USD Starts the Year bullish Despite Contracting Manufacturing Activity
Today appeared to be promising for risk trades at the start, but everything changed as market participants are adjusting to the new year. European stocks started moving higher on last year’s footsteps, before reversing lower in the European session, with bonds also falling, implying higher yields for the session. The USD is turning out to be the winner today, despite lower Manufacturing PMI numbers.
The reversal lower in stock markets spurred a strong bid in the USD, after trading sideways earlier in the day. EUR/USD slipped down to 1.0950s without much resistance on the way until 1.09. USD/JPY also rose from 141.50 to 142.20s, as buyers made their intentions known. GOLD touched $2,079 earlier but has reversed back down to $2,065 where we decided to open a buy Gold signal.
S&P US Manufacturing PMI Report for December
The economic news has been light, with the last December revisions for the European manufacturing PMI figures, which came up almost unchanged. So, it appears that today’s moves are primarily a return of flows following the Christmas holiday break. However, the tremors in Ishikawa are still being felt, and there was a pretty rare and sad aviation event in Tokyo that claimed the lives of five people, so the Haneda Airport remains closed.
The US ISM manufacturing was released in the US session and was expected to show a slight improvement, with the activity to remain in contraction. However, we saw another slowdown in the activity, with the December numbers missing expectations, as shown below:
US S&P Global Manufacturing PMI for December 2023
- S&P global manufacturing index for December 47.9 points versus 48.4 points estimate
- Prior 48.2 points preliminary. Prior month was 40.4 points
- Only two months in 2023 were above the 50.0 points level
Highlights from the S&P Global:
- US Manufacturing Sector Decline: The sector experienced a contraction in December, marked by a decrease in output and a faster downturn in new orders.
- Weak Demand: Lower new sales were due to weak domestic and international demand, leading firms to reduce input buying and hiring.
- Greater Spare Capacity Indicators: Faster fall in backlogs and destocking, along with efforts to manage cashflow, indicated more spare capacity.
- Inflationary Pressures: Costs rose sharply, and selling prices increased at the fastest rate since April.
- PMI Decline: The S&P Global US Manufacturing PMI dropped to 47.9 in December, indicating a modest but accelerated decline in the sector’s health.
- Sharp Fall in New Orders: There was a notable decrease in sales, the fastest since August, mainly due to lower purchasing power among customers and global economic uncertainty.
- Export Orders in Contraction: New export orders declined marginally.
- Production Decrease: For the first time in four months, production levels dropped, influenced by higher input prices and slower production processes.
- Employment Reduction: Companies reduced employment at a rate comparable to early pandemic levels due to concerns about excess operating capacity.
- Cost Increases Amid Sluggish Sales: Despite slow sales, firms raised selling prices, while employment continued to drop.
- Backlogs and Inventories: There was a steeper contraction in backlogs and a decline in both pre- and post-production inventories.
- Business Optimism: Despite challenges, business confidence in the manufacturing sector reached a three-month high in December.
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