The USD is the strongest and the AUD is the weakest as the NA session begins

The USD is the strongest and the AUD is the weakest as the North American session begins.The US returns from the Martin Luther King holiday and rates are higher, stocks are lower (in pre-market trading), the dollar is higher. Last week, the US stocks rebounded from their 1st week of the year swoon that snapped the 9-week win streak in the broader S&P and Nasdaq indices. The USD was mixed last week. The U.S. economic calendar is light today with the Empire Manufacturing index the only release (at 8:30 AM ET). The expectations is -5.0 vs -14.5 last month. Tomorrow US retail sales data will be released which is expected to show a rise of 0.4%. Canada will release its key CPI with the expectations for a decline -0.3% MoM vs 0.1% last month. The YoY is expected to rise to 3.4% versus 3.1% despite the MoM decline due to year ago influences (the December 2022 CPI fell -0.6% and will drop out of the equation for YoY data).

On the speaker front today, Federal Reserve Governor Christopher Waller will be speaking at 11 AM ET. He will speak on the economic outlook before the Brookings Institution. Waller tends towards the hawkish end of the spectrum, but is likely to dial it back a little given his colleagues are mainly doing the same.In England, Gov. Bailey will be speaking at 10 AM ET the front of the Economic Affairs Committee.

Economic data released in Europe today showed:

• EU ZEW Survey Expectations for January: 22.7 versus previous 23.0
• German ZEW Current Conditions for January: -77.3 versus expected -77.0, and previous -77.1
• German ZEW Economic Sentiment for January: 15.2 versus expected 12.0, and previous 12.8
• Italian Consumer Prices for December:
  • Final Yearly: 0.6% versus expected 0.6%, and previous 0.6%
  • Final Monthly: 0.2% versus expected 0.2%, and previous 0.2%
• ECB Consumer Inflation Expectations survey for November:
  • 12-months ahead: 3.2% versus previous 4.0%
  • 3-year ahead: 2.2% versus previous 2.5%

The World Economic Forum is underway in Davos and that allows some chatter from central bankers. ECB's Vaiimaki noted that while inflation is on the right track, the bank's work is not finished. He advised against early rate cuts, favoring a cautious approach. The economy's baseline expectation is a soft landing, but risks are skewed towards the downside. The wage data aligns with the ECB's December projections. Meanwhile, ECB's Centeno remarked that inflation is sustainably decreasing, with no concerns over a resurgence in real wages. He expects first-quarter growth to be around zero and anticipates moderate wage demands, expressing positivity about the current inflation trajectory. ECBs Villeroy was evasive in his comment that the next move is a cut and it will be sometime this year, but did say it is still too early to declare victory over inflation.

Yesterday, a Bloomberg survey of analysts revealed the consensus expectations for the European Central Bank's (ECB) deposit rate cuts in 2024. The survey indicated that economists anticipate a series of 25 basis point rate cuts occurring in June, September, October, and December, which would lower the ECB deposit rate to 3%. This forecast represented an increase from the December 2023 survey, which had predicted only three rate cuts for the year. However, current market pricing suggests a more aggressive approach, with approximately six rate cuts expected, starting as early as April. This market expectation is more aggressive than the survey's prediction, indicating a divergence between analyst expectations and market sentiment.

Meanwhile, Goldman Sachs has upgraded its economic growth forecast for the United States for 2024 from 2.1% to 2.3%, indicating a significantly lower risk of recession compared to the views of other analysts. In their Federal Open Market Committee (FOMC) outlook, they predict the first reduction in the Federal funds rate in the March meeting of this year, anticipating a total of five cuts throughout 2024. Currently, the Federal funds rate is between 5.25% to 5.5%, and these five proposed cuts of 25 basis points each would lower it to between 4% and 4.25%. Goldman economist Jan Hatzius, in a research note, suggests that the Federal Reserve is likely to start reducing the funds rate soon, possibly in March. Hatzius notes that Fed Chair Powell indicated a desire to cut rates "well before" inflation falls to 2%. However, Goldman Sachs foresees fewer rate cuts than what market pricing currently suggests, expecting only five cuts this year, contrary to the six to seven cuts anticipated by the market, and considers the likelihood of 50 basis point steps to be low. Higher growth and Fed easing too.

Speaking of Goldman they announced their earnings this morning:

• Earnings Per Share (EPS): $5.48 vs. expected $3.51 - BEAT
• Revenue: $11.32 billion vs. expected $10.8 billion - BEAT

Shares are trading up 0.60% in pre-market trading

Morgan Stanley has also reported:

• Earnings Per Share (EPS): $0.85 vs. expected $1.01 - MISS
• Revenue: $12.9 billion vs. expected $12.75 billion - BEAT

Their shares are trading down -0.89% in premarket trading.

US stocks are lower in pre-market trading with the Nasdaq down around -65 points leading the declines. US yields are higher across the yield curve.

A snapshot of the markets as the North American session begins currently shows:

• Crude oil is trading up $0.33 or 0.4% at $73.01. At this time Friday, the price was at $74.73
• Gold is trading down $15.50 or -0.75% at $2038.49. At this time Friday, it was trading at $2049.09
• Silver is trading $-0.17 or -0.76% at $23.02. At this time Friday, it was trading at $23.04
• Bitcoin traded at $43,110. At this time Friday, the price was trading at $45,731

In the premarket for US stocks, the major indices are trading lower. Recall from Friday, the major indices closed mixed with the Dow Industrial Average down while the S&P and NASDAQ closed higher but were nearly unchanged

• Dow Industrial Average futures are implying a decline of -65 points. On Friday, the index fell -118.04 points or -0.31%
• S&P futures are implying a decline of 15.08 points. On Friday, the index rose 3.61 points or 0.08%
• Nasdaq futures are implying a decline of -63.2 points. On Friday, the index rose 2.57 points or 0.02%

In the European equity markets, the major indices are all trading lower:

• German DAX, -0.34%. Yesterday, the index fell -0.49%
• France CAC -0.22%. Yesterday, the index fell -0.72%
• UK FTSE 100 -0.27% . Yesterday, the index fell -0.39%
• Spain's Ibex -0.74%. Yesterday, the index fell -0.18%
• Italy's FTSE MIB -0.24% (delayed by 10 minutes).

Shares in the Asian Pacific markets were mostly lower except the Shanghai composite index:

• Japan's Nikkei 225, -0.79%
• China's Shanghai composite index , buses 0.27%
• Hong Kong's Hang Seng index, -2.16%
• Australia S&P/ASX, -1.09%

Looking at the US debt market, yields are trading higher across the yield curve. On Friday the 2 – 30 year spread closed in positive territory for the time since October 27 (for one day only): The spread is still positive but below the closing level from Friday up +3.1 basis points. Nevertheless the market is melting away the negative yield curve. The 2 – 10 year spread is at its highest level since November 1 but still negative near -20 basis points.

• 2-year yield 4.211% +7.3 basis points. Friday at this time, the yield was at 4.268%
• 5-year yield 3.901% +7.0 basis points. Friday at this time, the yield was at 3.910%
• 10-year yield 4.004% +5.5 basis points. Friday at this time, the yield was at 3.997%
• 30-year yield 4.229% +3.3 basis points. Friday at this time, the yield was at 4.207%
• The 2-10 year spread is at -20.6 basis points. At this time Friday, the spread was at -26.9 basis points
• The 2-30 year spread is at +1.9 basis points. At this time Friday, the spread was at -6.0 basis points

In the European debt market, the benchmark 10-year yields are mostly higher: This article was written by Greg Michalowski at www.forexlive.com.