednesday increases the probability of rate cuts coming sooner than some anticipate
and boosts the chance of a soft landing if inflation continues to ease

“Our baseline remains that the first rate cut is likely to come in June 2024 and that the Fed will reduce rates by 175bps next year

the “meeting points to dovish risks to this expectation”
“We see heightened risks that rate cuts could come as early as March”
“Earlier policy easing in the presence of more substantial disinflation would improve soft landing prospects.”

Atlanta Fed Pres. Bostic: Cuts not imminent but see two 1/4 point cuts in 2024

Atlanta Fed President Bostic anticipates two 1/4 point interest rate cuts in 2024 to stimulate GDP growth, while keeping a close watch on inflation data.

Atlanta Fed Pres. Bostic is on wires say:

Rate cuts are not seen as imminent, but preparations for possible principles and thresholds to guide the process are underway.
Anticipation of two quarter-percentage-point interest rate cuts in 2024, with the first possibly in the third quarter, contingent on continued progress on inflation.
2024 GDP growth is projected at just over 1%, with unemployment at 4% by the end of next year, and PCE inflation at 2.4%.
There is a general consensus among Fed officials that the policy rate is at a peak, conditional on continued progress in inflation.
The US economy is still far from the Fed’s 2% inflation target, though progress is being made faster than expected.
Determining the appropriate ‘neighborhood’ for inflation that would warrant rate reductions is crucial, as data is getting closer to this point.
Inflation over 3- and 6-month horizons will serve as significant markers in upcoming discussions.
Despite recent positive signs, the strength of the economy may still hinder progress on inflation, emphasizing the need for cautious policy reactions.
The Fed has been frequently surprised throughout the coronavirus pandemic, underscoring the importance of flexibility in policymaking.
It is expected to take several months for the Fed to gather enough confidence in the continuing decline of inflation to consider reducing rates.
The risk of a new inflation spike has significantly decreased.
Business contacts do not foresee large job losses in the near future, but the Fed remains attentive to any changes.
The risks in the economy are now seen as fairly balanced.

Fed’s Goolsbee: The unemployment rate tends to go up rapidly

Goolsbee says Fed may need to shift its focus to employment mandate
it’s important to “be aware that historically when the unemployment rate starts going up, it doesn’t just gradually drift up. It tends to go up rapidly.”
Did not rule out the possibility of Fed cutting rates in March
Expects rates to be lower next year compared to now, though not significantly
With inflation fall to 2% target, it could be appropriate to be more mindful of risk that unemployment rises

Fed’s Williams: It’s premature to be even thinking about March cuts

Comments from the New York Fed President
The question is: Have we gotten monetary policy to a sufficiently restrictive stance, that’s what we’re thinking about
We’re focused on whether interest rates are in the right place
We aren’t really talking about rate cuts right now
The base case is good, inflation is down
It’s looking like we’re at or near ‘sufficiently restrictive’ but things can change
We need to be ready to tighten further if progress on inflation were to stall
The market reaction to all kinds of news has had a pattern of being larger than normal
The view of the committee is a gradual removal of policy easing over the next three years
The market reaction has gone further than our predictions
If we get the progress I’m hoping to see, it will be natural to cut
Of course we need to move policy back to more-normal levels over a period of time
It’s premature to be even thinking about March cuts
The question we’re thinking about is ‘do we have the level of rates right’
Right now we’re seeing everything around QT and balance sheet working as intended
Not ready to say when balance sheet wind down stops
Financial conditions have tightened in the big picture (despite drop in 10y yields)

Shipping giant Maersk tells all its ships to pause Red Sea voyages – Bloomberg report

The move comes after attack on ships that Yemen Houthis said were heading to Israel

The world’s second-largest owner of container ships, said in a statement on Friday that it has instructed its vessels heading for the southern entrance of the Red Sea to pause their voyages. Its vessel Maersk Gibraltar was attacked.

“Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” Maersk said.

Ex-Fed Dallas head Kaplan says not to overreact to Powell – rate hike options left open

Ex-Fed Dallas head Kaplan urges caution in interpreting Powell’s remarks

Former Dallas Federal Reserve President Robert Kaplanspoke in an interview with US media, CNBC, on Thursday.

Kaplan spoke about Powell’s less-than-hawkish press conference:

“This was a conversation destined to happen. He had to preview it at some time, and chose yesterday”
“People should not overreact to what he said. He left his options open. He thinks they’re done, it’s likely the next move will be down, but he’s keeping his options open.”

