Technical Outlook and Review

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Summary:

The DXY (US Dollar Index) chart currently shows an overall bearish momentum, indicating a potential for price to make a bearish continuation towards the 1st support.

DXY

The DXY (US Dollar Index) chart currently shows an overall bearish momentum, indicating a potential for price to make a bearish continuation towards the 1st support.

The 1st support level at 101.46 is identified as an overlap support. Further below, the 2nd support level at 100.67 is noted as a swing-low support that aligns with the 78.60% Fibonacci projection level, further reinforcing its importance as a potential key support level.

To the upside, the 1st resistance level at 101.87 is identified as an overlap resistance that aligns with the 38.20% Fibonacci retracement level. Higher up, the 2nd resistance level at 102.61 is also marked as an overlap resistance, suggesting a potential barrier for further upside movement.

EUR/USD

The EUR/USD chart currently exhibits an overall bullish momentum. In this context, there is a potential scenario for price to make a bullish continuation towards the 1st resistance.

The 1st resistance level at 1.1065 is identified as a swing-high resistance that aligns with the 61.80% Fibonacci projection level. Higher up, the 2nd resistance level at 1.1139 is also noted as a swing-high resistance, suggesting a potential barrier for further upside movement.

To the downside, the 1st support level at 1.1013 is identified as an overlap support. Further below, the 2nd support level at 1.0943 is marked as a pullback support, further reinforcing its importance as a potential key support level.

EUR/JPY

The EUR/JPY chart currently exhibits a bearish overall momentum, suggesting a potential scenario for a bearish continuation towards the 1st support.

The 1st support at 155.62 is identified as a pullback support and coincides with the 61.80% Fibonacci Retracement, indicating a historical area where buying interest has been present.

Additionally, the 2nd support at 153.91 is considered a multi-swing low support, providing an additional layer of potential support for the ongoing bearish trend.

On the resistance side, the 1st resistance at 158.17 is associated with a pullback resistance and aligns with the 61.80% Fibonacci Projection, highlighting a potential barrier where selling interest could intensify.

Furthermore, the 2nd resistance at 159.16 is linked to an overlap resistance and the 61.80% Fibonacci Retracement, adding extra layers of potential resistance for the price.

An intermediate support level at 156.62 is also identified, corresponding to an overlap support. This level may act as a potential area where buying interest could provide support for the price.

EUR/GBP

The EUR/GBP chart currently exhibits a bullish overall momentum, suggesting a potential scenario for a bullish continuation towards the 1st resistance.

The 1st support at 0.8650 is identified as an overlap support and coincides with the 23.60% Fibonacci Retracement, indicating a historical area where buying interest has been present.

Additionally, the 2nd support at 0.8602 is considered a pullback support, providing an additional layer of potential support for the ongoing bullish trend.

On the resistance side, the 1st resistance at 0.8689 is associated with an overlap resistance and the 61.80% Fibonacci Retracement, highlighting a potential area where selling interest could intensify.

Furthermore, the 2nd resistance at 0.8725 is linked to a pullback resistance and the 78.60% Fibonacci Retracement, adding extra layers of potential resistance for the price.

GBP/USD

The GBP/USD chart currently exhibits a neutral bias. In this context, there is a potential scenario for price to fluctuate between the 1st support and the 1st resistance.

The 1st support level at 1.2612 is identified as an overlap support that aligns with the 61.80% Fibonacci retracement level. Further below, the 2nd support level at 1.2502 is marked as a swing-low support, further reinforcing its importance as a potential key support level.

To the upside, the intermediate resistance at 1.2746 is identified as a pullback support while the 1st resistance level at 1.2781 is identified as a multi-swing-high resistance that aligns with the 127.20% Fibonacci extension level. Higher up, the 2nd resistance level at 1.2872 is noted as a pullback resistance that aligns with the 161.80% Fibonacci extension level, suggesting a potential barrier for further upside movement.

GBP/JPY

The GBP/JPY chart currently displays a bearish overall momentum, indicating a potential scenario for a bearish continuation towards the 1st support.

The 1st support at 180.09 is considered significant as it represents a multi-swing low support and aligns with a Fibonacci projection, indicating a historical area where buying interest has been present.

Additionally, the 2nd support at 178.59 is identified as another multi-swing low support and coincides with the 127.20% Fibonacci Extension, providing an additional layer of potential support for the ongoing bearish trend.

