Weekly Market Outlook (11-15 December) 0 (0)

UPCOMING EVENTS:

  • Tuesday: Japan
    PPI, UK Labour Market report, German ZEW, NFIB Small Business Optimism
    Index, US CPI.
  • Wednesday: UK
    GDP, Eurozone Industrial Production, US PPI, FOMC Policy Decision, New
    Zealand GDP.
  • Thursday:
    Australia Labour Market report, SNB Policy Decision, BoE Policy Decision,
    ECB Policy Decision, US Retail Sales, US Jobless Claims, New Zealand
    Manufacturing PMI.
  • Friday:
    Australia/Japan/Eurozone/UK/US Flash PMIs, China Industrial Production and
    Retail Sales, Eurozone Wage data, US Industrial Production, PBoC MLF.

Tuesday

There’s no consensus estimates for the UK
jobs data at the time of writing except for the wage growth figures where the
average earnings including bonus are seen falling to 7.7% vs. 7.9% prior while
the average earnings excluding bonus are expected to come down to 7.4% vs. 7.7%
prior. As a reminder, the last
report
beat expectations across the board
with strong job gains and steady wage growth. The market is now looking for
rate cuts, so a strong release is unlikely to prompt the market to price in
rate hikes, but it could definitely make it to price out some of the rate cuts.

The US CPI Y/Y is expected to tick down to
3.1% vs. 3.2% prior, while the M/M reading is seen at 0.0% vs. 0.0% prior. The
Core CPI Y/Y is expected to remain unchanged at 4.0% vs. 4.0% prior, while the
M/M figure is seen at 0.3% vs. 0.2% prior. As a reminder, the last
report
missed expectations across the board
and triggered some strong reactions with the US Dollar selling off and the US
Equity and Bond markets rallying. The major central banks have ended their
tightening cycles, so the markets’ reaction function has changed from “strong
data equals more rate hikes” to “strong data equals less rate cuts”.

Wednesday

The FOMC is expected to keep the FFR
steady at 5.25-5.50% with no change to their quantitative tightening (QT). The
market’s focus will be on the Summary of Economic Projections (SEP) and the Dot
Plot. In its September
projections
, the Fed expected to
deliver one last rate hike in 2023 followed by 2 rate cuts in 2024. Given the
disinflationary trend and the softening in the general economic data in the
past few months, the chances for a rate hike in December quickly dwindled with
the market now not only 100% sure that the Fed is done with the tightening
cycle but even expecting 4 rate cuts in 2024 (it was 5 rate cuts beginning as
soon as March before the NFP report).

It’s very unlikely to see the Fed
projecting as much rate cuts as the market’s currently assumes, but I feel
like the market would be more than fine if the Fed projects 3 rate cuts in 2024
as it would be a nod that they indeed see their conditions being met earlier
than expected. Things got a bit complicated with the latest
NFP report
where the unemployment
rate dipped to 3.7% vs. 3.9% prior and wage growth on a monthly basis came in
on the hotter side. The CPI report on Tuesday should shed some more light
though.

Consider this: if you were the Fed, would
you have the confidence to cut rates in Q1 2024 given such volatility in the
data and the fear of making the 70s mistakes (as they keep repeating)? Probably
not. We can certainly see 125+ bps of rate cuts in 2024, but it’s likely to
be aggressive in response to a hard landing. Thus, it would always be above
the expected market rate cut for a given meeting in order to create a faster
easing in financial conditions. And this fear around the 70s and the
uncertainty around the data might lead the Fed to cut too late or too slowly,
eventually triggering a „hard-er“ landing. I feel like this
uncertainty could transpire from their projections if they keep just 2 rate
cuts on the table, or worse, revise it to just one, especially if it’s
accompanied by lower inflation expectations.

Thursday

The Australian Unemployment Rate is
expected to tick higher to 3.8% vs. 3.7% prior with 10K jobs added. The last
labour market report
showed an increase in
employment of 55K, which was much higher than expected although the bulk of it
was part-time jobs. The market is likely to react more to weakness rather than
strength as it’s looking forward to rate cuts in 2024. The RBA will see another
jobs report before its next meeting in February 2024.

