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Traders eye US jobs report after exceptional end to 2023

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By Craig Erlam  

An exceptional end to the year has left markets with a lot to live up to in 2024, with huge rate cuts and a soft landing now among the things investors have priced in.

The fantasy scenario for central bankers across the world over the last couple of years is now a very real possibility, but it’s also far from guaranteed, despite how markets are now positioned. With so much now to live up to, investors may start asking themselves whether evaluations have become a little stretched.

Everyone will look to read too much into the first trading week of the year, but after an unusually strong end to the year that’s probably not the best idea. If markets slightly pare gains in the first quarter, that doesn’t necessarily spell trouble for the year, especially if we see a couple of hiccups in the data.

We’ve been spoiled over the last couple of months, and while that may continue and see investors price in even more rate cuts this year on the belief central banks have overdone it, it may also not be so kind.

The first test of the new year is the jobs report on Friday and it will be interesting to see how traders respond if we’re given another promising batch of data.

Oil prices ease

Oil prices have edged lower again, but sit roughly in the middle of the range they traded within in December. Of course, that was quite a wide range given all the volatility around interest rate expectations, the economy, and the OPEC+ decision (and the eventual exit of Angola from the cartel).

Focus will now shift back to the demand side and whether central banks can deliver the soft landing they’ve aimed for while hiking interest rates aggressively.

Any outperformance for the world economy would ease the burden on OPEC+ at a time when compliance with quotas looks like it’s going to be a struggle.

Could rate expectations give gold a boost?

Gold is hovering around the previous record highs before the price briefly surged in early December in light trade.

The second half of last month was very promising on the back of lower interest rate expectations and favorable economic data.

Traders may now be wondering whether investors have got carried away or if what now appears aggressive proves to be quite the opposite.

Inflation accelerated higher much faster than anyone expected and it could well overshoot on the way down too, forcing central banks to cut rates much faster than currently expected.

New high for bitcoin this year?

It’s been a decent start to the year for bitcoin, up more than 6% over the first couple of days already to trade at a 9-month high, above $45,000.

The crypto community will likely feel there’s a lot to look forward to this year, not to mention much less controversy than in 2023.

If the first few days of the year is anything to go by, it may not be long until people are debating about record highs and beyond.

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.