JASPER’S MARKET SQUAWK 16-01-2024
Dollar Rises as Tech Stocks Cool Their Advance
The US dollar gained ground early Tuesday, while stock markets look soft thanks in part to a cooldown in the advance of big tech stocks ahead of Q4 earnings releases.
Key Factors for Today
- The US dollar’s advance in Asia, driven by geopolitical risks, is expected to face headwinds if the Federal Reserve commences interest rate cuts.
- European shares are set to follow Asian markets’ downward trajectory, influenced by mixed global cues and economic data.3
- Oil futures display mixed trends amid geopolitical risks, while gold prices rise, balancing higher U.S. Treasury yields and dollar strength.
- Big tech stocks, major drivers of last year’s market rally, show signs of slowing, affecting broader market dynamics.
- Ongoing geopolitical conflicts, including in Ukraine and the Middle East, continue to inject volatility into global markets.
Chart of the Day
Another statistic, this time related to the bond market. From a historical perspective, in the 3 months preceding the first FED rate cut, the average performance of the US 10-year yield was approximately -1%. But the real question is: could the market have already priced all this in?
Source: Matteo Marchetti, KTM Market Analyst
For all the latest market developments follow Matteo @MMTradingKTM and Key to Markets @keytomarkets on Telegram
Biggest Stories
The European stock market is currently facing significant challenges, mirroring the downturns seen in Asia’s major economies. This decline is not just a response to local market dynamics but is also heavily influenced by broader geopolitical risks and uncertainties in the global economic landscape. Investors are keeping a watchful eye on these developments, understanding that they could herald major shifts in market dynamics.
In contrast, the U.S. dollar is experiencing an uptick. This increase is largely attributed to its status as a safe-haven currency amid the ongoing global geopolitical tensions. The Federal Reserve’s potential policy shifts, especially concerning interest rate cuts, are also playing a crucial role in bolstering the dollar’s strength. However, there is an underlying concern about its overvaluation compared to the G-10 currencies and the possibility of its depreciation as the year progresses.
Meanwhile, U.S. Treasury yields are witnessing a rise, which reflects the market’s anticipation of changes in the Federal Reserve’s interest rate policy. This increase in yields is a clear indicator of the investors’ expectations and their implications for various bond markets, including those of banks and sovereign bonds.
The oil market is presenting a complex scenario with its futures exhibiting diverse trends. These fluctuations stem from a combination of factors, including geopolitical tensions—particularly those involving Iran—and other market forces like the recent U.S. cold snap that has impacted production. Current oil prices seem not to have fully factored in the potential escalation of these geopolitical conflicts.
Gold prices are also experiencing fluctuations, caught in the crossfire between the higher U.S. Treasury yields and its traditional role as a safe-haven asset. The market’s reaction is further complicated by comments from Fed Governor Christopher Waller on interest rate policies, which could significantly influence the future trajectory of gold prices.
Econ Calendar
- UK: Dec UK monthly unemployment figures
- Germany: Dec Consumer Price Index (CPI)
- Italy: Dec CPI
- Germany: Jan ZEW Indicator of Economic Sentiment
- Ireland: Dec CPI
