Daily Market Outlook, December 13, 2024
Munnelly’s Macro Minute...
"Asian Markets Fall As China Fails To Deliver Stimulus Details...Again ”
Asian markets declined on Friday as traders expressed frustration over the limited information from a Chinese economic conference, leading to a reduced risk appetite ahead of next week's Federal Reserve meeting. The S&P 500 dropped by 0.5% as traders weighed higher-than-expected unemployment claims against stronger PPI data. Breaking a four-session winning streak, the Japanese stock market is notably down on Friday, reacting to the generally negative signals from Wall Street overnight. The benchmark Nikkei 225 has dropped below the 39,500 level, with declines across most sectors, particularly among major players in technology and finance. Shares in China and Hong Kong also fell after the Central Economic Work Conference in China provided a readout that lacked specific policy details regarding fiscal stimulus, despite officials' commitments to boost consumption. However, their intention to reduce policy rates and bank reserve ratios resulted in Chinese 10-year government bonds falling below 1.8% for the first time ever. Investors will now have to wait until March for more clarity.
Recent rate cuts, including significant 50 basis point reductions in Switzerland and Canada, along with a 25 basis point decrease by the European Central Bank, have significantly boosted the U.S. dollar. It surged by 1% against the euro, 1.6% against the Swiss franc, and 1.8% against the Japanese yen. The dollar also gained momentum from rising Treasury yields as investors lowered their expectations for aggressive U.S. policy easing in the coming year. While the markets still anticipate a rate cut from the Federal Reserve next week, the likelihood of a move in January has dropped to just 20%. A major factor influencing the market outlook is U.S. President-elect Donald Trump, who will be back in the Oval Office by the next Fed meeting and may have issued numerous executive orders with significant trade and policy consequences. The dollar's persistent strength is putting pressure on emerging market currencies, restricting their ability to ease monetary policy. The yen has weakened due to expectations that the Bank of Japan will not raise interest rates soon, influenced by small firms' wage issues. U.S. PPI data showed an upward bias from egg prices, leading analysts to lower core PCE index expectations. Long-term Treasury bonds faced significant losses, with 10-year yields up 17 bps and 30-year yields up 22 bps, the largest weekly increase in over a year. A disappointing 30-year bond auction contributed to this, reflecting an upward adjustment of terminal rates, with U.S. rates projected to decline slowly to 3.8% by the end of 2025, compared to 1.75% in Europe and 2.7% in Canada.
The UK economy contracted by 0.1% m/m in October, contrary to expectations of 0.1% growth. Industrial production fell by 0.6% m/m, and the services sector was flat, with only seven of fourteen sub-sectors expanding. Construction output also declined, indicating broader weakness. The unrounded headline figure was -0.13% m/m, with services contributing -3bps and industrial production -8bps. This disappointing start to Q4 contrasts with the BoE's November MPR projection of 0.3% q/q growth. Monthly increases of +0.4% m/m in November and December are now needed to meet this projection, which seems unlikely. The upcoming MPC minutes may reflect these lower activity levels.
Overnight Newswire Updates of Note
Fed’s Michelle Neal Resigns As Head Of The Markets Group
PineBridge: Credit Risks Are Rising As Demand Exceeds Supply
ECB Unveils Forth Rate Cut, Policy Turns More Dovish
ECB Rate Cuts Fail To Spur European Stocks
Macron Will Name New Prime Minister On Friday
UK GfK: Consumers Set To Refrain From Big Xmas Buys
Spanish Pedro Sánchez Prep Budget, Political Tensions Mount
China Pledges Economic Stability, Amid Silent Stimulus Details
BoJ Tankan: Business Mood Rises, First Time In 2 Quarters
RBA’s Hunter: On Job Market, Inflation Views Evolving
NZ Pleads Case With US For No New Tariffs Under Trump
Pfizer’s Ibrance Slows Tumour Growth In Breast Cancer
Broadcom Earnings Top Estimates After AI Fuels Sales
Costco Profit Beats Estimates On Healthy Consumer Spending
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0375 (2.6BLN), 1.0400 (5.2BLN), 1.0420-25 (1.9BLN)
1.0450-60 (2.7BLN), 1.0470-75 (1.5BLN), 1.0500 (7.6BLN), 1.0520-25 (1.8BLN)
1.0535 (1BLN), 1.0550 (2.7BLN), 1.0570-80 (1BLN), 1.0600 (4.8BLN)
USD/CHF: 0.8900 (403M), 0.9000 (600M)
EUR/GBP 0.8185 (693M)
AUD/USD: 0.6350 (211M), 0.6375 (200M), 0.6390 (200M)
USD/CAD: 1.4225 (1BLN), 1.4275-85 (1.7BLN)
USD/JPY: 152.60 (774M), 153.00 (402M), 153.50 (370M), 154.00 (1BLN)
AUD/JPY: 96.50 (592M), 99.40 (697M)
CFTC Data As Of 6/12/24
Equity fund managers cut S&P 500 CME net long position by 7,148 contracts to 1,096,911
Equity fund speculators increase S&P 500 CME net short position by 59,926 contracts to 370,331
Speculators increase CBOT US Treasury Bonds futures net short position by 11,361 contracts to 58,775
Speculators trim CBOT US 2-year Treasury futures net short position by 31,747 contracts to 1,202,899
Speculators increase CBOT US 5-year Treasury futures net short position by 95,529 contracts to 1,861,100
Speculators trim CBOT US 10-year Treasury futures net short position by 34,702 contracts to 891,901
Euro net short position is -57,489 contracts
Japanese yen net long position is 2,334 contracts
Swiss franc posts net short position of -41,094 contracts
British pound net long position is 19,326 contracts
Bitcoin net short position is -1,595 contracts
Technical & Trade Views
SP500 Bullish Above Bearish Below 6100
Daily VWAP bearish
Weekly VWAP bullish
Below 5990 opens 5930
Primary support 5795
Primary objective 6200
EURUSD Bullish Above Bearish Below 1.0450
Daily VWAP bearish
Weekly VWAP bearish
Above 1.0590 opens 1.0728
Primary resistance 1.0950
Primary objective 1.0728
GBPUSD Bullish Above Bearish Below 1.26
Daily VWAP bearish
Weekly VWAP bearish
Above 1.2760 opens 1.2859
Primary resistance 1.3050
Primary objective 1.2859
USDJPY Bullish Above Bearish Below 154
Daily VWAP bullish
Weekly VWAP bearish
Below 150 opens 148
Primary support 150
Primary objective is 157.50
XAUUSD Bullish Above Bearish Below 2600
Daily VWAP bullish
Weekly VWAP bearish
Below 2530 opens 2467
Primary support 2530
Primary objective is 2800
BTCUSD Bullish Above Bearish Below 92000
Daily VWAP bullish
Weekly VWAP bullish
Below 91000 opens 87500
Primary support is 85000
Primary objective is 100,000 TARGET HIT NEW PATTERN EMERGING
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Past performance is not indicative of future results.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!