On the resistance side, the 1st resistance at 182.29 is associated with a pullback resistance, the 61.80% Fibonacci Projection, and the 61.80% Fibonacci Retracement, highlighting a potential area where selling interest could intensify.

Furthermore, the 2nd resistance at 184.05 is linked to a multi-swing high resistance, adding an extra layer of potential resistance for the price.

USD/CHF

The USD/CHF chart currently exhibits an overall bearish momentum. In this context, there is a potential scenario for price to make a bearish continuation towards the 1st support.

The 1st support level at 0.8527 is marked as a multi-swing-low support that aligns with the 100.00% Fibonacci projection level. Further below, the 2nd support level at 0.8453 is noted as a swing-low support that aligns close to the 78.60% Fibonacci projection level, further reinforcing its importance as a key support level.

To the upside, the 1st resistance level at 0.8561 is identified as an overlap resistance. Higher up, the 2nd resistance level at 0.8630 is also marked as an overlap resistance that aligns with the 38.20% Fibonacci retracement level, suggesting a potential barrier for further upside movement.

USD/JPY

The USD/JPY chart currently exhibits an overall bearish momentum. In this context, there is a potential for price to break under the intermediate support and drop towards the 1st support.

The intermediate support level at 142.02 is identified as a pullback support that aligns close to the 78.60% Fibonacci retracement level. Further below, the 1st support level at 141.51 is noted as a multi-swing-low support, further reinforcing its importance as a key support level.

To the upside, the 1st resistance level at 144.54 is noted as a swing-high resistance. Higher up, the 2nd resistance level at 145.37 is marked as a pullback resistance that aligns with the 78.60% Fibonacci retracement level, suggesting a potential barrier for further upside movement.

USD/CAD

The USD/CAD chart currently exhibits an overall bearish momentum, indicating a potential for a break under the 1st support and drop towards the 2nd support.

The 1st support level at 1.3261 is identified as an overlap support. Further below, the 2nd support level at 1.3163 is noted as a multi-swing-low support, further reinforcing its importance as a key support level.

To the upside, the intermediate resistance level at 1.3321 is identified as a pullback resistance that aligns with the 23.60% Fibonacci retracement level. Higher up, the 1st resistance level at 1.3367 is also marked as a pullback resistance that aligns with the 38.20% Fibonacci retracement level, suggesting a potential barrier for further upside movement.

AUD/USD

The AUD/USD chart currently exhibits an overall bullish momentum. However, there is a potential scenario for price to make a bearish reaction off the 1st resistance and drop towards the 1st support, especially if price breaks below the intermediate support.

The 1st resistance level at 0.6818 is identified as a swing-high resistance. Higher up, the 2nd resistance level at 0.6893 is noted as a multi-swing-high resistance, indicating its potential significance as a barrier for further upward movement.

To the downside, the intermediate support level at 0.6776 is identified as an overlap support while the 1st support level at 0.6732 is also noted as an overlap support. Further below, the 2nd support level at 0.6673 is also marked as an overlap support that aligns with the 50.00% Fibonacci retracement level, further reinforcing its importance as a key support level.

NZD/USD

The NZD/USD chart currently exhibits an overall bullish momentum. In this context, there is a potential scenario for price to make a bullish continuation towards the 1st resistance.

The intermediate resistance level at 0.6343 is identified as a pullback resistance. Higher up, the 1st resistance level at 0.6402 is also marked as a swing-high resistance, indicating its potential significance as a barrier for further upward movement.

To the downside, the 1st support level at 0.6308 is identified as an overlap support. Further below, the 2nd support level at 0.6249 is also noted as an overlap support, further reinforcing its importance as a key support level.

DJ30

The DJ30 chart currently displays a bullish overall momentum, suggesting a potential scenario for a bullish continuation towards the 1st resistance.

The 1st support at 37151.74 is considered significant as it represents an overlap support, indicating a historical area where buying interest has been present.

Additionally, the 2nd support at 36298.13 is identified as another overlap support and is associated with the 23.60% Fibonacci Retracement, providing an additional layer of potential support for the ongoing bullish trend.

On the resistance side, the 1st resistance at 37808.77 is linked to the 161.80% Fibonacci Extension, indicating a level where buying interest could intensify. This level suggests a potential target for the bullish continuation.

