New Year – new beginnings. Financial markets are back in full swing after a well-deserved break over the festive season. The Dollar wasted no time in setting the tone, surging higher on the first trading day of the year and wreaking havoc on the major currency pairs. The Pound Sterling and the Euro recovered somewhat the following day but remain perched above multi-month and multi-year lows respectively. Gold appears uncommitted to a particular direction so far and remains below its pre-election record high. Nevertheless, the precious metal gained $18 last week to close at $2,640 an ounce. The more interesting development in commodities however is a potential uptick in interest in crude oil. After months of languishing in the doldrums, oil prices gained some ground last week, pushing Brent Crude to $76 and WTI to $73 a barrel. The cold weather front in much of the northern hemisphere is playing its part to increase demand in the immediate term, but on longer time frames oil markets are also factoring in the promise of economic stimulus measures in China. In a bid to encourage growth, Beijing plans to increase funding via the bond market whereas the People’s Bank of China will slash reserve requirements and reduce lending rates. Last year, oil imports decreased in Asia for the first time since 2021, with China in particular importing around 2% less than the previous year according to figures up until November. Then there is the possibility of sanctions against Iran, which could further tighten global oil supplies and increase prices as a result. Just like the rest of the financial world, the economic calendar is also finally emerging from winter hibernation. Services PMIs from around the world scatter the schedule today, before European CPI and employment data on Tuesday. FOMC minutes for the December meeting are set to be released on Wednesday, coupled with remarks from Fed Governor Christopher Waller. Many other board members will also deliver comments the following day. NFPs are back on the menu on Friday after being carried over from last week. Happy New Year.
Back to work. Markets have reopened following New Year revelries and by the looks of things, traders were desperate to get back to business. If the first trading day of the year is anything to go by, then 2025 will be the year of the Dollar. The Greenback continued its relentless push higher on Thursday, in a show of strength that was particularly detrimental to the Euro and Pound Sterling. The common currency closed at $1.026 yesterday and now sits at two-year lows versus the Dollar. The last time this happened, the Euro went on to fall below parity, something it has only done twice in its history. The situation is looking equally grim for Cable, which nose-dived down to an eight-month low of $1.237. European manufacturing data made for bleak reading yesterday, with France and Germany now reporting in the low 40s and the Eurozone in general reporting just 45. The UK manufacturing sector showed some degree of resilience last year but it too is now succumbing to structural pressure, falling to 47 on the latest release. On the other side of the pond, US manufacturing came in ahead of expectations at 49.4 according to S&P Global; the ISM figure will be published later today. Gold saw some positive momentum yesterday, gaining around $40 to close the day at $2,658 an ounce. Nothing earth shattering but a two-week high nevertheless. Bitcoin experienced a similar move, climbing up to $97k and dragging the rest of the crypto markets along with it. Very little to get excited about on the economic calendar today. Non-Farm Payrolls is delayed until Friday the 10th. Markets are not quite out of hibernation just yet.
Markets are in limbo. Christmas festivities are giving way to New Year celebrations and traders are in no hurry to return to their desks. Just as last week, much of the current will be occupied by market closures and low-liquidity conditions. International markets were predictably subdued over the Christmas period. Currencies had almost nothing to offer; the Dollar stayed strong but did not venture any further to the upside; the DXY remains around 108. The Greenback will be one of the major talking points as we move into 2025. Its resurgence over the past three months has been impressive to say the least – how long can the aggressive push be sustained? A strong Dollar extends far beyond mere currency trading; it affects financial markets in general and factors into the developing geopolitical landscape. With Donald Trump’s inauguration a mere three weeks away, there is no world in which the Dollar does not take centre stage. Gold wrapped up one of the most boring weeks it has had in a long time. The precious metal barely moved out of a $30 trading range all week, leaving behind an entirely unimpressive weekly candle. Gold is still over $100 down from the US election, illustrating the shift in sentiment towards the safe-haven narrative. If the incoming administration can indeed muster an aura of implacability, then flights to precious metals may potentially become less appealing. The economic calendar is looking as cold and gloomy as the weather outside, at least for those of us in the northern hemisphere. Bleak promises of manufacturing PMIs are the only thing on the menu for us wretched souls this week, starting with China tomorrow then Europe and America on Thursday.