The SNB is expected to keep interest rates
steady at 1.75% vs. 1.75% prior,
probably accompanied by the usual caveat that “it cannot be ruled out that
further tightening may become necessary”. The inflation
rate
in Switzerland has been
within the central bank 0-2% target for many months on both the headline and
core measures, so they should actually start to
considering rate cuts in 2024.

The BoE is expected to keep the bank rate
steady at 5.25% vs 5.25% prior,
but this time there should be a bigger consensus among the MPC for no change,
although this is likely to be shaped by the UK Labour Market report on Tuesday.
As a reminder Greene, Mann and Haskel voted for a rate hike the last time. The
central bank will reaffirm once again their commitment to keep rates high for
as long as necessary to ensure that inflation returns to their 2% target. The
market expects 3 rate cuts in 2024 with the first one coming in June.

The ECB is expected to keep the deposit
rate unchanged at 4.00% vs. 4.00% prior.
The central bank is likely to repeat that they will keep rates high as long as
necessary to return to their 2% target. The rate cuts expectations for 2024
increased recently following the big miss in the Eurozone
CPI report
and the ECB
member Schnabel’s
comments where
she acknowledged that further rate hikes are rather unlikely after the latest
inflation data. The market now sees 150 bps worth
of rate cuts in 2024 with the first one coming as soon as March.

The US Retail Sales M/M are expected at
-0.1% vs. -0.1% prior.
Retail Sales have been strong for most of the year, although they contracted in
the previous month. The Control Group though, came in line with expectation at
0.2% with a positive revision to the prior figure. A strong report might make
the market to trim the amount of rate cuts expected in 2024 while a weak
release could increase them.

The US Jobless Claims continue to be one
of the most important releases every week as it’s a more timely indicator on
the state of the labour market. Initial Claims keep on hovering around cycle
lows, which shows us that layoffs have not yet picked up notably, but
Continuing Claims have been rising at a fast pace and that’s indicative of
people finding it harder to get another job after being laid off. This week the
consensus sees Initial Claims at 221K vs. 220K prior,
while there’s no estimate at the time of writing for Continuing Claims,
although the last week’s number was 1861K vs. 1925K prior.

Friday

Friday is the Flash PMIs day where we will
see how business activity in the Manufacturing and Services sector is faring in
December:

  • Eurozone Manufacturing
    PMI 44.5 expected vs. 44.2 prior.
  • Eurozone Services PMI 49.0
    expected vs. 48.7 prior.
  • UK Manufacturing PMI 47.5
    expected vs. 47.2 prior.
  • UK Services PMI 51.0
    expected vs. 50.9 prior.
  • US Manufacturing PMI 49.1
    expected vs. 49.4 prior.
  • US Services PMI 50.5
    expected vs. 50.8 prior.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Go to Forexlive

Week ahead highlights include: FOMC, ECB, BoE, SNB; US CPI, China activity data 0 (0)

  • MON: Norwegian CPI (Nov), Chinese M2 (Nov).
  • TUE: EIA STEO; UK Unemployment Rate (Oct), German ZEW
    (Dec), US NFIB (Nov), US CPI (Nov), Japanese Tankan (Q4).
  • WED: FOMC, BoK & BCB Policy Announcements,
    OPEC MOMR; UK GDP (Oct), EZ IP (Oct), US PPI (Nov).
  • THU: BoE, ECB, SNB & Norges Bank Policy
    Announcements, IEA OMR, EU Council (1/2); Australian Employment (Nov), Swedish
    CPIF (Nov), US IJC (w/e 8th), Import/Export Prices (Nov).
  • FRI: Quad Witching, EU Council (2/2), CBR Policy
    Announcement; UK GfK (Dec), Chinese Retail Sales (Nov), EZ/UK Flash PMIs (Dec),
    EZ Trade (Oct), US NY Fed Manufacturing (Dec).

