Early Morning Call: gold hits 7-month high as dollar dips ahead of FOMC minutes, NFP data

Equity market overview

Equity markets are mixed at the start of 2023.

Yesterday the DAX and CAC ended their first session of the year in positive territory, while overnight, Australia’s S&P/ASX 200 lost 1.3%.

Japan's stock exchange remained closed.

In China, the Caixin Manufacturing PMI fell to 49 in December from 49.4 in November. This latest result marked the fifth straight month of declines in factory activity and the lowest level since September. Details of the survey show that buying activity shrank the most since April, while employment dropped for the 9th month running.

On inflation, input prices rose slightly due to the rise in some materials, but firms continued to lower selling prices, in an effort to gain new business.

Later today in Germany, the unemployment rate is expected to remain at 5.6% in December, while consumer price index (CPI) is forecast to increase by 9.1% in December year-on-year (YoY), after 10% the previous month.

Currencies

Trading on the currency market is fairly subdued this morning, as traders are gearing up for some important data to be released later this week, starting tomorrow with Federal Open Market Committee (FOMC) minutes.

At the conclusion of the last Federal Reserve (Fed) meeting in mid-December, chairman Jerome Powell announced at 50-basis point (bp) increase of the Fed Funds rates range to 4.25% - 4.5%, now at their highest in 15 years. This was the conclusion of a year that saw the US Federal Reserve hiking by a cumulative 425 bp.

Investors also await employment data on Thursday with ADP employment change and weekly jobless claims, and December non-farm payrolls (NFPs) on Friday. Early expectations point to 200,000 job creations last month. The unemployment rate is set to remain at 3.7%, and average hourly earnings should rise by 5% YoY.

The Japanese yen is the best performer this morning, trading at a six-month high against the dollar, a four-month high against the euro.

Tesla

Tesla shares recorded their worst yearly performance in 2022 since going public in 2010.

Yesterday the electric vehicle (EV) maker reported record production and deliveries for the fourth quarter (Q4) but missed Wall Street estimates. Tesla delivered 405,278 vehicles in the last three months of the year, compared with Wall Street expectations of 431,117 vehicles. During the same period a year ago, the company delivered 308,600 vehicles.

Logistical problems persist, some might say they have worsened, when we compare production and delivery numbers. In Q4 Tesla produced 439,000 vehicles, which means that deliveries fell about 34,000 vehicles short of production.

In the third quarter, company deliveries were about 22,000 units fewer than production. Delivering fewer cars than it makes has been rare for the automaker, which in previous quarters delivered more or similar numbers to the vehicles produced.

China has been a major headwind for Tesla in 2022. The automaker plans to run a reduced production schedule this month at its Shanghai plant, extending the lowered output it began in December.

Commodities

On the commodity market, WTI was hovering around $80 this morning. Last Friday, Baker Hughes total rig count remained at 779. The number of gas rigs in operation fell by one to 621.