Final update before Christmas. Last week, markets were once again at the mercy of the Dollar. Expectations regarding future rate cuts on the Greenback continue to be the dominant factor pushing currency pairs back and forth. Commodities and stocks were equally vulnerable to the whims of the Federal Reserve. So what did the Fed board members have to say? Essentially, that the unexpected resilience in the US economy and labour market, coupled with decreasing inflationary pressures, mean that the need for rapid rate cuts is simply not there. The same cannot be said for other economies around the world, hence the strength observed in the USD. In a well-telegraphed move, the Bank of England elected to maintain rates on the Pound at 4.75% last Thursday, however the decision to do so was less unanimous than economists had predicted. A small surprise, but one that caused Cable to test $1.25 for the second time in as many months. The Euro is facing its own battle, dipping below $1.04 once again and now perched precariously above the danger zone. The Yen also has its own problems to contend with, USDJPY remaining stubbornly high all year and creeping back up to the 160 level last week despite the Bank of Japan’s best efforts. A surging Dollar has put a lot of pressure on gold, which now sits more than $150 off its record high set in late October. Bitcoin has shouldered the pressure much more valiantly over the past couple of months, although it too suffered a harsh reality check last Wednesday following the Fed meeting, which forced it back down to five figures. The economic calendar is looking especially barren this week, as well it might. Time to focus on matters closer to home. Merry Christmas.
Brutal. Markets across the board suffered through a nasty correction following the latest Fed meeting. The decision itself was not unexpected – an interest rate cut from 4.75% to 4.5% was thoroughly priced in beforehand. The surprise came in the form of next year’s forecasts, which now predict fewer and slower rate cuts than had previously been assumed. The US Dollar shot up unilaterally, demolishing currencies pairs from America to Europe to Asia. The Euro smashed down to $1.035; Cable is down to $1.25; the Australian and New Zealand Dollars are hitting multi-year lows; the Korean Won is now matching prices from back in 2009. Greenback dominance pushed the DXY above 108 for the first time since 2022. Yesterday, the Bank of Japan and Bank of England both elected to forego any rate cuts of their own, as widely expected. Of course, a surging Dollar comes at the expense of everything else. US stock markets fell precipitously on Thursday, the Dow falling 2.6%, the S&P 500 losing almost 3% and the Nasdaq Composite faring the worst of all with a 3.6% loss. Major indices in Europe did not escape unscathed either. Gold took a devastating blow, falling over $60 on Thursday to $2,585 an ounce. Bitcoin plummeted back below $100,000 following the meeting, taking the wider crypto market along with it. A rough day in the office to say the least. The only real significant event remaining this week is the publication of the PCE price index later today. The figures have been known to influence the Fed decisions in the past, but the next FOMC meeting is not until the 29th of January. Next week has almost nothing to offer in terms of tradeable events either. Time to settle down for the year.
More than you might think… At first glance, the extravagance and glamour of the fashion industry seems entirely opposed to the serious and sombre world of finance. Fashion shows are sometimes so over the top that they defy any attempt at parody. Financial expos on the other hand can be so mind-numbingly tedious that they make attendees wish they had chosen different career paths. So what is the connection? The answer lies in economic indicators. Economists love indicators. Everyone has heard of the Purchasing Managers’ Index (PMI) and the Consumer Price Index (CPI), but there are many more out there, such as the Big Mac Index or even the Guns to Caviar Ratio. Some are clearly more serious than others. Economists routinely pluck data from a number of different sectors and the fashion industry is no exception. Here are some tailor-made indicators sewn into the world of fashion. 1. The Hemline index The Hemline index dictates that during times of financial growth, skirts get shorter; during times of hardship, they get longer. This trend was first observed in America all the way back in the 1920s. This period is referred to as the roaring 20s for good reason. The decade was characterised by massive growth, prosperity and consumerism. The boom was not limited to economic factors however, the 1920s saw the rapid development of technology, music, arts and of course… fashion. Interestingly, women’s skirts followed the same rise and fall as the stock market. Looking at the Dow Jones Industrial Average and the length of women’s skirts shows a clear link. At the beginning of the decade, skirts barely rose off the ground. By 1926, skirts were short enough to reveal the knee and stayed that way until 1929. It was an exciting time to be alive, but as with all good things, it came to a crushing end. The roaring 20s culminated in the stock market crash of 1929, resulting in both the Dow and hemlines dropping precipitously. Traders and perverts both suffered a devastating blow. The roaring 20s quickly gave way to the great depression which characterised much of the 1930s. The financial landscape changed dramatically for the worst and fashion sensibilities reflected this. Dresswear returned to a more formal style and hemlines stayed low for the entire decade. With the advent of the Second World War, fashion took an understandable step back. Wartime economies took over and a huge number of women entered the workforce. Out of necessity, women’s clothes became more functional, knee-length skirts became the norm but offered very little in terms of flair. Although somewhat of a special case, wartime economies generated considerable growth and women’s clothes reflected the robust nature of the time. By the 1950s, people were practically begging for