2024 has arrived, and markets are returning to their usual “post-holiday” action. We saw some reversals in the recent price action, with the US dollar and interest rates moving higher – but is this just a temporary pullback before the original trend continues?

The US dollar started the year strongly, rising against most major currencies. Last week, the DXY index rose 1% and closed at 102,435 points, following a strong NFP print. Next week’s US CPI will determine whether the move continues or softens.

The euro remained under pressure as more German data turned out weaker than expected. Eurozone inflation is now below 3% and is getting closer to the ECB’s 2% target.

The Pound had a good week to start the year, losing ground only (marginally) against the USD and rallying against the other Majors. EURGBP fell 0.8% to 0.86 and GBPJPY rose 2.4% to 183.711.

Commodity currencies naturally underperformed as yields and the dollar rose together. The AUD and NZD fell between 1% and 1.5%, while the CAD fell 0.8% against the greenback. Elsewhere in FX, the CHF fell 1%, the JPY crashed 2.6% lower, while MXN was the week’s best performer with a 0.5% gain.

Oil continues to fluctuate within a wide range, with increased volatility. Last week, WTI rose 3.6% and closed at $73.89.

Precious metals started the year lagging, as a rising dollar never supports metal prices. Gold fell 0.9% to $2,045 and silver dropped 2.5% to $23.19.

Equities performed poorly this first week of the year, but the trend remains bullish until technical levels are broken. Last week, the S&P500 index fell 1.7% to 4695 points, and the DAX lost 0.9% and closed at 16594 points.

Bonds fell significantly at the start of the year, but this is likely a short-term correction before the trend moves higher. Last week, the 10-y UST yield rose 17bps to 4.04%, and the 10-y Bund fell 1.2% to 135.466 points.

Finally, cryptocurrencies remain volatile pending the approval of a new ETF. Bitcoin is 4.5% higher at $44,000 (about $1k away from significant resistance), and Ethereum is 2.5% lower at $2,240.

The week ahead:

The coming week should be interesting as we get the latest US CPI printout. The Federal Reserve forecasts a continued inflation and economic activity decline, but will this materialise? Markets are assuming multiple rate cuts by the Fed in 2024, and if inflation runs high, they could be taken out quickly.

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