GER40

The GER40 chart currently exhibits a weak bearish momentum with low confidence, suggesting a potential scenario for a bearish continuation towards the 1st support.

The 1st support at 16490.00 is considered significant as it represents an overlap support, indicating a historical area where buying interest has been present.

Additionally, this support level coincides with the 23.60% Fibonacci Retracement and the -27% Fibonacci Expansion, providing multiple layers of potential support for the ongoing bearish trend.

The 2nd support at 16062.00 is identified as a pullback support and is associated with the 38.20% Fibonacci Retracement, adding an extra layer of potential support for the anticipated bearish movement.

On the resistance side, the 1st resistance at 16961.70 is linked to the swing high resistance and the 127.20% Fibonacci Extension, indicating a level where selling interest could intensify and potentially halt or reverse the bearish trend.

US500

The US500 chart currently demonstrates a bullish overall momentum, supported by various factors contributing to the upward movement.The price could potentially continue its bullish trend towards the 1st resistance.

The 1st support at 4699.2 is considered strong, representing a multi-swing low support level.

Additionally, the 2nd support at 4601.9 is identified as an overlap support, coinciding with the 23.60% Fibonacci Retracement, providing a solid foundation for potential price bounces.

On the resistance side, the 1st resistance at 4771.7 is associated with a swing high resistance, indicating a level where selling interest might increase, potentially causing a temporary pause or reversal in the bullish trend.

Furthermore, the 2nd resistance at 4817.0 is linked to a swing high resistance and the 161.80% Fibonacci Extension, highlighting a potential challenge for the price to surpass these levels.

BTC/USD

The BTC/USD chart currently reflects a neutral overall momentum, suggesting a potential scenario for price fluctuation between the 1st resistance and 1st support levels.

The 1st support at 40715 is identified as a swing low support and coincides with the 50% Fibonacci Retracement, making it a significant level where historical buying interest has been present.

Additionally, the 2nd support at 38437 is considered an overlap support, providing an extra layer of potential support for the cryptocurrency. This level aligns with the 78.60% Fibonacci Retracement, adding further significance to this support zone.

In terms of intermediate support, the level at 43090 is identified as an overlap support and coincides with the 38.20% Fibonacci Retracement, providing an additional layer of potential support during price fluctuations.

On the resistance side, the 1st resistance at 44490 is associated with a swing high resistance and marks a level where selling interest may intensify, potentially causing a temporary halt or reversal in price.

Furthermore, the 2nd resistance at 45999 is linked to the 127.20% Fibonacci Extension, presenting a formidable challenge for the price to surpass.

ETH/USD

The ETH/USD chart currently demonstrates a bullish overall momentum, suggesting a potential scenario for a bullish continuation towards the 1st resistance.

The 1st support at 2175.19 is identified as a pullback support, representing a historical area where buying interest has been present. This level also coincides with the 78.60% Fibonacci Retracement, adding significance to the support zone.

Additionally, the 2nd support at 2120.29 is recognized as a swing low support and is associated with the 61.80% Fibonacci Retracement, providing an extra layer of potential support for the cryptocurrency.

In terms of intermediate support, the level at 2262.98 is considered an overlap support and aligns with the 38.20% Fibonacci Retracement, providing an additional layer of potential support during price fluctuations.

On the resistance side, the 1st resistance at 2333.06 is linked to a swing high resistance, indicating a level where selling interest may intensify, potentially causing a temporary pause or reversal in the bullish trend.

Furthermore, the 2nd resistance at 2383.94 is another swing high resistance, presenting a formidable challenge for the price to overcome.

WTI/USD

The WTI chart currently exhibits an overall bullish momentum, suggesting a prevailing uptrend. However, there is a potential scenario for price to fall towards the 1st support.

The 1st support level at 72.60 is identified as an overlap support that aligns with the 38.20% Fibonacci retracement level. Further below, the 2nd support level at 71.32 is marked as a pullback support, reinforcing its importance as a key support level.

To the upside, the 1st resistance level at 75.35 is identified as an overlap resistance that aligns close to the 61.80% Fibonacci retracement level. Higher up, the 2nd resistance level at 79.40 is noted as a multi-swing-high resistance, further indicating its potential significance as a barrier for further upward movement. Technical Outlook and Review_17

XAU/USD (GOLD)

The XAU/USD chart currently demonstrates a bullish momentum, indicating a potential for price to break above the intermediate resistance and make a bullish continuation towards the 1st resistance.

