Sat, Feb 04, 2023 @ 11:23 GMT

Tougher than 2022?

I know, all we hope is to leave the horrible 2022 behind, and lick our wounds this year, but the New Year started with the IMF Chief Georgieva warning that the global economy faces ‘a tough year, tougher than the year we leave behind’. Great.

The IMF expects a third of the world economy to be in recession this year, as the US, the EU and China are slowing. Good news for the US is that the Americans could avoid recession, but the bad news for the Europeans is that, the EU will hardly be as lucky; half of the union will be in recession this year, according to the IMF.

China will also be facing a ‘tough year’ – even the sudden U-turn from the Covid zero policy won’t be enough to boost growth, as the incredibly disastrous management of both pandemic, and the exit from pandemic measures cause hundreds of millions of infections at the same time, and millions of death… and you can see the ravage in economic data. China’s Caixin manufacturing PMI fell the most in 3 months, from 49.4 to 49 in December. It was slightly better than the expectations, but it was the fifth straight month of drop in Chinese factory activity. Output, new orders, and export sales all declined. Employment dropped for the 9th month, and there was no sign of a rebound.

Elsewhere, the German PMI data pointed at a faster than expected contraction in manufacturing activity in December, while the European manufacturing PMI came in at 47.8, in line with expectations.

We will have more PMI data today, but don’t expect to see anything brilliant.

This being said, trading in European markets was rather optimistic on the first trading day of the year, as European nat gas futures eased on mild weather.

The DAX gained 1%, and held ground near the 14000 psychological mark, which also coincides with the 50-DMA, and the minor 23.6% Fibonacci retracement on September to December rally, while the French CAC 40 jumped nearly 2% for a reason I don’t really know.

Activity in European futures hints at a bearish start on Tuesday, while the US futures are in the positive at the tie of writing.

In the FX

The US dollar index kicked off the year on a subdued note, letting the dollar-yen tip a toe below the 130 mark. The EURUSD however, couldn’t build on gains above the 1.07 mark, while Cable remained steady-ish a touch above its 200-DMA, which stands near 1.2030 level.

Gold jumped to $1843 per ounce despite the positive pressure on the yields recently, while oil remained offered into the 50-DMA, which stands a touch below the $81 per barrel mark.
This week’s news and events

The first week of the year will be marked with a couple of important data and events, which will start giving some justifiable direction to market moves after weeks of slow trading.

First, the FOMC minutes on Wednesday will likely confirm, again, the Federal Reserve’s (Fed) tough stance to fight inflation.

But more importantly, Friday’s jobs data will give an insight on whether the Fed is being successful fighting inflation.

Besides, the FOMC minutes and the US jobs data, the OPEC meets this week.

US crude is struggling to take over the 50-DMA resistance, as the slowing China story – despite the reopening, and the mild winter in Europe weigh on the bulls’ appetite to boost the price rally.

But the oil bulls may have not said their last word yet. The limited oil supply, OPEC’s willingness to keep oil prices sustained to fill in the coffers, the switching demand from gas to oil, the Americans who sold 180 million of their strategic petroleum reserves last year, but who will also need to refill them as soon as possible – and possibly around $70-80pb levels, and the slow green transition, all hint that the downside in oil will likely remain limited.

How limited? Levels around $75-76 could give support to price pullbacks for a potential rise toward the $88pb level.

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