U.S. Markets:

• Despite stronger-than-expected employment market data on Friday, Wall Street indices closed the day with modest gains. On a daily basis, the Nasdaq index ended the day with a 0.09% increase, the NYSE composite index with a 0.25% increase, the S&P 500 index with a 0.18% increase, and the Dow Jones index with a 0.07% increase.
• The Dollar index closed last week at 102.4, marking a 1.1% increase.
• The barrel price of Brent crude oil closed the previous week at USD 78.8, reflecting a 2.2% increase.
• The price of gold per ounce closed last week with a 0.8% loss, settling at USD 2,046.
• The 10-year U.S. Treasury yield completed the week with a 17 basis points increase, reaching a level of 4.05%. The 2-year U.S. Treasury yield, particularly responsive to Federal Reserve policy rates, closed the week at 4.38% after a 13 basis points increase.

European Markets:

• European stocks closed the Friday session with losses, as the Stoxx Europe 600 index SXXP, finished down 0.27% at 476.38. The German DAX index declined by 0.14% to 16,594.21, the French CAC 40 indexweakened by 0.40% to 7,420.69 and the FTSE 100 index UKX weakened by 0.43% to 7,689.61.

Asian Markets:

• Most stocks in the Asia-Pacific region rose Friday, Jan 5. with the exception of Hong Kong, which saw declines for the fourth consecutive session. The Hang Seng index declined 0.7% to 16,535.33, while the Nikkei 225 index added 0.3% to 33,377.42. China’s Shanghai Composite index fell 0.9% to 2,929.18.
• S&P/ASX 200 Benchmark index in Australian stock market slightly weakened 0.1% to 7,489.10.

• December FOMC Meeting Minutes Analysis

Minutes from the December FOMC meeting were released last Wednesday. The Fed, in its last meeting, kept the federal funds rate range unchanged at 5.25%-5.50%, aligning with expectations. According to the Fed’s new macroeconomic projections, a 75 basis point interest rate cut was expected in 2024, followed by 100 basis points in 2025 and 75 basis points in 2026, totaling 250 basis points of expected rate cuts over the next three years.

• The minutes indicated that while members expected the policy to remain restrictive for some time, they noted the possibility of an interest rate cut in 2024.
• Members observed that they believed interest rates were at or near their peak, but the course of policy would depend on economic developments.
• Additionally, members noted reduced upward risks to inflation and expressed the view that a rate cut in 2024 would be appropriate in their baseline scenarios. However, they also emphasized the unusually high uncertainty about the policy path despite the possibility of rate cuts.
• The minutes highlighted that inflation remained significantly above the target, and the risk of progress toward price stability halting continued. Members drew attention to the uncertainty about how long the restrictive policy stance should be maintained and the downward risks to the economy from an overly restrictive stance.
• Members also stressed the importance of a cautious and data-dependent approach, noting that the balance sheet reduction process was proceeding smoothly.

• December ISM Indices and S&P Global Services Sector PMI

In the U.S., December ISM manufacturing and non-manufacturing indices were followed for the last outlook on economic activity.

The ISM manufacturing index for December rose from 46.7 to 47.4, indicating a slowdown in the contraction pace in the manufacturing sector, but persistent contraction for the fourteenth consecutive month, mainly due to weakening new orders.

The ISM non-manufacturing index, falling from 52.7 to 50.6, signaled a slowdown in growth in non-manufacturing sectors, hitting the lowest level in the last seven months.

The final S&P Global services sector PMI data for December was also followed in the U.S.

According to this data, the service PMI for December, revised upwards to 51.4 from 51.3, indicated a mild acceleration in the growth of the service sector, maintaining its trend at the highest levels in the last five months.

• November Durable Goods Orders and Factory Orders: Recovery Trends and Investment Signals

The U.S. observed the final November durable goods orders and factory orders data.

Durable goods orders, recovering by 5.4% monthly following a 5.1% decline in October, recorded the most significant increase since July 2020. In November, a substantial increase in orders for non-defense aircraft and parts (up 80.1%) influenced the increase in durable goods orders. Excluding defense aircraft, non-defense capital goods orders except aircraft showed an 0.8% increase, indicating a recovery in investment signals, after a 0.2% decline in September and a 0.6% decline in October.

In addition, factory orders, partially recovering with a 2.6% increase in November after a 3.4% decline in October, marked the largest monthly increase since January 2021.

• U.S. Labor Market Insights

The JOLTS job openings data for November, dropping from 8.85 million to 8.79 million, signaled a gradual cooling of the labor market with the Federal Reserve’s gradual tightening steps. Non-farm payroll, unemployment rate, and average hourly earnings data for December were also followed:

Non-farm payroll increased from 173,000 to 216,000, marking the highest level in the last three months, contrary to expectations of a slowdown to 175,000.

