Daily Market Outlook, December 14, 2021

Overnight Headlines

Asian equity markets are down this morning following declines yesterday in Europe and the US. Concerns about China’s property market have been cited as one reason for the fall, while the potential impact of Omicron remains a key uncertainty. The UK Health Security Agency has estimated that new cases of the Covid variant are running at 200,000 a day in the UK. Meanwhile, reports suggest that talks between the UK and the EU on Northern Ireland will be pushed into 2022.

Just released UK labour market data for the three months to October show a further rise in employment of 149k and a fall in the unemployment rate to 4.2% (from 4.3%). The continued decline in unemployment in the period that included the end of the government’s furlough scheme seems to confirm that most workers still on the scheme at its end have returned to their previous employers. With the level of unfilled job vacancies at a new record high, it appears that the labour market remains very tight for now. Despite that, wage growth slowed again, although it appeared that the data is still so impacted by the pandemic that it remains hard to gauge the underlying trend.

The UK House of Commons will today debate and vote on the latest Covid restrictions in England. Reports suggest that a sizeable number of Conservative MPs may either abstain or vote against the Government. It should still win but may need the vote of Opposition parties who plan to vote in favour of the restrictions.

Eurozone industrial production is expected to have risen by about 1.2% in October. Already released data for the biggest countries in the region has been mixed, but a big rise in German production points to a sizeable gain.

In the US, November producer price data will be watched for any sign that inflationary pressures are easing. Meanwhile, the NFIB small business survey for November will provide an update on confidence in an important part of the economy. UK consumer price inflation data, to be released early Wednesday, is forecast to show another rise. Headline CPI inflation increased by more than predicted to 4.2% in October, more than double the BoE’s 2% target. Expect it to jump up to 4.8% in November driven by higher food, petrol, clothing & footwear and used car prices, and higher tobacco duties. The Bank of England is forecasting that it will move even higher in early 2022 before starting to fall back later in the year.

Longer-dated government bond yields fell yesterday as the mood in markets turned more risk averse. UK markets are also expecting the Bank of England to delay a hike in interest rates. In contrast the US Federal Reserve is still expected to accelerate the pace of tapering of its asset purchase programme. However, US interest rate expectations edged down yesterday reflecting uncertainty about how quickly the Fed might follow through with a rise in rates.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

USDJPY - 116.00 437m. 115.00 535m. 114.20/30 483m. 113.80/90 1.42bn (949m C). 113.50/60 613m. 113.00/10 1.03bn (601m P). 109.90/110.00 532m.

EURUSD - 1.1520 449m. 1.1440/60 1.16bn (840m C). 1.1330 495m. 1.1310/20 447m. 1.1290/1.1300 684m.

AUDUSD - 0.7340/50 637m. 0.7200/10 1.13bn (642m P). 0.7130 647m. 0.7090/0.71000 531m. 0.7000/10 417m.

NZDUSD - 0.6890/0.6900 432m.

USDCAD - 1.3000 531m. 1.2750 515m. 1.2700/10 475m. 1.2670/80 670m. 1.2500 436m.

EURGBP - 0.8550 396m. 0.8530 538m. 0.8450 710m. 0.8350 736m.

AUDJPY - 81.60 1.31bn (P). 78.30 1.36bn (P).

USDCNH - 6.49 436m. 6.40 434m.

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 112.50 Bearish below

AUDUSD Bias: Bearish below 0.7250 Bullish above