BlackRock expects Fed rate cuts in spring-summer, bank analysts predict multiple easings

Bank analyst expectations range from March to June for the start of the easing cycle

BlackRock’s investment arm is quite vague on when the expect the first, and subsequent, rate cuts coming from the Federal Reserve’s Federal Open Market Committee (FOMC), saying only “around the end of the spring into the summer”.

UBS says 3 rate cuts from the Federal Reserve in 2024 is not really an easing of policy

“Better than the alternative” says markets!

UBS says the adjustments from the FOMC/Dot plot/Powell were surprisingly dovish.

However, the three rate cuts forecast for 2024 is not really an easing of policy. Due to high inflation real interest rates will be kept more or less stable, even as US inflation falls. UBS also not that quantitative policy continues to tighten, and regulatory policy may also constrain activity.

US Treas Yellen says artificial intelligence added to a list of risks to financial system

Yellen sounds the alarm on AI risks to financial system

US Treasury Secretary Yellen

Says Financial Stability Oversight Council adding artificial intelligence to its list of potential risks to financial system

BOC Macklem: The 2% inflation target is now in sight

Bank of Canada’s Macklem expects 2% inflation target to be achieved soon. Rate announcements will be released 15 minutes earlier starting in 2024. The bank is considering rate cuts once price stability is assured.

The Bank of Canada’s Macklem is on the wire saying:

The time of rate announcements by the Bank of Canada will change to 9:45 AM ET from 10 AM, effective Jan 24, 2024; a press conference will follow every rate announcement.
Rate announcements by the Bank of Canada will be released 15 minutes earlier starting in 2024.
The deadline for the Bank of Canada’s securities repo operation will be moved to 10:15 ET from 10 AM, effective Dec 18; the timing for the release of call for tenders will also change.
The 2% inflation target is now in sight, though not yet achieved; conditions increasingly seem in place to reach this target.
Further declines in inflation are likely to be gradual due to varying influences in the coming months.
The next two or three quarters are expected to be difficult for many, with a likely increase in the jobless rate.
It’s still too early to consider cutting the policy rate; inflation has decreased but remains too high.
As economic growth slows, inflation pressures are expected to ease, though unexpected challenges may arise.
The consideration of rate cuts will occur once a clear path back to price stability is assured.
Economic growth is expected to remain weak into 2024, following a stall through mid-2023.
Shelter price inflation is expected to moderate over time, but the exact timing is uncertain.
2024 is anticipated to be a year of transition, leading to a more balanced economy after a period of weakness.
Growth and job creation are expected to pick up later in 2024, with inflation approaching the 2% target.
The next few years are anticipated to be less volatile than the recent past.
The appropriateness and duration of restrictive monetary policy will continue to be a subject of discussion.

More from Macklem: It’s too early to start discussing whether to cut rates in Canada

Comments from Macklem
It’s too early to start discussing cuts
We’re still discussing whether we raised interest rates enough and how long they need to stay where they are
Fed will do what it needs to do, we’re going to do what we need to do
We are not taking further hikes off the table
We haven’t yet been discussing rate cuts
Inflation is still too high, if we don’t do enough we will probably have to raise rates even further

Canada wholesale trade for October -0.5% versus -1.1% expected

Canadian October wholesale trade sales data

Prior month +0.4% revised -0.6%
October’s wholesale sales (excluding petroleum, petroleum products, other hydrocarbons, oilseed, and grain) dropped by -0.5% to $81.7 billion.
Decreases were noted in five out of seven subsectors, most notably in machinery, equipment, supplies, food, beverage, and tobacco.
Compared to the same month in the previous year, these wholesale sales were -2.1% lower.
Petroleum products, oilseed, and grain data are available but excluded from the monthly analysis until sufficient historical data for monthly and annual analysis is gathered.
In terms of volume, these wholesale sales decreased by -0.7% in October.

Details:

The machinery, equipment, and supplies subsector saw a -1.6% decrease in sales to $17.7 billion in October, marking the second consecutive month of decline.
Two main industry groups led this decline:
- Construction, forestry, mining, and industrial machinery, equipment, and supplies dropped 3.6% to $6.0 billion, following high shipments in the third quarter.
- Computer and communications equipment and supplies fell 2.9% to $5.0 billion, after two months of sales increases.
The food, beverage, and tobacco subsector decreased by -1.1% to $14.9 billion in October.
- This was mainly due to a -1.3% drop in the food industry group sales to $13.1 billion, reversing strong growth observed in September.
Partially offsetting these declines, the building material and supplies subsector increased by 1.1% to $12.1 billion in October.
- The lumber, millwork, hardware, and other building supplies group rose 1.2% to $5.9 billion.
- The electrical, plumbing, heating, and air-conditioning equipment and supplies group went up 1.8% to $3.9 billion.