The intermediate resistance level at 2,069.33 is identified as a pullback resistance. Higher up, the 1st resistance level at 2,087.79 is also marked as a pullback resistance that aligns close to the 61.80% Fibonacci retracement level, further indicating its potential significance as a barrier for further upward movement.

To the downside, the intermediate support level at 2,047.93 is identified as a pullback support that aligns with the 23.60% Fibonacci retracement level while the 1st support level at 2,016.90 is marked as an overlap support that aligns close to the 50.00% Fibonacci retracement level. Further below, the 2nd support level at 1,976.18 is noted as a pullback support, reinforcing its importance as a key support level. Technical Outlook and Review_18

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Thomas

Economic

Stocks

Energy

The global economy slowed but remained resilient, skirting what many feared would be an inflation and commodity price-driven recession this year.

Although growth is estimated to be even slower in 2024, the worst is perhaps over and headwinds are expected to ease, analysts say.

The consistently high interest rates are expected to come down, although inflation, trending down, is still not in the 2 per cent target range of most central banks in the world.

Many analysts expect the next major monetary policy move in 2024 from the US Federal Reserve will be a rate cut, although they remain divided on when the Fed is likely to slash its benchmark rate and by how many basis points the regulator will lower it.

While inflation and rates trending down will bode well for growth in the latter half of next year, risks remain that can hamper economic momentum.

Geopolitical tensions, the health of the US and Chinese economies, volatility in oil prices, widening growth divergence, worryingly high global debt levels, and the mounting cost of climate are among the factors that will determine if the global economy has a soft landing next year.

Recession fears

The entirety of this year was defined by muted growth, dotted with geopolitical shocks and an abrupt banking crisis that threatened to derail growth. The continuation of the sharpest monetary policy tightening in decades to subdue consumer prices also took the wind out of sails.

The International Monetary Fund expects global economic growth at 3 per cent this year, slower than the 3.5 per cent expansion recorded in 2022, remaining below the historical world growth average, the Washington-based fund said in its World Economic Outlook in October.

For next year, the IMF expects global gross domestic product to expand by 2.9 per cent, while the World Bank estimates 2.4 per cent growth and the Organisation of Economic Co-operation and Development forecasts it at 2.7 per cent.

Both the IMF and the World Bank anticipate growth to remain slow and uneven, especially in emerging and developing economies.

"Looking at 2024, we anticipate uncertainty to persist, with sub-trend growth projected across the world’s economies," State Street Global Advisor said in its 2024 Outlook report.

"While the path to a soft landing appears viable, with growth decelerating but not collapsing, the effects of monetary policy tightening are still working their way through the system."

In addition, escalating geopolitical tensions and continuing macroeconomic headwinds will continue to test economies and 2024 will "likely be a year in flux with many factors pressuring the path to global recovery", State Street, one of the biggest global asset managers, said.

Although the global economy will grow at a slower pace next year, it is unlikely to face a recession.

"This time last year there were widespread fears of a recession that was expected to happen this year. Not only did that recession not happen, but we’ve ended up with above-potential GDP growth," Nora Szentivanyi, global economist at JP Morgan, said.

The global economy, as of the fourth quarter this year, is tracking 2.8 per cent year-on-year growth.

"I think we can safely say that the global economy has gone through this year being a lot more resilient than anticipated, because of strong private sector fundamentals – healthy balance sheets and a little bit of government support as well," Ms Szentivanyi said.

However, despite recent progress, "the path to a soft economic landing remains challenging", Michael Strobaek, chief investment officer at Swiss private bank Lombard Odier, said.

"The historical evidence argues against ruling out a recession, but we do not expect to see a severe US downturn this time."

Among the main concerns next year is geopolitics outweighing economic risks in the wake of a flare-up in the Israel-Gaza war or a deterioration in the US-China relationship.

"We think the bigger dangers in 2024 will be geopolitical, which have more potential to throw expectations off track," William Davies, global chief investment officer at asset manager Columbia Threadneedle Investments, said.

"These pressures impact companies directly, as finding alternative energy supplies or building new supply chains will be costly."

