Still high risk appetite. S&P500 and Dow Jones with historic highs

Yesterday there was an optimistic mood on the financial markets. Both the stock markets on Wall Street and in Europe recorded increases. The market welcomed the report on the fourth quarter results of Nvidia, the main representative of the artificial intelligence sector, published after Wednesday's session in the US.

Nasdaq Composite grew by 3 percent, SP500 gained 2,1 percent. and the Dow Jones 1,2 percent. These last two benchmarks have set a new historic high. In Europe, Dax (+1,47%) and CAC40 (+1,27%) ended the day with strong increases. The EUR/USD rate increased in the first part of the day. Yesterday, PMI results for Europe and the United States were announced.

The economy is stagnating

The services PMI for the euro zone - the most reliable economic barometer for this area - increased from 48,4 points. up to 50 points Expectations indicated no change. The indicator reached the borderline value for the first time in 7 months. However, the unexpected drop in the manufacturing index from 46,6 to 46,1 was a disappointment. This means that the upward trend of recent months was not continued.

The euro zone economy is "stepping to a halt" and will probably remain stagnant in the first quarter of this year. The hope for an exit in the spring is a positive surprise in the indicator for the services sector.

Data for the USA were above the level of 50 points. PMI for services was 51,3 points. – here we have a slight decrease from 52,5 points. a month earlier. For industry it was 51,5 points. (the highest since August 2022), which means a higher reading than that achieved in December. The data suggest recovery in this sector, which includes, among others: increase in orders.

The ECB's cautious approach

The latest ECB minutes show that policymakers still recognize the risks of easing monetary conditions too early compared to the risks of reducing them later. The institution constantly emphasizes that the forecasts inflation are at risk of higher readings due to stronger than expected wage growth. The companies' margins remained high. Among global factors, tensions in the Middle East were highlighted. On the contrary, weaker demand resulting from the still high (historically) level of the cost of money in the euro zone may work to the contrary. The institution is still choosing a cautious approach, and macro data published in the future will be crucial for further decisions.

Representatives of the Federal Reserve spoke yesterday. Philip Jefferson acknowledged that the Fed must be mindful of the dangers of easing monetary policy too much in response to improving inflation. He noted that "excessive easing could lead to the stalling or reversal of progress in restoring price stability." But he added that it would probably be appropriate starting the cutting process later this year. Patric Harker, in turn, believes that the US central bank is able to reduce rates this year, but warned the public against looking for a date for the start of the cycle in the near future.

The EUR/USD rate approached the horizontal resistance at 1,09 and then dropped dynamically to around 1,08. The euro first lost after disappointing PMI data, and then the dollar gained due to positive readings from the American economy. Today, the prices are breaking the short-term upward trend line and heading towards yesterday's lows.

Source: Łukasz Zembik, OANDA TMS Brokers