Photo - Andreas Zanin
Andreas Zanin
Analysis, Market Analysis | January 4, 2024

JASPER’S MARKET SQUAWK 04-01-2024

FOMC Mins Downplay March Pivot

US stocks continued their downward trend, extending losses for a fourth consecutive session, while the dollar rose. It follows the Fed minutes revealing that interest rates could stay high for longer than expected and disappointing PMI and JOLTS data.

Chart: GOLD

Key Factors for Today

  • Gold Marks 4-Day Losing Streak Amid Hawkish FOMC Minutes
  • UK’s IOD Survey Pushes Leaders to Call For BOE Cuts
  • WTI Surges 3.50% on Escalating MidEast Tensions and Libyan Oilfield Shutdown
  • Japan’s Manufacturing PMI Declines, But Optimism Persists for 2024
  • Caixin Services PMI Shows Resilience, Contrasting Official Data

Gold Marks 4-Day Losing Streak Following Minutes

The FOMC minutes showed interest rates may stay high for some time to combat inflation, although most policymakers expect rates to end the year lower. The minutes were slightly more hawkish than the meeting despite uncertainty surrounding the timing of rate cuts, downplaying hopes of a March pivot. Richmond Fed President Tom Barkin warned that the economy could stall due to restrictive policy. Separate data showed that the ISM manufacturing index contracted for the eighth month in November, and job openings declined to a 32-month low, indicating a prolonged hiring boom is fading due to higher rates. Gold slid over 1% on Wednesday to mark a 4-day losing streak but managed a close above $2040 an ounce, eying $2060 while exposing support at $2025.

Business Leaders Call BOE to Cut Rates Soon

The Institute of Directors (IoD) confidence index economic confidence dropped to -28, with business leaders calling for the BOE to start cutting interest rates soon to boost businesses. Meanwhile, the UK’s grocery price inflation slowed to 6.7% in December, the fastest pace ever on record. Cable was seen trading 0.42% higher to $1.2665 despite a stronger dollar, eying $1.27 next. A failure to reach fresh 2024 highs may pressure the pair towards $1.26 instead.

WTI Crude Surges 3.50% Amid Rising Tensions

Crude oil prices rose 3.50% to $73 a barrel on Wednesday, driven by escalating tensions in the Middle East and the shut-in of Libya’s biggest oilfield. Protests in Libya led to the shutdown of the country’s largest Sharara oilfield, producing some 300K barrels per day. Oil bulls stopped up their game while prices momentarily fell under $70, with resistance now at $75. On separate data, the API showed that US product inventories saw significant builds this week, outweighing a large crude oil draw of 7.4 million barrels for the week ending December 29. Meanwhile, crude oil at the SPR increased by 1.1 million barrels this week.

Japan’s Manufacturing PMI Declines, But Optimism Persists

Japan’s manufacturing PMI fell to 47.9 in December on declining demand from key export markets and sluggish investment activity. Still, manufacturers remain confident that new product launches will support a production upturn in 2024. Meanwhile, BOJ governor Kazuo Ueda expressed hopes for sustained inflation and wage growth in 2024 but did not commit to policy changes. While many expect the BOJ to end its negative policy this year, some have pushed back the timing from January to March or April due to the earthquake. The Japanese yen also continued to weaken, now eyeing 145 in USDJPY, leaving behind support at 142.57.

Caixin Services Contrasts to Official PMI, Shows Resilience

China’s Caixin/S&P Global services PMI rose to 52.9 in December from 51.5 in November, thanks to rising customer numbers and spending. The private survey also showed that firms remained upbeat about business prospects in 2024 despite concerns over the macroeconomic environment. The survey contrasted with an official survey, which showed China’s services sector contracted again at the end of 2023. USDCNY was seen completely flat early Thursday after rising to a 3-week high of 7.1725 on Wednesday, opening the door to 7.1911 while trading above 7.1448.

On The Docket

  • EA HCOB Services PMI
  • GB BoE Consumer Credit
  • GB S&P Global Services PMI
  • DE Inflation Rate
  • ADP Employment Change
  • Initial Jobless Claims
  • S&P Global Services PMI
  • EIA Crude Oil Stock Change

FX 1-Day Relative Performance (USD)

  • Aussie and Kiwi 0.25% and 0.34% higher
  • Euro unchanged, Pound leads at +0.05%
  • Loonie 0.16% up, Franc 0.03% down
  • Japanese yen 0.25% in the red zone
  • Gold 0.60% higher, Silver lags at +0.23%
  • WTI and Brent up by 1% and 0.79%
  • Natural gas spikes 3.07% in the green
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