The unemployment rate remained at 3.7% in December, continuing its trend at the lowest levels since July. Expectations were for a slight increase to 3.8%. The number of unemployed increased by 6,000 to 6.27 million, while the number of employed decreased by 683,000 to 161.2 million. The labor force participation rate decreased by 0.3 percentage points to 62.5%, marking the most significant drop since January 2021.

Looking at the inflation trend, average hourly earnings, i.e., the rate of increase in wages, recorded a 0.4% monthly level in December, maintaining the highest levels in the last five months. Expectations were for a slowdown to 0.3%. The annual growth rate increased from 4% to 4.1%, reaching the highest level in the last three months. Expectations were for a decrease to 3.9%.

• ADP Private Sector Employment Increase and Annual Wage Growth

The ADP private sector employment increase for December, rising from 101,000 to 164,000 on a monthly basis, reached the highest level in the last four months, contrary to expectations of an increase to 125,000. The previous month’s data was slightly revised downward from 103,000 to 101,000.

Examining the details, it was observed that the majority of the increase in private sector employment in December occurred in the service sector, with the accommodation and entertainment sector (59,000 increase) leading in employment increase. On the other hand, the construction sector observed a 24,000-person employment increase, while the mining sector recorded a limited employment decrease of 2,000, and the manufacturing industry recorded a limited employment decrease of 13,000.

Furthermore, the annual wage growth rate in December decreased from 5.6% to 5.4%, marking the slowest growth rate since 2021. These data indicate that, despite the acceleration in hiring, wage increases continue to slow down.

• Tight Labor Market Continues…

Weekly initial jobless claims data for the week of December 30th in the U.S., falling from 220,000 to 202,000, recorded a decrease above expectations while remaining at historically low levels, indicating continued tightness in the labor market.

• CPI and PPI Data Impacting Monetary Policy Decisions

Looking at the U.S. economic calendar this week, data closely watched for guiding the Fed’s monetary policy includes December CPI (Consumer Price Index) data on Thursday and December PPI (Producer Price Index) data on Friday.

In November, the headline CPI increased from 0% to 0.1% on a monthly basis, accelerating above expectations (0%), while on an annual basis, it slightly decreased from 3.2% to 3.1%, marking the lowest level in the last five months.

Core CPI, which excludes food and energy prices, showed a monthly growth rate of 0.2% in November, in line with expectations, reaching 0.3%, while on an annual basis, it remained at 4%, similar to the previous month, maintaining the lowest levels in the last two years.

Headline PPI, after a 0.4% monthly decline in October, remained flat in November, in line with expectations, at 0%, while on an annual basis, it decreased from 1.2% to 0.9%, marking the lowest level since June and continuing its downward trend.

Core PPI, excluding food and energy products, remained flat on a monthly basis in November, similar to the previous month, at 0%, contrary to expectations of a 0.2% increase, and on an annual basis, it decreased from 2.3% to 2%, marking the lowest level since January 2021, with expectations of a further decline to 2.2%.

For December, it is expected that the headline CPI will increase from 0.1% to 0.2% on a monthly basis and that the annual basis will slightly increase from 3.1% to 3.2%, while core CPI is expected to show a monthly growth rate of 0.3%, similar to the previous month, and an annual basis decrease from 4% to 3.8%.

Headline PPI is expected to record a 0.1% monthly increase in December and rise from 0.9% to 1.3% on an annual basis, while core PPI is expected to show a 0.2% monthly increase in December and remain at 2% on an annual basis, similar to the previous month.

• Trade Balance Data for November

On Tuesday, the trade balance data for November will be followed. In October, the monthly trade deficit rose from 61.2 billion USD to 64.3 billion USD due to a decrease in exports and a slight increase in imports, reaching the highest level in the last three months.

• Labor Market Tightness

Key labor market data, the weekly initial jobless claims, will be followed on Thursday. The last reported claims decreased from 220,000 to 202,000, surpassing expectations, but remained at historically low levels, indicating continued tightness in the labor market.

• December HCOB Service Sector PMI Across Europe

In December, the final PMI data for the service sector in the European Union provided information on the recent economic outlook. The service PMIs across the region indicated a slight slowing of contraction in the service sector. Specifically, in Germany, the service PMI rose from 48.4 to 49.3, in France from 44.3 to 45.7, and in the Eurozone from 48.1 to 48.8. In contrast, the UK showed an increase in the service sector from 52.7 to 53.4, suggesting a mild acceleration in growth.