The global economy, he said, "appears to be travelling on a path guided by low or even slowing growth, falling inflation and high interest rates".

However, sceptics believe a deeper recession is possible due to lingering high interest rates.

"Investors should prepare for that middle road between those outcomes, which I think is the most likely scenario over the next six months," Mr Davies said.

Inflation and rates outlook

US inflation eased in November but was higher than some market expectations, cooling any hopes that the Fed would cut interest rates early next year.

The Consumer Price Index (CPI) rose 0.1 per cent last month. On an annual basis, inflation rose 3.1 per cent, down from 3.2 per cent in October.

Core CPI rose 4 per cent annually, unchanged from October.

The Fed left interest rates unchanged at its last policy meeting of the year. Interest rates are now at 5.4 per cent, a 22-year high, up from close to zero in March last year.

However, the central bank has indicated that it would cut interest rates more than once next year.

"According to activity on Fed funds futures, the Fed should gently start cutting the rates by May; that possibility is given around 75 per cent probability, slightly less than 80 per cent before [the latest] CPI print, while the probability of a March hike fell to around 44 per cent from nearly 50 per cent on that mini spike in monthly headline inflation," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

"In summary, rate cut bets are being placed for a rate cut in March or May 2024."

High interest rates should remain in place at least through the first half of 2024, and the European Central Bank is likely to be the first to cut rates midyear, with the Fed following suit in September, Mr Strobaek said.

"The global economy should then start to benefit from lower borrowing costs. If inflation proves sticky, or strong growth persists, that scenario would be at risk."

Lawrence Golub, chief executive of Golub Capital, a $60-billion US-based private credit company, said they are very confident that the reported inflation in the US will continue to be low, "maybe not 2 per cent, the Federal Reserve's target but more generally heading in that direction".

"Combine that with there being a presidential election and the Fed not wanting to seem to be taking political sides. In this particular cycle … unless there's a surprise on CPI, they absolutely are going to have to cut [rates] and cut multiple times," he told The National.

"The forward curves show about 100 to 120 basis point reduction over the next 12 months, and I see the first cut in the spring," he said.

Demand fears weigh on oil

Oil prices, which touched nearly $140 a barrel following Russia’s invasion of Ukraine last year, have taken a beating this year, despite supply cuts made by the Opec+ alliance and record crude demand from China, the world’s second-largest economy.

Brent prices are down nearly 8 per cent since the start of the year.

Analysts blame the fall in prices on concerns of non-compliance by some producing countries and fears that the Opec+ group would unwind its production cuts in the second quarter.

On November 30, the group announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024.

"With market liquidity drying up as we approach the end of the year, prices are likely to stay volatile and further lows cannot be excluded," UBS strategist Giovanni Staunovo said in a research note.

Record production in the US and higher crude supply from Iran have eased concerns of a tight crude market in the fourth quarter.

"We classify the year 2024 for the energy complex as one of balance with bearish skews," MUFG, Japan’s largest lender, said in a research note.

However, global oil markets will remain supported by "tight" micro fundamentals, Opec+ driven cuts and effective hedging value against negative geopolitical supply shocks, the bank said.

Opec expects oil demand to expand by 2.2 million bpd next year, nearly double the International Energy Agency’s estimate of a growth of 1.1 million bpd.

Meanwhile, natural gas prices are expected to be stable next year on high European gas stocks and lower demand growth in the US, MUFG said.

Dutch Title Transfer Facility gas futures, the benchmark European contract, were trading at €34.17 ($37.67) per megawatt hour on December 22 after falling about 60 per cent since the start of the year.

What’s in store for stock markets?

This year so far has turned out to be a great year for equity investors after a dismal 2022.

Developed market equities are up almost 20 per cent year-to-date in total return terms.

"That said, digging below the surface, the rally has been mainly driven by a few mega-cap technology stocks in the US," Mathieu Racheter, head of equity strategy research at Julius Baer, said.

The so-called "Magnificent 7" – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla – did the heavy lifting in equities this year, he said.

"After the phenomenal outperformance, consensus has shifted towards expecting a mean reversion, ie the rest of the market catching up and outperforming the cohort in 2024," he said.

"We disagree with that notion and believe the outperformance is sustainable beyond 2023."

