Reaction to FOMC meeting minutes may eclipse today’s statistics

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Thursday, 6e January

German Factory Orders (MoM) (November)

IHS Markit Construction PMI (December)

German CPI (MoM) (Dec)

Friday, 7e January

German industrial production (MoM) (November)

German trade balance (November)

French consumption expenditure (MoM) (November)

Euro area CPI (year-on-year) (dec.) Prelim.

Euro area retail sales (MoM) (Nov)

Major

It was yet another bullish day for European majors on Wednesday. EuroStoxx600 rose 0.07%, with the CAC40 and DAX30 ending the day up 0.74% and 0.81% respectively.

Eurozone economic data did not weigh on risk sentiment despite the drop in the Eurozone composite PMI to a 9-month low. Eurozone economic powerhouse Germany saw its composite PMI drop to an 18-month low in December. Markets were in a lenient mood with the service sector wreaking havoc with the Omicron strain and the increase in new cases.

The upside potential for the day was modest, however, as the minutes of the FOMC meeting were released after the European close.

Statistics

It was another busy economic calendar for the eurozone this morning. The focus of attention was on the Member States and euro area services sector and composite PMIs.

Member States

For Spain, the services PMI fell from 59.8 to 55.8 against a forecast of 57.5.

Activity in the service sector in Italy grew more slowly, with the PMI falling from 55.9 to 53.0. Economists were forecasting a drop to 54.0.

For France, the services PMI index went from 57.4 to 57.0, against preliminary 57.1.

The German services PMI index fell from 52.7 to 48.7, against 48.4 previously.

The euro zone

For the euro zone, the services PMI index went from 55.9 to 53.1, against preliminary 53.3.

As a result, the composite PMI index slipped from 55.4 to 53.3, against preliminary 53.4.

According to the December survey,

  • Economic growth fell to its lowest level in nine months in December.

  • The increase in COVID-19 cases has had a more marked impact on the activity of the service sector.

  • At the end of the year, supply disruptions continued to impact production schedules.

  • Despite supply chain issues, the manufacturing sector overtook the service sector for 1st time since July.

  • The composite PMI production indices by country all fell in December.

  • Slower growth rates were observed in Ireland, France, Spain and Italy.

  • Demand for goods and services in the euro area grew at the slowest pace since March.

  • More importantly, demand from international customers grew at the slowest pace since January.

  • In contrast, business optimism improved slightly in December, coinciding with an acceleration in the pace of hiring.

  • On the inflation front, production costs and input costs rose at the second highest rate on record.

By country

  • Ireland ranked 1st, with a composite PMI of 56.5.

  • France has arrived 2sd, with a 2-month low at 55.8, followed by Spain, with an 8-month low at 55.4.

  • Germany sat behind Italy at the bottom of the table with an 18-month low at 49.9.

The United States

The development of ADP’s non-farm employment and finalized services and PMI composite figures were the focus of attention.

In December, the ADP reported an increase of 807,000 in non-farm payrolls against an expected increase of 400,000. Non-farm payrolls had increased by 505,000 in November, according to the ADP.

The private sector PMI figures were also optimistic. In December, the PMI Markit Services index fell from 58.0 to 57.6, compared to 57.5 previously.

On the monetary policy front, the minutes of the FOMC meeting were released after the European close. US markets have reacted negatively to more hawkish minutes than expected, which will likely weigh on the majors ahead of the European opening. The minutes revealed that the Fed may have to hike rates sooner than expected.

Market movers

For the DAX: It was another bullish day for the auto sector on Wednesday. Daimler again in the lead with a rally of 4.01%, with Bmw and Volkswagen ending the day up 2.18% and 2.15% respectively. Continental saw a more modest gain of 1.69% on the day.

It was also a bullish day for the banks. German bank increased by 1.35%, with Commerzbank gaining 1.99%.

From CAC, it was a bullish day for the banks. BNP Paribas increased by 0.13%, with Gen Soc and Agricultural credit ending the day up 1.02% and 1.00% respectively.

The French auto sector also experienced a bullish session. Stellantis SA and Renault increased by 5.10% and 5.31% respectively.

Air France-KLM gave up part of Tuesday’s 8.13% gain, falling 1.62%, while Airbus SE increased by 1.28%

On the VIX index

It was a 2sd consecutive day in the green for the VIX on Wednesday, scoring only the 3e rise in 11 sessions.

After gaining 1.87% on Tuesday, the VIX jumped 14.05% to end the day at 19.73.

The NASDAQ fell 3.34%, with the Dow Jones and the S & P500 posting losses of 1.07% and 1.94% respectively.

The day to come

It’s a quieter day on the eurozone economic calendar. Economic data includes German factory orders, construction PMI and inflation figures. Expect factory orders for November and preliminary inflation numbers for December to be key.

Coming from the US, the market’s preferred non-manufacturing ISM PMI and weekly jobless claims will also influence later in the session. Markets will look for any impact of Omicron pressure on labor market conditions and service sector activity.

Coming into broad daylight, the overnight FOMC meeting minutes will set the tone after the liquidation of the Caixin services PMI in the United States, which is expected to be released later this morning, however, is unlikely to have any impact, however. impact.

Outside of the economic calendar, COVID-19 news will require continued monitoring. Although the start of the year has been bullish, downside risks remain with the Omicron strain and any new emerging strains.

Future

In the futures markets, at the time of writing, the Dow Mini was up 82 points, while the DAX was down 157 points.

For an overview of all of today’s economic events, check out our economic calendar.

This article originally appeared on FX Empire

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