Markets turn cautious following long weekend

With trading conditions finally normalizing following the New Year holiday, investors seem to have adopted a cautious stance early Tuesday. Eurostoxx futures are down more than 5% ahead of the opening and US stock index futures trade virtually unchanged. The US Dollar Index clings to small daily gains and the benchmark 10-year US Treasury bond yield retreats toward 3.8%. Unemployment and Consumer Price Index (CPI) data from Germany will be featured in the European economic docket and S&P Global will release the December Manufacturing PMI (final) for the US.

Earlier in the day, the data from China revealed that the Caixin Manufacturing PMI declined to 49 in December. This reading came in slightly higher than the market expectation of 48.8. Meanwhile, Zhao Chenxin, Deputy Director at China’s National Development and Reform Commission (NDRC), “China’s difficulties in 2022 were greater than anticipated but the economy will rebound in 2023,” said earlier in the day. Shanhagi Composite and Hang Seng indexes both remain on track to close the day more than 1% higher. Nevertheless, the risk rally doesn’t seem to have carried over into the European session.

EUR/USD lost its traction after climbing above 1.0700 and closed in negative territory on Monday. The pair stays relatively quiet at around 1.0650 in the early European morning. German annual CPI in December is forecast to edge lower to 9% in December from 10% in November.

GBP/USD snapped a two-day winning streak and closed below 1.2050 on Monday. The pair managed to stage a modest rebound during the Asian trading hours and was last seen trading modestly higher on the day at 1.2070.

USD/JPY came under renewed bearish pressure and dropped below 130.00 for the first time since late May. According to Nikkei, the Bank of Japan is considering raising its inlation forecasts for 2023 and 2024 in January. Investors seem to be pricing in a hawkish tilt in the BoJ’s policy outlook following this headline.

Gold price gathered bullish momentum in the Asian session and continued to push higher in the European morning. XAU/USD was last seen trading at its highest level since mid-June near $1,850.

Bitcoin continues to edge higher following Monday’s modest rebound and trades in positive territory slightly above $16,700. Ethereum gained more than 1% on Monday and seems to have gone into a consolidation phase at around $1,200.

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