Momentum compass: PMI and yield changes influence US market recovery
Discover the impact of PMI readings and Treasury yield fluctuations on US indices, with insights into upcoming economic data and market trends.
Last week’s US performance
The trading week saw varied performance across major US indices, with a strong Friday session helping to cushion earlier declines amid low volume trading due to the post-festive season. December's Chicago purchasing managers index (PMI) reading of 36.9 fell significantly below the expected 42.9, marking the 13th straight month of contraction.
The Atlanta Fed revised its quarter 4 (Q4) gross domestic product (GDP) forecast downward from 3.1% to 2.6%, weighing on market sentiment. Initial jobless claims provided a bright spot, coming in at 211,000 for the week ended 28 December, kick-starting a recovery in US stock indices.
Treasury yields and market uncertainty
US Treasury yields range traded before declining into year-end across the board, with longer-dated bonds showing the weakest performance. The bond market moves reflect ongoing uncertainty about the inflation picture in the US.
Yield movements continue to influence broader market trading activity, with the US 10-year yield holding above the 4.50% mark but staying below its late December peak at 4.64%. Investors are closely monitoring the US 10-year Treasury bond yield for a potential rise above the 4.65% mark, which may weigh on US stock indices.
US 10-year Treasury bond yield chart
Week ahead: key economic data
On Monday, a series of promising services PMI readings provided insight into economic activity across major European economies. Higher-than-expected German consumer price inflation (CPI) didn’t negatively affect the German stock market, with the DAX 40 index rising by around a percentage point by midday.
US factory orders, industrial production, and retail sales data will offer further economic context. Eurozone inflation figures out on Tuesday will be closely watched by forex trading participants, with the US dollar already trading lower by a percent on Monday. US employment reports later in the week will be crucial for market direction, especially US non-farm payrolls on Friday.
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