However, despite a stellar year, investors will closely be watching geopolitics that can potentially derail the stocks rally next year.

"Another wild card is the US elections. It is hard to predict the effect, if any, it will have on the markets – and it is that very unpredictability that is the problem. Markets hate uncertainty," Mr Davies at Columbia Threadneedle Investments said.

The UK may also go to the polls, with January 2025 the very latest Prime Minister Sunak can wait until he calls a ballot.

"Investors with exposure to European assets will also be watching political developments across the EU, too, as so-called populist parties and their leaders continue to make inroads," Russ Mould, investment director at AJ Bell, said.

Monetary policy and economic growth will remain key drivers of financial markets in 2024. However, "we do not underestimate the risks from geopolitics, energy, strategic competition between the US and China, and a high-stakes, highly polarised US presidential election", Mr Strobaek said.

"Equities are likely to be supported by mid-single-digit earnings growth and rate cuts in the second half of 2024, but growth is slowing and valuations appear, on aggregate, demanding versus other asset classes," he said.

"Equity markets can deliver positive – although very volatile – returns in the late stages of an economic cycle. Such a scenario would be consistent with a gradual rise in equity indices, but also with a quality bias given lingering uncertainty over the macroeconomic backdrop."

Meanwhile, restrictive financial conditions and slowing growth will continue to add pressure to indebted corporate borrowers, including some governments, Lombard Odier believes.

"We think bonds represent one of the strongest risk-adjusted opportunities in what we expect to be a volatile 2024," Mr Strobaek added.

Mounting cost of climate change

In all the talk of economic growth, a key element that has taken centre-stage globally is the rising cost of climate disasters.

If left unchecked, climate change could cost the global economy $178 trillion over the next 50 years, or a 7.6 per cent cut to global GDP in the year 2070 alone, Deloitte said.

The Cop28 climate conference in Dubai highlighted the massive investment efforts required for scaling up global climate financing.

By 2030, emerging markets and developing economies will require $2.4 trillion every year to address climate change, the Climate Policy Initiative said.

At the UN summit, the UAE launched a $30 billion fund for clean energy, backed by major US institutional investors such as BlackRock, Brookfield and TPG.

The money will go towards a new private investment vehicle, Alterra, which aims to raise $250 billion globally in the next six years to create a fairer climate-finance system.

But the challenge remains significant.

"We struggle to see how the finance for mitigation and adaptation efforts, which may cost $4 trillion to $5 trillion a year, can be made available quickly at affordable cost," consultancy Wood Mackenzie said in a research note.

"The current increases in renewables development costs due to higher cost of capital and supply chain bottlenecks are amplifying the challenge," it said.

Source: The National News

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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ING

Economic

What's going on?

Following several drone attacks from Houthi militants on merchant vessels, most of the world's largest container liners – including MSC, Maersk, CMA-CGM, Hapag Lloyd, Evergreen and HMM – began avoiding the 30km wide Bab al Mandeb sea strait to the Red Sea and the Suez Canal, which handles some 12% of global trade. They detoured their ultra large container vessels around Cape of Good Hope from mid-December.

Roughly half of the shipped freight through the canal comprises containerised goods, making it the most important artery for container trade. The trade lane is also a vital corridor to ship oil and oil products from the Persian Gulf to Europe and the US. Rerouting around the Cape adds some 3,000-3,500 nautical miles (around 6,000 km) to the journeys connecting Europe with Asia. At a speed of 14 knots, this means around 10 days is added to the duration of the trip. Since almost all container vessels are detoured, this could push up vessel capacity consumption by over 20-25%, which would turn overcapacity into a short-term shortage.

An international coalition has been created by the US to provide naval escorts, but the risks won't disappear immediately, and the rerouting continues.

Container rates on the rise and delays upcoming, but impact is all about how long it lasts

The massive re-routing of vessels will lead to significant delays on arrival in ports. And this will also have knock-on effects on connecting vessels and the turnaround of vessels. In European ports like Rotterdam (most calls for ultra large container vessels from Asia), but also Antwerp and Hamburg, this could lead to new congestion and delays in delivery further down the line in the first quarter. The weeks ahead of the Chinese New Year are busy in container shipping, but at least for shippers and consumption in Europe, the first quarter is quieter, and inventories are still relatively high. Nevertheless, the mounting delays could turn into shortages or waiting times for some consumer products in the first part of the year.