Inventory data shows:

October saw a 1.1% increase in wholesale inventories (excluding petroleum, petroleum products, other hydrocarbons, and oilseed and grain) to $129.3 billion, the largest monthly rise since February 2023.
The recovery of wholesale inventories in October brought them back to levels similar to the first half of 2023.
The inventory increase was driven by five of the seven subsectors, particularly the machinery, equipment, and supplies subsector, which rose 2.6% to $39.0 billion.
The motor vehicle and motor vehicle parts and accessories subsector also contributed significantly, with a 2.3% increase to $17.5 billion.
The inventory-to-sales ratio went up from 1.52 in September to 1.58 in October, indicating a longer time required to exhaust inventories at current sales levels.

Canada November housing starts 212.6K vs 257.K1 expected

Canadian November 2023 housing starts
Prior was 274.7K (revised to 272.3K)

Commodities

Silver loses steam and falls below $24.00

Silver price drops on remarks by a Fed official, talking down rate cuts.
US economic data remains solid, a tailwind for the Greenback and headwind for precious metals prices.
IF silver achieves a daily close below $24.00, that would pave the way to test the 200-DMA.

Silver price retreats by 0.78% and dips below the $24.00 figure on Friday as the Greenback (USD) remains bid during the North American session. A Federal Reserve official pushing back against a premature shift to ease policy is a headwind for the white metal. The white metal trades at $23.97 after hitting a daily high of $24.28.

Gold stumbles to the lows of the day as it waits at the crossroads

Gold is in an interesting spot

The sentiment on gold has swung wildly so far this month, from a euphoric explosion to the upside to fears about a long-term megatop. The Fed offered some support this week to get it back above $2000 but today it hit $2044 only to peel back to $2021.

Crude oil futures settle at $71.43

Down -$0.15 or -0.21%

Crude oil futures are settling at $71.43. That’s down -$0.15 or -0.21%.

For the trading week, the price is little change at +0.25%. The low for the week reached $67.71. The high for the week was up at $72.56.

Baker Hughes US oil rig count 501 vs 503 prior

US oil and gas drilling rig data

Oil rigs -2
Gas rigs unchanged at 119

EU News

European indices close mixed

UK FTSE 100 and Spain’s Ibex move lower

The major US indices are closing mixed. THe UK FTSE 100 and Spain’s Ibex close lower. France CAC did the best, while Italy’s FTSE MIB and Germany’s DAX were near unchanged.

The closing levels shows:

German DAX, -0.79 points or 0.0% at 16751.43
France CAC was 21.06 points or 0.28% at 7596.92
UK FTSE 100 -72.64 points or -0.95% at 7576.35
Spain’s Ibex -76.12 points or -0.75% at 10095.59
Italy’s FTSE MIB +36.52 points or 0.12% at 30395.58

For the trading week:

German DAX is closing marginally lower by -0.05%. That broke a six week up streak.
France CAC rose 0.93% for its fifth week in a row higher
UK FTSE 100 rose 0.29%. It moved higher three consecutive weeks.
Spain’s Ibex fell -1.25% snapping a six week up streak.

The mixed equity markets this week came despite sharp declines in 10-year yield’s:

Germany’s 10-year yield fell -24.7 basis points to 2.015%
Frances 10-year yield fell -27 basis points to 2.548%
UK’s 10 year yield fell -33.3 basis points to 3.691%
Spains 10-year yield fell -28.1 basis points to 2.998%
Italy’s 10-year yield fell -32.8 basis points to 3.77%

Eurozone December flash services PMI 48.1 vs 49.0 expected

Latest data released by HCOB – 15 December 2023

Prior 48.7
Manufacturing PMI 44.2 vs 44.6 expected
Prior 44.2
Composite PMI 47.0 vs 48.0 expected
Prior 47.6

Overall business activity declined further in the euro area in December, reaffirming that the region is in recession mode to wrap up the year.New business inflows remain weak amid subdued demand conditions, which remains one of the biggest problems in the economy. The good news at least is that there is a slowing in the rate of increase in input costs (largely from manufacturing as services input costs remain elevated) but average selling prices did rise at an accelerated pace on the month. HCOB notes that:

“Once again, the figures paint a disheartening picture as the Eurozone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months. The likelihood of the Eurozone being in a recession since the third quarter remains notably high.

