Recent data showed that world stocks showed growth even though traders remained cautious in thin trade as many major markets were closed, while European bond yields fell and the dollar stood firm in light trading on Monday.
MSCI's index of Asia-Pacific shares outside Japan soared 0.04 percent, trailing a global index that went up 0.18 percent, as reported by Reuters. Meanwhile, the STOXX Europe 600 I index rose 0.8 percent, recouping some of the nearly 12 percent it lost in 2022 due to "aggressive monetary policy" by central banks.
Despite the increase, traders were reportedly wary of early-year starts in stock and bond moves. Several markets are closed for the holiday season, and a slew of economic data due this week plays a major role in their reluctance.
Several countries, such as Hong Kong, Britain, Ireland, Japan, Singapore, the United States and Canada, all had their markets closed.
Market forecasts in 2023
On CBS's "Face the Nation" Sunday morning news program, Kristalina Georgieva, IMF's managing director, predicted that 2023 would see a "tougher" year.
"Tougher than the year we leave behind."
Kristalina Georgieva
"Why? Because the three big economies - the U.S., EU and China - are all slowing down simultaneously," she said.
Piet Haines Christiansen, chief analyst at Danske Bank, projected that the new year would begin with a new emphasis on central banks and inflation. He claimed that traders would be on the lookout for any signs of an impending recession.
According to Christiansen, traders should also pay attention to inflation data from Europe, minutes from the December Federal Reserve meeting and labor market data from the U.S.
"I would be cautious over-interpreting any moves this morning," Christiansen said.
He suggested that the recent surge in European stock prices could be attributed to survey results released on Monday, which indicated a revival in optimism between eurozone factory managers.
Russ Mould, investment director at AJ Bell, said that Europe is "taking the latest round of PMIs well enough."
"...As the final readings help to confirm the view (hope?) that the worst may be over for the EU bloc's manufacturers, especially as energy prices recede to the levels of last February," Mould wrote in an email, as quoted by Reuters.
U.S. dollar ‘loses’ strength
Data showed that S&P Global's final manufacturing Purchasing Managers' Index (PMI) increased to 47.8 in December from 47.1 in November, which matched a preliminary reading but fell short of the 50 mark separating growth from contraction.
The U.S. dollar gained nearly 0.2 percent against a group of major currencies, while the pound and euro plunged 0.4 percent and 0.2 percent, respectively.
According to Ulrich Leuchtmann, head of forex research at Commerzbank, the dollar index is attempting to pull higher.
"There is an attempt by the dollar index to pull higher today but we do see that it is losing a good part of the strength it gained last year."
Ulrich Leuchtmann, head of forex research at Commerzbank
"But we do see that it is losing a good part of the strength it gained last year," he said. "After the last Fed meeting, the market was not convinced that the Fed won't cut rates later in 2023. It's going to be an interesting year."
U.S. Treasuries are set to resume trading on Tuesday after a public holiday on Monday. Elsewhere, data revealed that German government bond yields plunged from their highest levels in more than a decade on Monday, owing to more hawkish signals from the European Central Bank (ECB).
According to ECB president Christine Lagarde, wage growth in the eurozone is faster than initially predicted. As a result, the central bank must avoid this from leading to the already high inflation.
Germany's 10-year bond yield dropped 12 bps to 2.44 percent, just after reaching a high of 2.57 percent on Friday.
Oil markets were shut, as per a Reuters poll. Despite a bleak economic backdrop, prices were set to rise slightly this year. COVID-19 recurrence in China jeopardizes demand growth while offsetting the consequence of supply shortages induced by Russian sanctions.