Daily Market Update

Overview

While markets cheered the possibility of interest rate cuts through all of December and depressed USD, the new year is bringing fresh consideration as to whether or not these cuts will actually materialize as soon as March, as market expectations currently situate them. Though the odds of such a cut from the Federal Reserve in March are still sitting just below 80%, this is still a decline from two weeks ago and has been fueled by substantial pushback from many Fed governors. To close out 2023, equities and other risk-forward investments rode a roller coaster that seemed to only go up; the cold night of New Year’s Day is changing those fortunes. Asian stock indices were mixed with a tinge toward the downside, and European stocks slid, with US indices set to open lower as well.

Geopolitical events continue to sit at the forefront of everyone’s minds, and traders have refocused on tensions in the Middle East. The US Navy over the weekend sank three Houthi militant boats in the Red Sea, and Iran has reportedly sent its warship Alborz to the area as well. Oil prices rose more than a percent as a result, and traders are looking for more defensive positioning to open the year. Additionally, earthquakes off the coast of Japan’s northwest coast started off the year with an ugly bang as officials issued tsunami warnings to open in 2024. Chinese PMIs over the weekend also came in under expectations as the world’s second-largest economy continues to struggle to meet its own growth targets, dampening the global mood.

All told markets’ holiday cheer has come to a screeching halt today as many return from extended vacations to wrap up 2023. 2024 is, in its fledgling state, set to test risky investments as global growth prospects remain quite anemic.

What to Watch Today…

Eur ⇓

After banging up against the Dollar to close out 2023, the single currency today is losing ground quite substantially, to the tune of nearly a percent. The Bloomberg Dollar Spot Index is more than half a percent higher today as traders reassess interest rate cuts through 2024, and it seems as though they may come to the conclusion that the European Central Bank may, in fact, be the first major central bank to cut interest rates this year.

USD ⇑

Swiss Franc, after last week reaching its strongest point against USD since the Swiss National Bank de-pegged the currency from EUR in January 2015, has slid more than a percent softer against the Dollar to open the new year. Important to note, however, is that CHF is still just off this historically strong point, and today’s move is more of a technical retracement than anything else. As the SNB currently has its interest rates lower than most major central banks, potential cuts from other areas could buoy CHF in 2024.