The service sector maintains a relatively more stable position compared to the manufacturing sector, contracting at a much slower rate. This is likely attributed to the concurrent reduction in consumer price inflation, coupled with an above-average surge in wages. These factors contribute to bolstering the purchasing power of private households, a crucial element for the more consumer-driven service sector. However, despite these elements, there are no indications of the service sector breaking free from its unsatisfactory trajectory. Quite the opposite, new business is diminishing at an accelerated pace, as is the backlog of work.

Employment has teetered between marginal increases and decreases over the past five months, essentially holding steady. This stability is reassuring for individuals, providing them with greater certainty about their future income. However, the coexistence of declining output and unchanged employment levels signals an exacerbation of productivity challenges. Consequently, the anticipated streamlining effect, typical of past recessions providing the basis for productivity increases, seems unlikely to materialize this time. This factor contributes to our expectation of only modest economic growth in the Eurozone, forecasted at 0.8% for the upcoming year, following 0.5% growth this year.

Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in previous months. This suggests that businesses were successful in transferring a portion of the cost increases to customers. The European Central Bank acknowledges this dynamic in its latest statement, noting that “domestic price pressures remain elevated.”

A closer look at the top two economies in the Eurozone reveals a positive comparison for Germany in relation to France, particularly within the service sector. Germany is experiencing a much slower contraction in this area, while the downward trend of the index is more pronounced in France. Similar dynamics are observed in manufacturing, where the pace of outputdecline is faster in France than in Germany.Obviously, there’s no room for “Schadenfreude” on the German side, not onlyfor general reasons but also because France stands as the second most significant buyer of German export goods. In addition, the positive comparison does not change the fact that Germany’s economy is in a bad shape, in absolute terms.”

Eurozone October trade balance €11.1 billion vs €10.0 billion prior

Latest data released by Eurostat – 15 December 2023

The euro area trade surplus widened slightly in October as exports grew by 0.6% while imports declined by 0.2% on the month, both on a seasonally adjusted basis. Comparing the year-to-date data, exports were seen down 0.2% while imports are down some 12.7% on an unadjusted basis compared to the January to October period last year.

Germany December flash manufacturing PMI 43.1 vs 43.2 expected

Latest data released by HCOB – 15 December 2023

Prior 42.6
Services PMI 48.4 vs 49.8 expected
Prior 49.6
Composite PMI 46.7 vs 48.2 expected
Prior 47.8

It’s a wake up call for the euro as traders are reminded that the economy is indeed headed for a recession to wrap up the 2023 year. These are some poor figures overall and points to continued struggles in two of Europe’s largest economies. Again, it’s not a vote of confidence to the ECB and may pressure them into cutting rates sooner than they would like. HCOB notes that:

“If you are on the hunt for gifts right now, you will not strike gold in the latest PMI survey for Germany. What you will find instead is an increasing number of companies reporting a reduction in output in both the service and manufacturing sectors. This confirms our view of a second consecutive quarter of negative growth by the year’s close, driven by the manufacturing sector. The less-than-encouraging development could be linked to the constitutional court ruling and the subsequent discord over the 2024 budget. This has injected a significant dose of uncertainty regarding potential new burdens for the economy.

“Despite a recent upturn in the manufacturing stocks of purchases index over the previous two months, December brought a setback. This does not necessarily spell doom for the inventory cycle’s potential turnaround next year, but it does hint that the journey to recovery might be bumpier than previously thought.

“In manufacturing, new orders continue to contract rapidly, marking the twenty-first consecutive month of decline. However, the index is on an upward trajectory, fuelled in part by a reduced drag from export orders. Notably, after seven months of pessimism, companies have shifted into optimistic territory regarding future output. This aligns with our perspective that the manufacturing sector is poised for a growth recovery next year.

“In the realm of services, the economic landscape is still dominated by the gloomy hues of stagflation. Output has contracted for the third consecutive month, while input prices are on the rise at a pace mirroring that of November. Interestingly, companies have managed to hike their selling prices even more rapidly than in previous periods. This outcome serves as a stark reminder of the lingering risks to the inflation outlook, despite a substantial overall reduction in official consumer price inflation in recent months.”