    NOTE: Previews are listed in day order

    UK Jobs (Tue):

    Consensus figures are yet to be published for the
    employment report, however, headline earnings growth in the 3M/YY period to
    October is expected to slow to 7.8% from 7.9% with the ex-bonus figure seen
    slipping to 7.4% from 7.7%. The prior report saw the unemployment rate
    unexpectedly hold steady at 4.2%, albeit many analysts have dismissed the
    validity of these figures given that they are using “experimental data”. That
    being said, vacancies have continued to decline and PAYE payroll growth has
    slowed. On the earnings front, both headline and ex-bonus earnings slowed in
    the 3M/YY period to September. Ahead of the upcoming release, economists at
    Pantheon Macroeconomics “look for zero month-to-month growth in the PAYE
    measure of employees in November, which would be consistent with an ongoing
    increase in the unemployment rate”. On the earnings front, the consultancy
    suggests “most of the available indicators point to a smaller month-to-month
    increase in average weekly wages, excluding bonuses, in October than in the
    first nine months of this year”. From a policy perspective, the release is
    unlikely to have much bearing on Thursday’s announcement, however, any notable
    fluctuation in wage growth could see traders reassess 2024 rate calls.

    US CPI (Tue):

    Headline CPI is expected to rise +0.1% Y/Y in
    November (prev. +0.0%). Core CPI is seen rising +0.2% M/M, matching the October
    rise. The data comes a day ahead of the FOMC policy announcement (unchanged
    expected), and while it is unlikely to shift the dial for December, it may help
    shape expectations about future Fed policy easing, with market expectations
    looking for 125bps of rate cuts in 2024. Fed Chair Powell recently reminded us
    that inflation was still well above target, though acknowledged it was moving
    in the right direction, with inflation coming down meaningfully of late. Still,
    the Fed Chair said he wants to see more progress, and retained optionality for
    resuming rate hikes if the situation demanded.

    Japanese Tankan Survey (Tue):

    Participants will be looking to see if there is a
    continued improvement in sentiment among Japan’s large manufacturers after the
    mostly better-than-expected readings last quarter; that Q3 survey topped
    forecasts, with the headline Large Manufacturing Index at 9.0 (vs exp. 6.0),
    while sentiment amongst large non-manufacturers climbed to the highest since
    1991 at 27.0 (exp. 24.0) and Large All Industry Capex Estimate improved as
    expected to 13.6% (exp. 13.6%). The better-than-expected sentiment among large
    enterprises provides encouragement for the economy; SMBC Nikko Securities noted
    the Japan was on course for domestic-demand-led growth and the prior survey had
    also shown an improved outlook amongst large industries. Further, the Reuters
    monthly Tankan survey ¬– which is seen to provide a signal for the BoJ’s
    quarterly release – has shown two consecutive months of improvement, with
    December’s gauge rising to 12.0 from a previous of 6.0 in November, and 4.0 in
    October.

    FOMC Announcement (Wed):

    The FOMC will maintain rates at 5.25-5.50% at its
    December policy meeting. The consensus now thinks that the Fed is done with
    rate hikes, despite Chair Powell stating before the pre-meeting blackout that
    the central bank was prepared to tighten policy further if it becomes
    appropriate to do so. The market’s attention is now rapidly shifting towards
    when the Fed will begin cutting rates, and traders will look to the updated
    projections, and how many rate cuts the Fed is pencilling in for next year (in
    the September SEP, the Fed saw rates ending 2024 at between 5.00-5.25%).
    According to a Reuters poll, economists see the Fed holding rates at current
    levels until July 2024, but money markets are fully pricing the first rate cut
    in May, with a decent chance that it could even come in March. The Fed may be
    reticent to give credence to market expectations since it risks undoing some of
    its tightening efforts to bring still-above target inflation back down.
    Analysts expect progress on tackling inflation to continue, but according to
    the Reuters survey, all inflation measures polled (CPI, core CPI, PCE, core
    PCE) are all seen above the Fed’s 2% goal until at least 2025, and this has led
    some to argue that the market is too aggressive in its dovish pricing. Analysts
    are also already thinking about the optics of how the Fed will frame the
    loosening of policy. According to the Reuters poll, economists say the first
    cut will be framed as an adjustment of real rate of interest, not the start of
    monetary stimulus (real rates would become more restrictive if left unchanged
    as inflation declines). “With markets already convinced that the Fed’s
    tightening cycle is over, the focus at the December FOMC meeting will be on any
    clues as to how soon and how far rates will be cut,” Capital Economics says.
    “We suspect officials will still be wary of sending an overly dovish message in
    the updated statement and projections and any explicit discussion of near-term
    rate cuts is unlikely,” it adds, “nevertheless, the Fed will need to acknowledge
    the reality that inflation is rapidly heading back to the 2% target.”

