JASPER’S MARKET SQUAWK 03-01-2024
2024 Start: Worst Session in Decades
Stocks posted sharp declines on the first trading day of 2024, in one of the worst starts since 1999, halting last year’s rally as traders reduced bets on rate cuts. Treasury yields rose across the board, while the dollar gained against most currencies and oil prices fell.
Chart: GBPUSD
Key Factors for Today
- Weaker US Economic Data Reduces Fed Cut Expectations
- Selloff in Stocks Sharp Following Barclays’ Apple Downgrade
- Oil Prices Decline, Import Quotas May Influence Short-Term Price
- Eurozone Manufacturing Sector in Contraction, Recession Concerns
- UK Manufacturing PMI Falls, High Interest Rates Weigh on Outlook
Apple Downgrade Triggers Rotation into Dollar
Stocks started 2024 with a selloff, especially big winners from 2023 like Apple, Nvidia, chip makers, and cruise stocks. There are theories that mutual fund managers wanted to own 2023 winners to report to shareholders but now have a clean slate to rebalance funds. An Apple downgrade was one of the biggest triggers for the rotation on Tuesday, with Barclays analysts worrying about weakness in iPhone volumes and mix. The US-Tech index tumbled 1.70% to 16550, opening the door to 16250 unless bulls recapture 16650.
Weaker US Data Dampens Rate Cut Expectations
US data showed manufacturing PMI falling to 47.96 from 48.2 expected and Atlanta Fed GDPNow estimate for Q4 dropping to 2% from 2.3% prior. The weaker US economic data prompted investors to scale back expectations of Fed rate cuts, supporting the dollar. The US index spiked 0.85% to 101.86, acting as a headwind for gold prices, which carried bearishness into 2024 as it heads towards $2050 an ounce. If the short-term swing at $2055 holds firm, the next level is near $2075. Meanwhile, IMF head Kristalina Georgieva said the Fed is definitely achieving a soft landing.
Oil Dips Despite Tensions on Supply Concerns, OPEC+
Oil erased 2.40% of its December gains to $70.50 a barrel despite US crude oil production falling slightly in October and tensions in the Red Sea. Investors appeared more interested in Nigeria’s deal for the Dangote refinery to supply 483K bpd of crude in the first half of 2024. OPEC+ also announced only a monitoring meeting in early February, weighing on uncertainty. However, the Chinese issued substantial crude oil import quotas of 179 million metric tons instead of 111.82 for 2024, which could support prices towards $72 unless bulls lose the round support and eye $68.90.
Eurozone Likely Entered Recession in H2
The eurozone manufacturing sector remained in contraction in December, with the PMI index coming in at 44.4. New orders remained weak, and manufacturers cut headcount for a seventh consecutive month, suggesting no near-term turnaround. Despite above expectations of 44.2, the continued weakness pointed to a likely recession in the second half of 2023. The eurodollar was under pressure from broadly stronger US yields, sharply losing the $1.10 support to $1.0950. Although short-term support can be seen at $1.09165, downward momentum exposes $1.0874.
UK Manufacturing PMI Points to Gloomy Outlook
The UK manufacturing PMI came in at 46.2 for December, slightly lower than the 46.4 expected. Output, new orders and employment all declined, suggesting weak overall activity. The outlook for manufacturers in the coming months appeared gloomy due to high interest rates and the cost of living crisis weighing on demand. Cable lost a significant 0.92% to $1.2612 on Tuesday, with $1.2563 coming into the spotlight should prices slide under $1.26. Short-term resistance lies near $1.2667.
On The Docket
- DE Unemployment Rate
- Fed Barkin Speech
- ISM Manufacturing PMI
- JOLTS Job Openings
- FOMC Minutes
- API Crude Oil Stock Change
FX 1-Day Relative Performance (USD)
- Aussie 0.63% down while Kiwi 0.36% up
- Euro 0.17% higher, Pound leads at +0.21%
- Loonie 0.61% in red, Franc 0.04% higher
- Japanese yen 0.75% in the red zone
- Gold 0.02% down, Silver 0.3% down
- WTI and Brent up by 0.03% and 0.11%
- Natural gas 0.62% in the positive
