Daily Management Review

2024 Is Not Expected To Have A Quiet Beginning


2024 Is Not Expected To Have A Quiet Beginning
There isn't much time to recover from the New Year's celebrations because the most anticipated U.S. economic report and significant inflation data for the euro area are scheduled for the coming week, indicating a hectic start to 2024.
Ebullient financial markets may soon be put to the test as expectations for major central banks to soon begin reducing interest rates are high, and the timing of a rate increase by the Bank of Japan is still a matter of concern.
With Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam, Ira Iosebashvili in New York, and Dhara Ranasinghe in London, here's your look ahead to the first trading week of 2019.
In order to determine if a Goldilocks scenario persists into 2024, the state of the U.S. labour market is critical, which puts Friday's December non-farm payrolls report in the forefront.
A significant cross-asset rally was sparked by the slowdown in economic growth and the reduction in inflation, which allowed the Federal Reserve to schedule additional rate cuts for 2024. However, there isn't much indication from the economy that the months of tighter monetary policy are causing a serious slowdown.
Exceptionally robust job growth or a sharp decline in employment could be indicators of a departure from that scenario and cause investors to lose faith in a soft landing.
According to Reuters polling of economists, the US economy created 158,000 new jobs in December as opposed to 199,000 in November.
Despite the market excitement, data that will be released on Friday is predicted to indicate that inflation in the euro zone increased in December for the first time since April.
According to a Reuters survey, it will rise to 3% from 2.4% in November, ending a precipitous decline that saw inflation fall short of forecasts for three consecutive months.
The increase, according to economists, will be mostly caused by energy assistance policies implemented a year ago, especially in Germany, where household gas bills were paid for by the government. This will result in a lower "base" price to which prices in December 2023 would be compared.
Investors will therefore need to analyse the data to see how the existing pricing pressures are changing. Trader expectations of more than six quarter-point ECB rate cuts in 2024 would be unsettled by any unexpected increase.
The good news is that core inflation should continue to decline, excluding volatile energy and food prices. It is projected that the narrowest measure will drop to 3.4%, the lowest level since March 2022.
Something must descend from above.
The markets begin the new year on a positive note due to rate-cut frenzy; government bond yields are at multi-month lows and stock prices are at their best points in almost a year.
Considering the increased geopolitical threats, the potential rise in business defaults, and the important elections coming up, starting on January 13 in Taiwan, perhaps complacency is too great.
The MOVE Treasury market volatility indicator is well below a peak from March, while the well-known market fear gauge, the VIX index, reached over three-year lows in December.
Investor confidence will be put to the test in the upcoming days. And remember the unexpected events that took many by surprise last year, such the banking crisis, the Israel-Hamas conflict, and the outcome of the Argentine election, when you look back on the previous year.
In December, the Bank of Japan firmly maintained its dovish position, dashed hopes for an early end to its negative rates policy.
However, Governor Kazuo Ueda, who has a taste for the unusual, gave hawks a tantalising nugget of information when he said that "generally speaking" a stimulus exit may involve a surprising element.
Thus, the BOJ's remarks ahead of its meeting on January 23 are important, even though the underlying message of patience remains true, supported by statistics indicating a decline in inflationary pressures.
In reality, Ueda reiterated in an interview on December 27 that "quite a lot of information" could be extracted from the BOJ's regional branch manager conference in mid-January and that the outcome of the spring salary negotiations is not necessary for a hawkish turn.
Government advisors appear confident in advocating for the same aim in 2024, with China's economy poised to exceed Beijing's 5% growth target in 2023.
One significant problem, though, is that the COVID-19 lockdown downturn of 2022 will not be compared favourably on a yearly basis.
This means that as Beijing attempts to transition from construction-led expansion to consumption-fueled growth, officials will have to make difficult decisions, especially when it comes to taking on more debt.
Investors will be eagerly monitoring China headlines in the coming days, anticipating further stimulus. The property market, where 70% of household wealth is invested, is on the verge of collapsing, and domestic demand is still weak.
March is when official growth targets are expected to be revealed, but until then, China's approach and the likelihood of incurring a ratings downgrade threat from Moody's will be revealed by the actions taken.