Friday's Markets Update (December 15, 2023)

15 Dec 2023 by rate3

On Friday, Fed Williams mentioned that rate cuts are not being discussed currently, as the NY Manufacturing Index declined, and the Global PMIs showed a strong services sector and weaker manufacturing. As a result, major stock indexes were directionless, with the Nasdaq fluctuating, slightly in the red. BTC and ETH traders were indecisive, as prices continued to form either bearish double tops or bullish flag on daily graphs.

Details

New York Fed President Williams pushed back against market bets of multiple rate cuts by the central bank next year, driving oil benchmarks to give back gains that were fueled by a dovish Fed outlook. The comments also lifted the greenback, pressuring foreign demand for dollar-denominated commodities.

In December, NY Empire State Manufacturing Index dropped to -14.5, a four-month low, indicating declining business activity in NY. New orders and shipments fell, unfilled orders decreased, and delivery times shortened. Inventories reduced, employment declined moderately, and the average workweek shortened. Input price increases slowed, while selling price increases remained steady. Firms had a slightly more positive outlook but remained subdued. In the country, overall, the industrial production decreased 0.4% YoY with utilities declined 1%, manufacturing - 0.8%, offsetting a 2.3% rise in mining.

In December, the S&P Global Services PMI rose to 51.3 from 50.8, surpassing expectations. The services sector expanded for the 11th consecutive period at the fastest pace since July. New orders increased due to advertising spending, upselling, and looser financial conditions. Employment growth hit a 6-month high, and input costs rose, but output charge inflation cooled.

Comment: Why manufacturing has been more affected by Fed's high rates than services sector in 2022-2023?

The impact of rising interest rates on manufacturing is evident in the slowdown of factory demand, reduced global demand, and adverse sales developments.

The manufacturing sector is particularly sensitive to interest rate changes as they can lead to reduced investment, increased borrowing costs, and decreased consumer spending on big-ticket items such as cars and homes. Additionally, rising interest rates can make exports more expensive abroad, leading to a slowdown in exports and a stronger dollar, which can further impact the competitiveness of manufacturers in the global market.

On the other hand, the services sector, which includes industries such as finance, insurance, real estate, and transportation, is less affected by interest rate changes as it generally requires lower investment relative to manufacturing and is more focused on domestic demand, which has been more resilient in the face of rising interest rates.

At the same time, manufacturing accounts for only 11% of the U.S. GDP and 8% of direct employment, so the slowdown in it is less impactful compared to the service sector.

On Week 51, traders focuses locally on personal income, PCE price index, Q3 GDP growth, consumer confidence, and durable goods orders, while the UK reports on inflation and retail sales. Japan highlights BOJ interest rate decisions, inflation rates, and foreign trade data. Germany looks at the Ifo Business Climate Index, GFK consumer confidence, and producer inflation figures.