Bundesbank sees German economy contracting this year, then mild growth in 2024

The latest economic forecasts from the German central bank

Their projections are only released twice a year, so there is some lag in the updating as they need to account for all of the developments in recent months. Here’s the latest snapshot of their forecasts as released today:

France December flash services PMI 44.3 vs 46.0 expected

Latest data released by HCOB – 15 December 2023

Prior 45.4
Manufacturing PMI 42.0 vs 43.3 expected
Prior 42.9
Composite PMI 43.7 vs 45.0 expected
Prior 44.6

That’s a notable miss on estimates with both the services and manufacturing sectors contracting further than in November. That’s not a good vote of confidence to the ECB’s policy stance yesterday. And that sets up the French economy for a technical recession towards the end of the year. HCOB notes that:

“The French economy is sinking into the recession quagmire, with HCOB Flash PMIs painting a disconcerting picture in December of the second-largest EU economy.Both the services and manufacturing sector contractions have intensifiedcompared to the previous month. Survey participants attribute lower activity levels to weak demand conditions, reduced purchasing power of customers, and general sluggishness in the economy – not good news for year-end growth. Our HCOB Nowcast predicts a slight contraction of 0.2% for the French GDP in the fourth quarter.

“In December, the HCOB Flash PMI for the manufacturing sector hit its lowest level since May 2020, registering at 42.0.The French industry, in particular, expressed concerns about future prospects. Domestic and international orders are plummeting, signalling trouble for employment as job losses extended. The only consolation for the industry lies in falling input prices, but without substantial new order intakes, this is likely to provide only limited relief.

“French service providers are currently in a tough spot. The HCOB Flash PMI for services activity is at 44.3 index points, the worst since November 2020. New Business is in a dismal state and the backlog of orders is shrinking fast, too. This bodes ill for the performance of the sector in the near future. The silver lining is that employment remains stable. Overall, it’s hardly surprising that our HCOB Nowcast predicts a decline of 0.2% for the service sector.”

France November final CPI +3.5% vs +3.4% y/y prelim

Latest data released by INSEE – 15 December 2023
Prior +4.0%
HICP +3.9% vs +3.8% y/y prelim
Prior +4.5%

UK December flash services PMI 52.7 vs 51.0 expected

Latest data released by S&P Global – 15 December 2023

Prior 50.9
Manufacturing PMI 46.4 vs 47.5 expected
Prior 47.2
Composite PMI 51.7 vs 50.9 expected
Prior 50.7

This is a contrast to the euro area data from earlier, as the UK economy is seen picking up further towards the end of the year. Overall activity is bolstered by the services sector once again as manufacturing activity remains in contraction territory for now. On the inflation front, input prices were seen rising to their highest since August while output charges are also seen increasing with little sign of a slowdown since the summer. S&P Global notes that:

“The UK economy continues to dodge recession, withgrowth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter as a whole. While employment meanwhile fell for a fourth month, the decline was only marginal and not indicative of any material rise in unemployment.

“This is, however, a dual-speed economy, with manufacturing contracting sharply while services regained some poise, the latter growing faster in December thanks in part to financial services activity being buoyed by hopes of lower interest rates in 2024.

“This divergence is also reflected in inflation pressures, with falling prices again evident in the goods producing sector while service providers report persistent elevatedinflationary pressures, often linked to wage growth.The resulting signal is one of inflation remaining stubbornly above 3% in the coming months.

“The service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank ofEngland to be talking about cutting interest rates, and willadd fuel to some policymakers’ calls for further rate hikes. However, the fear is that the tentative nature of growth in December, and the impetus from looser financial conditions, means that fears of further policy tightening could tip the economy back into decline.”

UK Data – December consumer confidence rises to -22 from -24 in November

GfK’s Consumer Confidence Index in the UK shows a rise in Decembe

GfK Consumer Confidence Index rose to -22 in December

from -24 in November
all five of the survey’s components rose

Joe Staton, client strategy director at GfK:

“Despite the severe cost-of-living crisis still impacting most households, this slow but persistent movement towards positive territory for the personal finance measure looking ahead is an encouraging sign for the year to come.”