• ECB’s Inflation Data for December in the Eurozone

The preliminary CPI data for December in the Eurozone, which influences the ECB’s monetary policy, was monitored. The headline CPI in the Eurozone increased by 0.2% on a monthly basis in December, in line with expectations following a 0.6% decrease in November. On an annual basis, it rose from 2.4% to 2.9%, marking the first increase observed since April. The increase in headline CPI was particularly influenced by base effects related to energy prices

Core CPI in the Eurozone, after a 0.6% monthly decrease in November, recorded a 0.4% increase in December, in line with expectations. On an annual basis, it decreased from 3.6% to 3.4%, reaching the lowest level since March 2022.

• Producer Price Index (PPI) for November in the Eurozone

The Eurozone’s November data on the Producer Price Index (PPI) revealed a 0.3% monthly decline after three consecutive months of increase. On an annual basis, the rate of decrease slowed from 9.4% to 8.8%.

In Germany, the headline CPI, after a 0.4% monthly decrease in November, showed a 0.1% increase in December, slightly below the expected 0.2% increase. On an annual basis, it increased from 3.2% in November to 3.7% in December, influenced by the government partially covering some of the monthly heating expenses for households. Additionally, the annual core CPI in December decreased from 3.8% to 3.5%, reaching the lowest level since July 2022.

• Trade Data and Factory Orders in Germany

On Monday, trade data for November in Germany indicated a widening trade surplus to EUR 20.4 billion, surpassing expectations and reaching the highest level since January 2021. Exports increased, particularly to the EU, while imports rose for the first time in six months.

Additionally, factory orders in Germany rose by 0.3% in November, reversing the previous month’s fall but falling short of market forecasts.

• Industrial Production in Germany for November

On Tuesday, industrial production data for November in Germany will be followed. In October, industrial production decreased by 0.4% monthly, extending its decline for the fifth consecutive month. On an annual basis, industrial production contracted by 3.5% in October, following a 3.6% decline in September. Notably, capital goods and intermediate goods production decreased by 1%, while consumer goods production fell by 0.4%, and energy production increased by 7.1%.

• Eurozone Investor Confidence and Consumer Confidence

On Monday, the Sentix investor confidence data for January in the Eurozone showed a third consecutive improvement, reaching -15.8 points. However, Germany’s situation remained concerning, indicating an ongoing recession. Additionally, consumer confidence in the Eurozone increased by 1.9 points to -15 in December, the highest since February 2022.

• Eurozone Retail Sales in November and UK Monthly GDP Growth in November

The retail sales, released this Monday in the Eurozone for November, fell by 1.1% year-on-year, accelerating from the previous month’s 0.8% drop.

On Friday, monthly GDP growth data for November will be followed in the UK. In October, monthly GDP contracted by 0.3%, exceeding expectations. A partial recovery with a 0.2% growth in monthly GDP is expected in November, primarily driven by the weakening of consumption expenditures in the services sector.

• Manufacturing and Non-Manufacturing PMI in China

In December, China’s official manufacturing Purchasing Managers’ Index (PMI) declined from 49.4 to 49, indicating an acceleration in contraction in the manufacturing sector for the third consecutive month.

On the other hand, the official non-manufacturing PMI, which provides insights into the performance of the service and construction sectors, increased from 50.2 to 50.4 in December, suggesting a slight acceleration in growth in non-manufacturing sectors. However, growth in the non-manufacturing sector remained in the expansion zone for the twelfth consecutive month.

The December Caixin manufacturing PMI, signaling the performance of small and medium-sized firms, rose from 50.7 to 50.8, indicating a slight acceleration in manufacturing sector growth for the second consecutive month.

• Consumer Price Index (CPI) and Producer Price Index (PPI) in China

On Friday, Consumer Price Index (CPI) and Producer Price Index (PPI) data for December in China will be monitored.

In November, the CPI in China showed a 0.5% monthly decrease, accelerating its decline for the past two months. On an annual basis, the rate of decrease increased from 0.2% to 0.5%, marking the fastest decline since November 2020 and indicating increased deflationary pressure. In November, the annual PPI decrease rate in China increased from 2.6% to 3%, marking the fourteenth consecutive decline and the fastest decline since August.

In December, a slowdown in the annual CPI decline rate from 0.5% to 0.4% is expected, and a slowdown in the annual PPI decline rate from 3% to 2.6% is anticipated.

Additionally, on Friday, China’s trade data for December will be released. In November, China’s annual export, following six consecutive months of decline, partially recovered with a 0.5% increase. Annual imports, after a 3% increase in October, showed a partial weakening with a 0.6% decrease in November, highlighting the fragility of domestic demand despite the Chinese government’s comprehensive measures to revive consumption.

In December, an increase in the annual export growth rate from 0.5% to 1.6% and a flat growth rate in imports after a 0.6% decrease are expected.

• South Korea Central Bank’s Interest Rate Decision

On Thursday, the interest rate decision of the South Korea Central Bank will be followed. The bank is expected to keep its policy interest rate stable at 3.50% during this week’s meeting.