Daily Market Outlook, December 17, 2024
Munnelly’s Macro Minute...
"China Sets 5% Growth Target for 2025; Consumption Imbalances Remain Challenging”
Asian markets experienced mixed performance overnight, as investors await a series of interest rate decisions from central banks, including the Federal Reserve, scheduled for this week. Chinese equity markets showed modest gains. Reports suggest that Beijing aims to set a growth target of around 5% for the coming year, alongside increasing the budget deficit to 4% of GDP. Chinese economic activity remained weak in November, with industrial production steady at +5.4% y/y, but retail sales growth fell to 3.0% y/y from 4.8% in October, below the expected 5.0%. Consumer confidence remains low, impacting consumption, which is tied to the property market outlook. Home price declines slowed, with new homes at -6.1% y/y and used homes at -8.5%. Activity is improving in tier one cities, but there is a significant overhang of unsold homes (60-80mn) nationwide. Property investment is decreasing, and while there are pockets of interest, the market needs to reach equilibrium between supply and demand for stability.
The focus for the remainder of the week will be on several central bank policy announcements, especially from the United States and Japan. U.S. sentiment is generally optimistic, with the Federal Reserve's expected quarter-point rate cut on Wednesday anticipated to boost support and further drive stock market gains. The yen ended a six-day losing streak after falling to over 154 against the dollar overnight. Its sharp decline to 155 against the dollar last week has prompted concerns that further depreciation might lead to intervention from authorities and increase pressure on the Bank of Japan to raise interest rates. Swap market pricing indicates that traders see less than a 20% chance of a rate hike in December.
The December PMIs revealed a significant divergence between the US and euro area, with the US composite indicator rising to 56.6 while the euro area remained in contraction at 49.5. The UK’s composite index was at 50.5, indicating modest expansion, but employment dropped sharply due to rising costs. This situation complicates the BoE's stance, as UK price indices remain high, leading to expectations of no change at the upcoming MPC meeting.
The latest UK labour market news exceeded expectations, with employment up 173k in October compared to a +5k consensus and average weekly earnings growth at 5.2% versus an anticipated 4.6%. However, the ONS report highlights methodological issues with the Labour Force Survey, focusing on technical details rather than current outcomes. Additionally, LFS data only goes up to October, before the budget, which has altered employment outlooks. A recent flash PMI indicated a drop in the employment index for December, suggesting a more accurate reflection of employment trends. Notably, private sector regular pay rose to 5.4% in October, up from 4.9%, making it likely that Q4 will surpass the 5.1% forecast from the November MPR projection, posing challenges for MPC hawks.
Overnight Newswire Updates of Note
German ZEW Weakness Expected On Slower Growth
German Ifo Expected Flat Amid Persistent Economic Woes
VW Talks Drag Into The Night As Union: Outcome Is 'Far From Clear'
Chancellor’s Tax Hikes Spare Most Of The UK’s Big Listed Companies
Trump: Deal Needed To Stop Ukraine War, Will Talk To Putin, Zelenskiy
China, Trump Talk Up Prospects For US-China Collaboration
China’s Premier Calls For Urgency In Implementing Economic Work
Japan’s Softbank Woos Trump With Planned $100B Investment In US
Aussie Westpac Consumer Sentiment Stalls, Economy Confidence Fades
US Yields Narrowly Mixed Ahead Of Fed Rate Decision
US Bans China Telecom Operations, Biden Admin Retaliates Over Hack
Gold Steadies As Traders Look To Final Fed Meeting Of The Year
Russia Oil Being Delivered On More Mainstream Tankers, BRS Says
(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: 1.0650 (EU1.81b), 1.0525 (EU1.76b), 1.0400 (EU955m)
USD/JPY: 145.50 ($875.8m), 151.55 ($739.6m), 142.25 ($650m)
USD/CNY: 7.1000 ($770m), 7.2500 ($734.3m), 7.2290 ($600m)
USD/CAD: 1.3930 ($1.51b), 1.4150 ($1.28b), 1.4350 ($989.3m)
GBP/USD: 1.2850 (GBP825.1m), 1.2640 (GBP600.2m)
USD/MXN: 21.05 ($408.6m)
CFTC Data As Of 13/12/24
Equity fund managers cut S&P 500 CME net long position by 10,616 contracts to 1.086,295
Equity fund speculators trim S&P 500 CME net short position by 61,936 contracts to 308,395
Speculators trim CBOT US 10-year Treasury futures net short position by 16,185 contracts to 875,716
Speculators trim CBOT US 5-year Treasury futures net short position by 70,670 contracts to 1,790,430
Speculators increase CBOT US 2-year Treasury futures net short position by 52,025 contracts to 1,254,924
Japanese yen net long position is 25,752 contracts
Swiss franc posts net short position of -34,992 contracts
British pound net long position is 27,125
Euro net short position is -75,573 contracts
Bitcoin net short position is -720 contracts
Technical & Trade Views
SP500 Bullish Above Bearish Below 6000
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 bbullish
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 bullish
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 bearish
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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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!