ECB’s Villeroy: Next policy move should be lowering rates barring any surprises

Remarks by ECB policymaker, Francois Villeroy de Galhau

We will bring inflation back down to 2% target by 2025
Important signal yesterday was the changed inflation outlook
Monetary policy transmission is slightly faster than initially expected
We are on a plateau, “have to take the time to enjoy the view”
Will be guided by data when determining next policy steps
Europe will be spared from a recession, the same applies to France

ECB’s Holzmann: There was no discussion of a change to rates at latest meeting

Remarks by ECB policymaker, Robert Holzmann

Majority said there are risks to the upside on inflation
For most of us, core inflation is what we are looking at
Wouldn’t say we are at terminal rate but the chance has increased

ECB’s Muller says too early to talk about rate cuts in the near-term

Remarks by ECB policymaker, Madis Muller

Too early to celebrate victory over inflation
Still a little bit to go to reach 2% inflation target

Goldman Sachs is forecasting an initial rate cut from the Bank of England in June 2024

BoE to cut in June say GS, revising its previous August forecast

Goldman Sachs does not appear to be convinced by Bank of England Governor Bailey’s attempt at continued hawkishness on Thursday:

GS see a first cut in June next year, then:

“We expect the MPC to cut at a 25bps per meeting pace until policy rates reach 3.0% in June 2025,”

Asia-Pacific-World News

China says to extend interbank foreign currency trading hours

An online statement by China’s foreign exchange trading platform

The trading hours for interbank foreign currency and foreign currency money market will be extended to 7 a.m. to 3 a.m. the following day. The previous trading hours were from 7 a.m. to 11:30 p.m. so that allows for an extra three-and-a-half fours of interbank trading. The change will go into effect from 18 December.

China November industrial output +6.6% y/y (exp +5.6%) Retail Sales +10.1% (exp +12.5%)

China’s industrial output for November surpasses estimates, but retail sales disappoint.

China’s economic ‘activity’ data for November 2023

China’s industrial output +6.6% y/y in November year-on-year, better than in October and ahead of the central estimate of +5.6%

Retail sales was a miss, up at + 10.1% in November, with a +12.5% the median estimate, but up from +7.6% in October.

Fixed asset investment +2.9% in the first 11 monthsof 2023, falling short of central expectations at +3% rise but matching its +2.9% in the January-October period.

January-November (ie YTD) new construction starts -21.2% y/y

property sales measured by floor area -8.0% YTD y/y
property investment -9.4% YTD y/y

China November new home prices -0.3% m/m (prior also -0.3%)

Why buy a house when prices are falling

House prices in China continue to fall:

-0.3% m/m

prior -0.3%

-0.2% y/y

prior -0.1%

China’s economic recovery: NBS anticipates meeting full-year targets

China’s National Bureau of Statistics

A spokesperson for China’s National Bureau of Statistics (NBS) after the data release earlier:

China’s full-year development targets are expected to be achieved.
Persistently recovery demand is helpful for the improvement in consumer prices.
China will not see deflation.
The short-term adjustments in the property sector is conducive for the stable and sound development of the sector in the long run

Reports that China is likely to set 2024 growth target at around 5%

Reuters with this.Citing sources on what took place at the annual Central Economic Work Conference behind closed doors on Monday and Tuesday this week.

China to run a budget deficit of 3% of gross domestic product in 2024, other fiscal support may be covered by off-budget debt
that 3% deficit figure is lower than this year’s revised 3.8% target, with the option to issue off-budget sovereign debt giving flexibility to step up stimulus
special sovereign bonds could be issued to pay for extra expenditures as needed, could amount to 1 trillion yuan ($140.16 billion).
All three sources who spoke with Reuters after the annualmeeting confirmed China was likely to target growth of around 5%in 2024.

Australian Preliminary PMIs for December improve but remain in contraction

Economy showing resilience due to strong employment results and expanding incomes

Judo Bank / S&P Global flash / preliminary PMIs for December 2023

From the report in brief:

Both key activity indicators remain below 50, in line with a growth ‘pause’, and are well above levels indicative of economic recession.
Complicating the economic picture are the still strong employment readings and elevated price indexes.
For the RBA and Treasury, these results are consistentwith the soft landing view of the economic outlook.There are few signs that the economy is likely to tip into a steeper downturn next year. Most importantly, the strong employment results suggest the economy may prove resilient in 2024. It is hard to see a sharp downturn in the economy while employment and incomes are expanding.

