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Risky markets find a bid ahead of US CPI

Vantage Updated Updated Mon, 2023 December 11 11:20

Headlines

* US stocks break to the upside on light catalysts

* USD trades in narrow range ahead of CPI and high risk event week

* BoJ is said to see little need to end negative rate in December

* Gold extends daily slide with loss of over 1% toward $1980

FX: USD edged very marginally higher just above 104 on the DXY. Price action tracked Treasury yields which pulled back late in the day after a 10-year auction. December is historically a seasonally weak month for the dollar.

EUR traded around support at 1.0764 and the 100-day SMA at 1.0756. The midpoint of the October rally resides at 1.0732. Focus is on Thursday’s ECB meeting with sentiment in the eurozone subdued and the economy edging into recession.

GBP printed an inside day below 1.26. The BoE meeting on Thursday is expected to continue with its higher for longer rates bias. The 50% level of the summer downtrend sits at 1.2589.

USD/JPY was the big underperformer amid reports that the BoJ sees little need to rush changes to its NIRP at next week’s meeting. Markets had priced in around a 20% chance of a policy tweak. Prices are back to a minor long-term Fib level at 146.14.

AUD printed a doji candle denoting some indecision. The 200-day SMA is at 0.6574. Weaker than expected CPI data in China was reported over the weekend.

Stocks: US equities gained for a third straight day despite weakness in the tech megacaps. The S&P 500 added 0.39% to settle at 4622. The tech-dominated Nasdaq 100 finished 0.85% higher to close at 16,221. The Dow edged 0.43% north at 36,404. Wall Street made fresh 2023 closing highs as Treasury yields finished on their lows for the day. There was notable upside in semiconductor stocks aside from Nvidia.

Asian futures are in the green. APAC stocks traded mixed after better NFP data but worsening deflation in China. The Nikkei 225 gained on speculation around the BoJ standing pat on rates and policy next week. Recent Governor Ueda comments were said to have been taken out of context.

Gold fell back below $2000 as bearish momentum picked up. See below for more commentary.

Day Ahead – US CPI and UK Jobs data

The November US inflation data is likely show that the disinflation trend continues. The headline reading is seen off one-tenth to 3.1% y/y and the monthly print ticks up a tenth to 0.1%. The annual core, which strips out volatile food and energy costs, is expected to remain at 4% while monthly ticks up to 0.3%. This comes a day ahead of the final FOMC meeting of the year. A stronger set of data will rein in rate cut bets. A 25bp March cut is given above a 45% chance, down from around 60% just before Friday’s NFP.

UK wage growth will be important for the BoE when they decide on rates at their Thursday meeting. This hit record highs a few months ago but is now cooling. Services inflation has remained high and sticky due to the strength in the labour market. A softer than expected set of figures will price more rate cuts in for next year, though the BoE is still seen as relatively more hawkish than the Fed and ECB.

Chart of the Day Gold plunges from all time high

Gold has had a wild ride in a week after it made a record high at $2048 last Monday. The precious metal popped higher in thin Asian trading but has fallen over 7.5% since then. Real rates, which are effectively the opportunity cost for holding the yield-free metal, have moved higher. The dollar has found a bid, while geopolitical risk has waned as escalation in the Israel-Hamas war becomes more remote.

The US inflation report and Fed meeting could determine the direction of the dollar and Treasury yields for the next few weeks. The 50-day SMA sits at $1966 as initial support ahead of the 200-day SMA at $1952. Near-term resistance is $2000/4.