    BCB Announcement (Wed):

    Since August, the BCB has been in an easing cycle,
    and has thus far trimmed rates by 150bps, taking it to 12.25% in November.
    Guidance from officials suggests the central bank will continue the cadence of
    -50bps at its December meeting, as inflation is well-behaved despite being
    slightly above the target. BCB chief Campos Neto explained that as inflation
    falls, real rates rise, giving the BCB scope to lower rates and for policy to
    still be restrictive. Campos Neto also said that the current pace of easing was
    appropriate, adding that this signalling will be the pace for the next two
    meetings. According to the BCB’s own poll, economists see the Selic ending this
    year at 11.75%, and see further declines to 9.25% by the end of 2024.

    UK GDP (Wed):

    Expectations are for October’s monthly GDP to
    contract by 0.1% (vs an expansion of 0.2% in the prior month). The September
    release saw the overall Q3 print flat at 0% vs. the 0.2% expansion seen in Q2
    with the UK avoiding a contraction, thanks in part to net imports. For the
    upcoming report, analysts at Investec suggest that services (which accounts for
    79% of total GDP) likely saw 0.2% in gross value added, with softness also seen
    in retail sales and strike action in the public sector. On the production front,
    the Investec suggests that soft PMIs are indicative of “stuttering
    manufacturing output”. More broadly, Investec notes “a common driver of the
    weaker trend in the economy is the higher interest environment, which is
    filtering through to GDP progressively as households and firms refinance
    expiring fixed-term borrowing”. From a BoE perspective, greater attention will
    likely be placed on Tuesday’s labour data, which itself will ultimately have
    little impact on the immediate policy path.

    New Zealand GDP (Wed):

    Q3 Q/Q GDP is expected at 0.2% (prev. 0.9%) and
    the Y/Y metric is seen at 0.4% (prev. 1.8%). The RBNZ has pencilled in a Q/Q
    figure of 0.3%. Analysts at Westpac believe activity was little changed in the
    quarter, as the boost in activity in the services sector (bolstered by
    government-funded activity) was offset by a sharp decline in manufacturing
    sector activity, according to their estimates. Westpac sees the Q/Q at -0.1%
    and the Y/Y at 0.2% – “Statistics NZ have indicated that the level of activity
    will likely be revised down modestly following the incorporation of new annual
    benchmarks.” As a reminder, the RBNZ at the end of November opted for a hawkish
    hold on rates and emphasised persisting inflation, whilst the statement
    reiterated that interest rates will need to remain at a restrictive level for a
    sustained period of time and are restricting spending in the economy with
    consumer price inflation declining as is necessary to meet the committee’s
    remit.

    BoE Announcement (Thu):

    Expectations are for the MPC to stand pat,
    maintain its Base Rate at 5.25% for a third consecutive meeting as policymakers
    take stock of actions already taken. Recent data saw headline CPI decline to
    4.6% Y/Y in October from 6.7%, core fall to 5.7% Y/Y from 6.1% and all services
    slip to 6.6% Y/Y from 6.9% (vs MPC forecasts for 6.9%). On the growth front,
    September GDP expanded by 0.2% M/M (exp. 0.0%), whilst more timely PMI metrics
    saw the composite PMI rise to 50.7 in November from 48.7 previously, with the
    services component moving back into expansionary territory. In the labour
    market, the unemployment rate in the 3-month period to September held steady at
    4.2%, whilst wage growth continued to ease as the labour market loosens but
    ultimately not yet consistent with the MPC’s inflation target (note the latest
    jobs report will be released next Tuesday). In terms of commentary from the MPC
    members, Governor Bailey has remarked that the full effect of higher rates is
    yet to hit the UK, adding that the MPC is not in a place to discuss rate cuts.
    Chief Economist Pill stated that the middle of next year does not seem totally
    unreasonable for considering the rates stance, before somewhat walking back
    this comment by reaffirming that “assume rates are to stay restrictive for an
    extensive period”. Ultimately, with economic developments not shifting enough
    to warrant a change in stance from the Bank, analysts at Oxford Economics
    expect the MPC to continue to vote 6-3 in favour of standing pat on rates
    (hawkish dissent from Greene, Haskel and Mann). In terms of the policy
    statement, the MPC will likely reiterate that “policy will need to be
    sufficiently restrictive for sufficiently long to return inflation to the 2%
    target.” In terms of an outlook beyond the upcoming meeting, markets currently
    price the first 25bps reduction by June with a total of 81bps of cuts priced by
    year-end.