New Zealand data: November manufacturing PMI 46.7 (up from 42.5 in October)

The New Zealand Manufacturing PMI, also known as the BNZ BusinessNZ Performance of Manufacturing Index has jumped from October but remains in deep contraction.

November was 46.7, highest since June, but the ninth consecutive month under 50

42.9 in October

Westpac NZ forecasts no rate hikes, or cuts, from the RBNZ in 2024

A response to the poor New Zealand GDP report

Via analysis from WPAC in New Zealand, their outlook for the Reserve Bank of New Zealand next year and into 205:

We no longer expect the RBNZ to increase the OCR in 2024. Recent data highlights a noticeably weaker starting point for GDP and inflation which will likely see the RBNZ revert to their forecasts of August 2023. The RBNZ is likely to remain much more cautious than market pricing when considering OCR cuts.

In summary:

The case for a hike in February now looks too thin.
Recent GDP data shows a much weaker starting point for the economy.
Headline inflation looks lower than previously forecast.
OCR to stay at 5.5% through 2024 and gradual easing from early 2025.

On that second point above, revisions showed two consecutive quarters of negative growth in Q4 2022 and Q1 2023, the standard accepted definition of a recession.

Japan preliminary manufacturing PMI for December falls to 47.7 (prior 48.3)

Japan Jibun Bank / S&P Global PMIs for December, the flash readings:

Manufacturing 47.7, contraction for the seventh straight month and at its lowest in 10 months

prior 48.3

Services 52.0, on the other hand, best reading in 3 months

prior 50.8

Composite 50.4

prior 49.6

Japan’s factory input costs rose at the fastest pace in three months:

weak yen, higher labour and raw material costs

BOJ meet next week – no change to policy expected, but could come as soon as January

Via the latest Reuters poll on the Bank of Japan outlook, main points:

BoJ will begin to unwind ultra-loose monetary policy in January, 21% of economists say.
BoJ will end negative interest rates in 2024, 84% of economists say in their end-quarter forecast; from 71% in Nov poll and 54% in Oct poll.
88% of economists say BoJ will end yield curve control policy; 12% say BoJ will tweak YCC again.
BoJ deposit rate to rise to 0.00% or 0.10% by end-Q2 2024, say 28 of 42 economists; two say 0.25%.

Cryptocurrency News

Ethereum price likely to outperform BTC says JP Morgan report, but short-outlook remains flat despite ETF hype

Invesco Digital’s Ethereum spot ETF’s approval is delayed.
Ethereum price is likely to hover between the $2,030 and $2,539 levels for the next few weeks.
On-chain metrics note a decline in user activity, which could add headwinds to the uptrend.

Ethereum (ETH) price is likely to overshadow Bitcoin price performance in 2024 said JP Morgan analysts in a recent note. Ether traded in the $2,400 region after nearly three weeks of consolidation but this uptrend seems to have lost momentum as Bitcoin price takes a hit this week. Despite the Bitcoin ETF approval hype, ETH continues to remain largely neutral as other altcoins outperform Ether. In the near future, ETH is likely to slip into sideways movement due to a few reasons: a slump in on-chain activity, a delay in ETF approval from the US Securities and Exchange Commission (SEC), a fast-approaching holiday season, and a lack of momentum to push Bitcoin price higher.

Cardano price aims for $0.85 target as it trades at crucial demand zone

Cardano on-chain metrics signal ADA is in a crucial demand zone, once cleared there is no major resistance till $0.8457.
Cardano’s transaction volume and active addresses increased since the beginning of the month, alongside the ADA price rally.
ADA price yielded nearly 40% weekly gains for holders.

Cardano price is in a crucial demand zone between $0.6199 and $0.6822, on Friday. The altcoin has yielded consistent gains for holders in the past two weeks. ADA price gains are likely sustainable according to bullish on-chain metrics.

ICYMI – US regulator (SEC) will take a “new look” at spot bitcoin ETF applications

Comments on Thursday from US Securities and Exchange Commission Chair Gary Gensler interview with CNBC

agency’s “new look” at applications for a spot bitcoin ETF had been taking recent court rulings into consideration.
“We had in the past denied a number of these applications, but the courts here in the District of Columbia weighed in on that,”
“So we’re taking a new look at this based upon those court rulings.”
“There’s been far too much fraud and bad actors in the crypto field,”
There’s a lot of noncompliance, not only with the securities laws, but other laws around anti-money laundering and protecting the public against bad actors there.”

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Round up of today’s market news

ByBilals Tech