Market weakness persists, U.S. labor force strong

[Sterling may struggle to benefit from dollar weakness]

UK announces more strike action, adding to pressure on health and transport sectors. Meanwhile, lower energy prices pushed the peak BoE rate hike pricing down to 4.41% from recent highs above 4.75%. It may also slow the pound's gains against the dollar. On the short-term chart, it seems that the exchange rate is well supported around 1.21, but the momentum is weak. We think GBP needs to trade around 1.2210 to develop a stronger sense of short-term direction, although longer-term price signals suggest risks are tilted to the upside.

[The shadow of the energy crisis has weakened, Wall Street began to sing more euros]

Wall Street is clamoring for a rebound in the euro, investors are betting on cheap European assets as the shadow of the energy crisis wanes and the prospect of an economic recession becomes more optimistic. The euro is currently at a seven-month high of $1.07 per euro and may continue to rebound to $1.15 in the future. Nomura believes that the euro will rise to $1.10 by the end of this month. Aegon Asset Management, a subsidiary of Holland Global Life, is planning to increase its holdings of the euro.

[A recession is still possible]

The market sees the Fed's approach as unscripted because their previous forecasts were wrong and they have downplayed them in the past. Investors are judging that the U.S. is heading for a recession, and the Fed has not yet fully realized it. A recession is still possible but not inevitable, the labor market remains strong and prices are still rising sharply, not enough to prevent the Fed from raising interest rates further. The Fed's biggest concern about inflation right now is that wages are growing too fast.

[The U.S. labor market remains strong]

The annual rate of the overall CPI in the United States in December was in line with the expected 6.50%, the previous value was 7.10%; the core CPI annual rate in December was in line with the expected 5.70%, the previous value was 6%. The annual rate of core inflation hit its lowest level since December 2021. At the same time, the number of initial jobless claims recorded last week was 205,000, which was lower than the expected 215,000, showing that the labor market remains strong.

[Major central banks increase gold reserves to boost gold prices]

The Fed cut its rate hike to 50 basis points in December after raising rates four times in a row to 75 basis points last year. Although gold is considered an inflation hedge, rising interest rates increase the opportunity cost of owning bullion. Increases in gold reserves in some countries have also helped push up prices. Efforts to increase gold reserves have become easier in recent months as the dollar has weakened, making it cheaper for countries outside the United States to buy gold.

[Global economic growth is expected to slow down in the first half of this year]

The aggressive tightening of monetary policy by the world's major central banks and the related hysteresis will cause economic growth to slow down in the first half of this year, and will not improve until the second half of the year. The bottom of the cycle is expected to appear in the second or third quarter . The global economic growth will slow down sharply this year, far below the standard set by the International Monetary Fund (IMF) for a global economic recession (below 3%). Excluding the two-year recession caused by the impact of the new crown epidemic and the global financial crisis, the global economy in 2023 may be the worst year of growth since the 1980s.

[China reopening economy boosts optimism]

The reopening of China, the world's largest oil importer, boosted optimism that fuel demand could grow in 2023, and concerns over the impact of sanctions on Russian crude output sent both oil prices up about 3% overnight. . Continued optimism in the oil market has been fueled by the reopening of China. Rising travel should support demand for gasoline and jet fuel as the Lunar New Year looms. Additionally, the market is grappling with additional restrictions on sales of Russian fuel products that will come into force in February as the European Union continues its efforts to impose more sanctions on Russia. An international price cap imposed on Russian crude oil sales came into effect on Dec. 5.