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At the close of the US stock market yesterday, the Dow Jones Index (US30) increased by 0.40%, and the S&P 500 Index (US500) added 0.75%. The Technology Index Nasdaq (US100) gained 0.69% on Wednesday. All three indices closed the day in positive territory.

The Open Market Committee (FOMC) raised its rate target to a range of 5% to 5.25%. The markets expect the Fed to raise the rate by 0.25% at its next meeting on February 1. The probability of such a scenario is 84%. Goldman Sachs analysts expect three rate hikes of 25 bps in February, March, and May, with a peak funds rate of 5-5.25%.

The ISM Manufacturing Index has long been considered one of the best indicators of the health of the US economy. The December report showed that the manufacturing PMI fell to 48.4 from 49.0. This is the second consecutive month of contraction and the fourth consecutive month below the level of 50. Export orders are down, and new orders are unacceptably low, so there seems little chance of a quick manufacturing recovery.

Equity markets in Europe were mostly up yesterday. Germany's DAX (DE30) gained 2.18%, France's CAC 40 (FR40) added 2.30%, Spain's IBEX 35 (ES35) jumped by 1.89%, and the British FTSE 100 (UK100) closed up by 0.41% on Wednesday.

Consulting firm KPMG predicts that UK real GDP will contract by 1.3% in 2023. KPMG expects the UK Central Bank to raise the bank rate to 4% during the first quarter of this year before taking a pause. The labor market will begin to deteriorate in the first half of 2023, with the unemployment rate reaching 5.6% by mid-2024, meaning an increase of about 680,000 unemployed people. The jump in food and energy prices and higher overall inflation has already reduced the purchasing power of households.

Switzerland's annual inflation rate has fallen from 3% to 2.8%. Although the inflation rate has declined, this is the highest inflation rate the country has experienced in decades. From 2008 to 2022, the annual average inflation in Switzerland was between 0.6 and 0.7%.

Global growth problems, along with growing COVID-19 problems in China (the biggest oil importer), have caused the price of "black gold" to fall by another 5%. In addition, leading oil exporter Saudi Arabia may further reduce the price of its flagship Arab Light crude to Asia. The US WTI crude decreased by 5.3% to $72.84 a barrel. British benchmark Brent Crude fell by 5.2% to $77.84 a barrel. The total decline in quotes was almost 10% during the last two days. Considering the fact that China increased export quotas for oil products in the first batch for 2023, which indicates the expectations of low domestic demand, oil quotes may fall even more.

Asian indices traded flat yesterday. Japan's Nikkei 225 (JP225) decreased by 1.45%, China's FTSE China A50 (CHA50) gained 0.25%, Hong Kong's Hang Seng (HK50) ended the day up 3.22%, India's NIFTY 50 (IND50) decreased by 1.04%, and Australia's S&P/ASX 200 (AU200) ended Wednesday with a 1.63% gain.

The World Health Organization (WHO) criticized China's definition of COVID-19 deaths and warned that official statistics do not show the true impact of the outbreak. China's eagerness to move away from a zero-COVID policy is also alarming in the financial markets. Data on Tuesday showed that manufacturing activity in China contracted for the fifth straight month in December.

• S&P 500 (F) (US500) 3,852.97 +28.83  (+0.75%)
• Dow Jones (US30) 33,269.77 +133.40 (+0.40%)
• DAX (DE40) 14,490.78 +309.11 (+2.18%)
• FTSE 100 (UK100) 7,585.19 +31.10 (+0.41%)
• USD Index 104.24 −0.28 (−0.27%)
   

Important events for today:

• China Caixin Services PMI (m/m) at 03:45 (GMT+2);
• UK Services PMI (m/m) at 11:30 (GMT+2);
• Italian Consumer Price Index (m/m) at 12:00 (GMT+2);
• US ADP Non-Farm Employment Change (m/m) at 15:15 (GMT+2);
• US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
• US Natural Gas Storage (w/w) at 17:30 (GMT+2);
• US Crude Oil Reserves (w/w) at 18:00 (GMT+2).

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