a little extravagance. They would get it in spades. The post-war economic boom, particularly in America, saw a healthy injection of elegance into the world of fashion. Layered skirts, poodle skirts and cocktail dresses were all the rage. Financial markets were booming again, and hemlines would rise along with them. By the 1960s modesty went out of the window completely and women were showing more of their legs than ever before. Economic largesse pushed the boundaries of fashion to create the mini-skirt. Hurray. The decades that follow are a little harder to track. Fashion became much faster from the 70s onwards. New trends would spring up seemingly overnight only to disappear within a season. Culturally, society was also much less uniform. Distinct cliques appeared, each with their own dress sense. The hemline trend became muddier from this point onwards. Like all such indices, the Hemline Index is kind of half way between a joke and a genuine economic indicator. Nevertheless, a group of researchers in Rotterdam with far too much time on their hands looked at the data and concluded that there is indeed a link between situation of the time. Not only that, but they discovered that there is a three-year lag between the two. Unfortunately for traders, the market moves first, making all this research useless for predicting market movements. The connection between finance and fashion is not merely limited to clothes but extends to make-up as well. The lipstick index is a bit of a strange phenomenon: it states that during times of economic downturn, lipstick sales actually increase. The term was first coined by Leonard Lauder, chairman of the board and son of Estée Lauder. He made the claim in the early 2000s that there was an inverse correlation between cosmetic sales and the wider economy. The Dot-com bubble burst in 2000, leading to a period of brief economic decline. During the same period, sales of lipstick and other basic make-up items actually increased. Lauder speculated that during times of hardship, women tend to forgo more expensive fashion accessories and jewellery in favour of more simple and high-impact items like lipstick. About ten years later, in the 2010s, people began to dismiss the index as a silly idea. Ah yes, the lipstick index, how ridiculous! The nail polish index on the other hand, now that’s the kind of serious indicator the world of economics yearns for. The nail polish index did indeed gain traction for a while, following the same rationale, but similarly fell out of use after a few short years. One more attempt was made to resurrect the concept, in the form of the mascara index. This occurred during the Corona virus pandemic, which prompted the worldwide widespread use of masks. What’s the point of using lipstick when wearing a mask all day? Absolutely no point. Mascara however? Just visible enough to justify the extra expense. We now push the connection between finance and fashion one step further, this time expanding into the sacred realm of the hair salon. Japan serves as the stage for this one. The Japanese post-war economic boom came to a brutal halt in the late 1980s, resulting in a market crash that would take decades to recover from. The Nikkei 225 peaked in December 1989 and wouldn’t see such valuations again until 34 years later. For Japan, the 1990s could not have contrasted more starkly with the previous decade. The financial fallout was obvious to see, but once again, many other aspects of society and culture followed suit. One observable element was the length of women’s hair: after the crash, hair noticeably shortened. There is an obvious explanation for this: haircare products cost money. Shorter hair is cheaper and easier to maintain. An attempt to quantify the phenomenon was made by Kao Corporation, one of the leading cosmetics companies in Japan. The results, published by Nikkei Business Daily, claimed that up until 1990, 60% of women in their twenties kept their hair long. Following the stock market crash, short hair became the dominant style. In the years that followed, long hair would gradually some back in style, reflecting the growth in the Nikkei from 2010 onwards. As we begin to scrape the bottom of the barrel of financial indicators, we stumble across the Sports Illustrated magazine, in particular the swimsuit edition, more precisely the model on the front cover. Unlike previous entries, this indicator actually seems to have some predictive power. The theory goes that the nationality of the model on the front cover of the magazine predicts the performance of the S&P 500. If the model is American, the S&P 500 performs well; if the model is of a different nationality, the index will underperform. The index has been retroactively calculated back to 1978 and the results are indeed impressive. Between 1978 and 2008, the S&P 500 averaged a 10.5% annual return. Around half of those years featured an American model and during those years average return rose to 14%. In contrast, the years featuring a model from outside of the US produced an average return of just 7.2%. Not a bad correlation at all. Beats most hedge funds. Unfortunately, 2008 was a terrible year for the index. Sports Illustrated featured American model Marissa Miller on the front cover that year, only for stock markets to undergo one of the worst sell-offs in history a few months later. Can’t win them all. Conclusion Looking at charts all day, it is easy to forget that the numbers on the screen do in fact have real world equivalents. Stock markets are not isolated entities. The rise and fall of asset prices have a profound effect on our lives. The roaring 20s encapsulated a genuine cultural revolution that changed the world forever. The 60s likewise permanently shifted societal norms. In Japan, the implosion of the Nikkei in 1989 had a profound impact on the nation, its people, and its culture. The financial crisis of 2008 likewise left an indelible mark on the world, affecting the global monetary framework to this day. With such far reaching effects, is it any wonder that the whimsical fashion industry is one of the first to reflect the economic conditions of the time?
