Ahead of the game: 8 January 2024

Risk-reduction start to 2024 for investors

Following an impressive rally for global equity markets into year-end, investors started the New Year in risk-reduction mode, locking in profits on trades made after the Federal Reserve's (Fed's) dovish pivot. The tech sector led the sell-off, as the Nasdaq fell 3% in the first three sessions of 2024.

In Australia, a similar story as the ASX200 took its lead from Wall Street following over 1% on light trading volumes with many investors away on holidays.

• In the US, ISM manufacturing purchasing managers index (PMI) increased to 47.4 in December 2023 from 46.7 in November for the fourteenth consecutive month in contractionary territory.
• JOLTS job openings in November decreased by 62,000 to 8.79 million, the lowest level since March 2021.
• The Fed Minutes from the December FOMC meeting noted that "clear progress" had been made on inflation but showed that policymakers were in no rush to cut rates.
• Inflation in Germany increased to 3.7% year-on-year in December from 3.2% in November, in line with expectations.
• In China, the Caixin Composite PMI for December increased to 52.6 from 51.6 prior.
• In Australia, the CoreLogic Home Value Index increased by 0.4% in December, its smallest gain since January 2023.
• Crude oil gained 0.75% to $72.19, supported by ongoing instability in the Middle East.
• Gold fell 0.95% to $2043, undercut by higher US yields and a stronger US dollar.
• Wall Street's gauge of fear, the Volatility (VIX) index, increased to 14.14 after finishing 2023 near 12.

• AU: Retail sales (Tuesday, 9 January at 11.30am AEDT)
• AU: Monthly CPI indicator (Wednesday, 10 January at 11.30am AEDT)
• AU: Trade balance (Thursday, 11 January at 11.30am AEDT)

• CH: CPI and PPI (Friday, 12 January at 12.30pm)
• CH: Trade balance (Saturday, 13 January at 2pm)

• ​​​US: CPI (Friday, 12 January at 12.30am AEDT)
• US: PPI (Saturday, 13 January at 12.30am AEDT)

• GE: Factory orders (Monday, 8 January at 6pm AEDT)
• GE: Industrial production (Tuesday, 9 January at 6pm AEDT)
• UK: GDP (Friday, 12 January at 6pm AEDT)

• AU

Monthly CPI indicator

Date: Wednesday, 10 January at 11.30am AEDT

At its board meeting in December, the Reserve Bank of Australia (RBA) kept its official cash rate on hold at 4.35%, as widely expected.

The decision followed a string of cooler-than-expected data across house prices, retail sales and inflation, and preceded a sub-par third-quarter gross domestic product (Q3 GDP) print, which saw the Australian interest rate market dramatically shift from pricing in RBA rate hikes in 2024 to pricing in rate cuts.

At the time of writing, the Australian interest rate market is pricing in just under two full 25bp rate cuts in 2024, with the first-rate cut priced for August. The expectation of rate cuts is supported by the unemployment rate rising to 3.9% from 3.7% into year-end. The focus now turns to next week's retail sales and monthly consumer price index (CPI) indicator for November.

In October, the monthly CPI indicator eased to 4.9% year-on-year slowing from 5.6% in September and below forecasts for 5.2%. Annual trimmed mean inflation was 5.3% in October, easing from 5.4% in September.

For November, the consensus expectation is for the Monthly CPI indicator to fall to 4.5% year-on-year from 4.9%. Should the trimmed mean fall below 5%, it would confirm the rates market is on the right track looking for rate cuts in 2024.

Monthly CPI indicator, Australia, annual movement (%)

• UK

GDP for November

Date: Friday, 12 January at 6pm AEDT

The British economy contracted 0.3% in October, weighed on by wet weather and elevated interest rates. The soft number ended a run of slightly better than expected GDP numbers and saw the UK interest rate market move towards the 6 X 25bp Bank of England (BoE) rate cuts currently priced in for 2024.

The market is expecting a modest gain of 0.1% in November. However, if another negative print is viewed, it would increase the chances that the UK economy will enter a recession (two consecutive quarters of contraction) in 2024, for the first time since Covid in 2020.

UK GDP

• US

Q4 earnings season

US Q4 earnings season kicks off next week with financial powerhouses, including JPMorgan, Bank of America, Wells Fargo and Blackrock, set to get the ball rolling.

According to FactSet on a quarterly basis, the S&P 500 reported earnings declines of -1.7% and -4.1% for Q1 2023 and Q2 2023. However, the index reported earnings growth of 4.9% for Q3 2023 and is projected to report an earnings growth of 2.4% for Q4 2023.

Eight sectors are predicted to report year-over-year growth in earnings in CY 2023, led by the Consumer Discretionary and Communication Services sectors. Three sectors are projected to report a year-over-year decline in earnings: Energy, Materials and Health Care.

At a company level, there will be intense scrutiny of the earnings reports of the 'Magnificent Seven': Tesla, Amazon, Microsoft, Nvidia, Apple, Meta, and Google.

US earnings season dates