Preliminary estimates from S&P Global reveal a stronger economic performance in the United States (US) as the Composite Purchasing Managers’ Index (PMI) increased marginally to 51.0 points in December, up from November’s 50.7 points. Despite a decline in factory activities, the Services PMI reached a 5-month high at 51.3 points, driven by a significant increase in new orders, leading to output growth. The overall private business activity in the US is expected to remain in expansionary territory in the short term, primarily supported by the services sector.
The Federal Open Market Committee (FOMC) has adopted an accommodative monetary policy stance, further supporting the positive outlook for broader economic activities. However, concerns linger over the subdued operational environment in factory activities, posing a potential downside risk to short-term growth.
Euro Area Sees Upsurge in Consumer Prices in December
Eurostat’s recently released data indicates a notable increase in the Euro Area’s consumer prices, rising to 2.9% year-on-year in December, compared to November’s 2.4% year-on-year. This uptick in inflationary pressure is attributed to the removal of energy subsidies by the German and French governments, leading to higher energy prices.
The weaker contraction in energy costs (-6.7% year-on-year) contrasts with a slowdown in prices for food, alcohol & tobacco (+6.1% year-on-year) and non-energy industrial goods (+2.5% year-on-year).
On a month-on-month basis, consumer prices rose by 0.2% in December. The elevated inflation rate, influenced by the recent surge in energy prices, is expected to persist above the European Central Bank’s (ECB) 2.0% target. This aligns with the view that the ECB will refrain from considering interest rate cuts in the short term. Instead, the focus will be on monitoring potential pressures arising from wage increases and geopolitical tensions. Financial markets anticipate the ECB’s first rate cut in mid-2024.
Global Equities
After a sluggish start to the holiday-shortened week, global stocks are poised for a weekly loss as investors assessed various economic reports – including initial jobless claims and non-farm payrolls – which indicated lingering resilience in the labor market that may impact how policymakers approach potential interest rate reductions this year. Correspondingly, US equities (DJIA: -0.4%; S&P 500: -0.2%) started the year with a lackluster performance, grappling with concerns over potential rate cuts by the Federal Reserve.
At the same time, European equities (STOXX Europe: -0.3%; FTSE 100: -0.1%) were poised for their first weekly loss, as investors reacted negatively to a hotter-than-expected euro-zone inflation data amid rising bond yields. Equally, Asian markets (Nikkei 225: -0.3%; SSE: -1.7%) finished lower in response to mixed manufacturing reports from China and longer-than-expected policy tightening in the US. Lastly, the Emerging (MSCI EM: -1.9%) market declined, undermined by selloffs in China (-1.6%), while the Frontier (MSCI FM: +0.7%) market closed higher, supported by Vietnam’s (+1.9%) bullish performance.
