Market Report : 09.01.23

Published: 09/01/2023 By ECAP

Sterling rebounded last Friday as disappointing U.S. data offered a welcome bid towards the end of what has been a punishing week. A nearly audible gasp was heard across the analyst community after the U.S. ISM Services PMI read at 49.6 in December, which was significantly below the expected 55.0. Sterling recovered as markets bet that an economic slowdown in the U.S. was taking hold. Looking forward, all eyes will be on the UK release of November GDP figures this Friday.

European markets were boosted by the weekend’s news that China dropped its pandemic border controls, opening its perimeter that had been all but shut since the start of the COVID-19 pandemic. This is likely to result in a boost to the country’s economic activity, which would have a wider impact given China’s importance as a regional growth driver and as a key market for European exporters. Adding to the positivity was data released earlier this morning which showed that industrial production in Germany, Europe's manufacturing heart, rose in November, bolstering hopes that the region’s widely anticipated recession may only be shallow.

US inflation figures and the start of corporate earnings season will be the main highlights of an otherwise quiet week on the economic calendar. Inflation data for December will help influence the size of the Federal Reserve’s next rate hike, while corporate earnings will give an important insight into the health of the economy amid concerns over a potential slowdown. Looking forward, the U.S. consumer price index for December is due out on Thursday with economists expecting core inflation to have increased 5.7% from a year earlier. Ultimately, any sign that price pressures are continuing to ease could not only reinforce the view that the Fed is nearing the end of its most aggressive tightening cycle in decades but may also fuel speculation that rate cuts could come later this year.