After spiking at unprecedented levels at the end of 2021, container rates returned to their pre-pandemic levels and even below over the course of 2023, as the high demand from the pandemic retreated and a range of newly delivered vessels created overcapacity. But the Red Sea crisis pushed up container global container rates again. For the US, the combination with the Panama Canal's low water restrictions even complicates supply lines to the East Coast. However, an important difference between the pandemic era and the Suez Canal blockage of the Evergiven in 2021 is that the demand-supply balance is currently far less strained. This will most likely prevent rates from reaching multiples again, but it all depends on how long the situation lasts.

Unexpectedly higher freight rates and also more complicated pricing for shippers in 2024

For shippers, freight charges are increasingly opaque as several surcharges add to bold port to port rates. The current situation in the Red Sea region leads to emergency contingency adjustment charges. This also further complicates next to other price supplements, such as peak season surcharge and 'emissions surcharge' following the start of the European emissions trading system (ETS). Either way, for shippers and eventually also for consumers, 2024 starts with higher-than-expected freight rates.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Chandan Gupta

Traders' Opinions

Forex

Fundamental Analysis

In the United Kingdom, signs of an economic slowdown are surfacing, notably in the latest inflation data that revealed a significant deceleration in December. This has fueled expectations of interest rate cuts, contributing to the British pound's recent underperformance among G10 currencies. Despite this, the pound remains the second-best performer in the G10 for the entire year, suggesting resilience amid short-term challenges.

Last week, news of a contraction in economic output during the third quarter hinted at the UK's potential entry into a mild recession by year-end. The Office for National Statistics reported a 0.1 percent sequential contraction in GDP for Q3, revised down from the initial estimate of flat growth. The breakdown reveals a 0.2 percent dip in the services sector, offset by a 0.4 percent rise in construction and a 0.1 percent increase in overall production. Notably, business investment saw a significant 3.2 percent decline, contributing to a 1.6 percent decrease in gross fixed capital formation.

On the expenditure side, the downturn in business investment and household spending was partially balanced by increased government spending and international trade volumes. Household consumption contracted by 0.5 percent, reflecting reduced spending on various goods and services, particularly in the hospitality sector. Government consumption, however, rose by 0.8 percent, buoyed by higher spending on public administration and defense.

The trade deficit in goods and services amounted to 0.8 percent of nominal GDP, indicating a trade imbalance. Economist Ashley Webb from Capital Economics suggests that the Q3 release implies a slightly weaker UK economy than initially thought, potentially signaling the onset of a mild recession. Recent activity surveys also point to weak GDP growth in Q4.

Further compounding economic concerns is the Confederation of British Industry's growth index, revealing a continued decline in private sector activity for the three months ending December. This protracted downturn, extending for a year and a half, underscores the challenging economic environment. Businesses anticipate this trend to persist into the coming year.

I think, the UK grapples with a convergence of factors, including inflation deceleration, economic contraction, and a protracted decline in private sector activity. While short-term challenges have impacted the pound's recent performance, the currency's resilience throughout the year hints at underlying strengths. The path forward, however, remains uncertain, with ongoing economic indicators suggesting a cautious outlook as the nation navigates potential headwinds in the near future.

Technical Analysis

Looking at the GBP/USD, it seems the pound is still going up against the dollar, following a pattern on the daily chart. This pattern started because of signals from global central banks in 2023. But, the UK's economic problems are stopping the pound from getting much stronger against other currencies. For the pound to do better, it has to break two tough levels: 1.2785 and 1.2850. If it does, people might start talking about it reaching 1.3000.

On the flip side, if the pound falls back to 1.2580, the situation might turn in favor of those who think it will keep going down. Right now, because of holidays like Christmas, the market is slow. Investors are not very active, and this might continue throughout the week. This slow activity can affect how easy it is to buy and sell in the market.

So, in a nutshell, the pound is trying to go up, but it has some challenges. Breaking certain levels is crucial. Yet, with the holiday vibe, the market might stay quiet for a bit. We'll have to see how things unfold in the coming days. GBPUSD: Bulls Lead, Awaiting Boost, Markets Eye Year-End Lift_1

GBPUSD: Bulls Lead, Awaiting Boost, Markets Eye Year-End Lift_1

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Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

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