Yesterday world markets were closed due to the New Year’s celebration. Futures on US stock indices have been falling slightly this morning. The US dollar index upped to 5-year high and outperformed the 90 points mark. Investors expect positive Markit’s Manufacturing PMI in December to be released at 14:45 СЕТ. ISM Manufacturing PMI in December will be announced at 15-00 СЕТ. The outlook is negative. We deem this is the reason why stock futures are being under pressure.
At the same time, an additional positive factor for the US dollar came from Europe. The ECB President Mario Draghi said that the risk for the Central Bank not to provide price stability is now higher than it was six months ago. Investors perceived these words as the deflation threat for the Eurozone economy. Thereafter, the euro tumbled against the US dollar and reached the lowest level over four and a half years. However, we don’t expect it to fall deeper as the European CPI in December will be released next Wednesday. According to estimates, it is expected to be negative for the first time since October 2009. Investors are likely to wait for the official data release. European stock indices are now also declining. Today from 8:45 to 9:00 СЕТ we expect the December Manufacturing PMI data for Italy, France, Germany and the entire EU. As projected, they would remain at the November level, therefore, are unlikely to affect financial markets.
Japanese exchanges are closed today for the Bank holiday and will be opened on Monday. The final estimate of Manufacturing PMI in December will be released in the morning. The forecast is neutral. Note that the yen trading goes on now and it is weakening a bit amid the positive US data. It’s hard to say for how long the US dollar index would grow. Last year it showed the highest level since 1997, which was 13%.
The Chinese Manufacturing PMI in December hit 18-month low (50.1 vs. 50.3 in November). We deem it may affect the prices of commodity futures.
Cotton prices dipped almost 30% in 2014, the largest drop since 2011. Note that due to low market activity, on Wednesday, December 31, there was the deepest price fall over seven weeks on the ICE stock exchange. It’s hard to forecast whether this trend would remain or not. Cotton prices usually go up in January. According to the U.S. Commodity Futures Trading Commission report released on Tuesday, cotton net short positions dropped to July low.
Coffee prices rose slightly. A drought is expected in Minas Gerais and Espirito Santo states in early January, according to Reuters Weather Dashboard. These states concentrate 80% of coffee production in Brazil. Indonesia reported that coffee production in Sumatra in 2014 dropped 29% compared to the previous year, due to bad weather conditions. The overall reduction in coffee crop in Indonesia amounted to 12%.
Gold and silver have advanced today despite the US dollar strengthening. Some market participants believe that precious metals may be used as a “defensive asset” under the conditions of oil inflation. That is, their price will go up as global oil prices climb. We accept that this assumption may be used when creating a personal composite instrument.