Marketmind: New year, old plot

© Reuters. FILE PHOTO: Traders are pictured at their desks in front of the DAX board at the stock exchange in Frankfurt, Germany July 29, 2015.REUTERS/Remote/Pawel Kopczynski/File Photo

A look at the day ahead in European and global markets from Rae Wee

The 2024 trading year kicked off in Asia with bitcoin surging, gold prices climbing and Chinese markets sliding yet again – all of which point to the fact that even in the New Year, the narrative for markets had not changed at all.

Trading was thinned in Asian hours with Japan out on a holiday, though expectations that 2024 could mark the start of a global easing cycle remained the dominant market driver, and investors continued to find every reason to latch on to the optimism.

Financial markets also didn’t seem too rattled by a powerful earthquake which struck central Japan on New Year’s Day.

In a fresh boost to risk appetite, the world’s largest cryptocurrency bitcoin rose above $45,000 on Tuesday for the first time since April 2022, extending its strong run from last year where it jumped more than 155% – its best year since 2020.

With the data calendar relatively scant for the day, it seems there is little in the way to sway investors betting on a slew of rate cuts beginning early this year, at least until the end of the week when a reading on euro zone inflation and U.S. jobs figures come due.

Futures pricing continues to point to a roughly 85% chance the Federal Reserve will start to ease rates in March, according to the CME FedWatch tool, while more than 150 basis points of rate cuts from the European Central Bank have similarly been priced in for all of 2024, and roughly 140 bps from the Bank of England.

In China, calls for greater policy support and expectations of further rate cuts are also at the top of investors’ minds, though for a slightly different reason.

Tuesday’s private-sector survey showing that China’s factory activity expanded at a quicker pace last month was in stark contrast to Sunday’s official data which revealed manufacturing activity shrank for a third straight month in December and weakened more than expected.

The divergence paints a mixed picture of the bumpy post-pandemic recovery in the world’s second-largest economy, and even President Xi Jinping’s promise to shore up the country’s economic recovery this year has done little to restore investor confidence.

Key developments that could influence markets on Tuesday:

– France S&P Global manufacturing PMI (December)

– Germany HCOB manufacturing PMI (December)

– Euro zone Money-M3 Annual Growth (November)