    ECB Announcement (Thu):

    Expectations are for the ECB to stand pat on rates
    for a second consecutive meeting after halting its hiking campaign in October.
    Market pricing concurs, with such an outcome priced with around 94% certainty.
    In terms of recent economic developments, November’s flash CPI fell to 2.4% Y/Y
    from 2.9%, whilst the super-core metric declined to 3.6% Y/Y from 4.2%. On the
    growth front, Q3 GDP is currently estimated to be circa -0.1% Q/Q, whilst more
    timely survey data saw a pick-up in the Eurozone composite PMI for November
    from 46.5 to 47.6, but ultimately is still suggestive of negative growth in Q4.
    In the labour market, the unemployment rate remains just above its historic low
    and policymakers continue to eye firm wage growth. In terms of communications
    from ECB officials, great attention has been placed on remarks from Germany’s
    Schnabel, who noted that further hikes were “rather unlikely” after November
    inflation data cooled, and declined to endorse guidance for steady rates for
    several quarters. These remarks have subsequently accelerated pricing for 2024
    rate cuts with a March reduction priced with around 80% probability; that said,
    Latvia’s Kazaks dismissed the idea of a March rate cut as “science fiction”. In
    terms of surveyed expectations for next year, 51 of the 90 economists surveyed
    by Reuters forecast at least one rate reduction at before the July meeting.
    Signalling for 2024 action may come via the accompanying macro projections,
    which ING suggests should see downward revisions for growth and inflation in
    2024 and 2025. Finally, speculation continues to mount over the Bank’s balance
    sheet and a potential early conclusion to PEPP reinvestments after Lagarde
    stated on November 27th that PEPP will be discussed in the “not-so-distant
    future”. However, many desks are of the view that the December meeting would be
    too soon for such an adjustment.

    SNB Announcement (Thu):

    Expected to leave the policy rate at 1.75%, after
    leaving rates unchanged in September (consensus at the time was evenly split
    between a hike and hold). A decision that was taken to allow for the
    publication of more data to see if tightening taken thus far was sufficient to
    counter “remaining inflationary pressure”. In particular, it gave the SNB time
    to consider November’s CPI, which was the first measure to capture the mid-2023
    rental reference rate hike, before potentially tightening further. An inflation
    release which was markedly cooler than expected printing at 1.4% Y/Y, well
    below market expectations of 1.7% and the SNB’s Q4 view of 2.0%, and as such
    removed the possibility of a December hike and theoretically opened the door to
    a cut. While a cut cannot be ruled out, particularly given the SNB’s history of
    surprising markets and current pricing implying a 25% chance of a December cut,
    it is somewhat unlikely given uncertainty over the rental increase. As FSO
    caveats, how much/quickly the adjustment will affect the rental price index
    cannot be conclusively assessed on November’s number alone; a point which means
    that while markets are pricing cuts, a hike also cannot be ruled out at March’s
    gathering, depending on the influence of rent – both Chairman Jordan and Vice
    Chair Schlegel have spoken about the possibly inflationary influence of rent
    ahead. Rates aside, the SNB may well tweak its FX language to de-emphasise the
    selling element, given the notable CHF strength that has resulted.

    Norges Announcement (Thu):

    November’s announcement saw rates left at 4.25%
    with guidance that the policy will “likely be raised in December” countered by
    the admission that rates may be left unchanged in December if “the committee
    becomes more assured that underlying inflation is on the decline”. November’s
    inflation will be released on the 11th, before the policy announcement on the
    14th. For October, CPI came in markedly hotter-than-expected by markets and at
    the time was judged to essentially cement a December hike, despite the measures
    being cooler and in-line with the Norges forecast for the headline and core
    Y/Y. Following this, Q3 GDP was very soft and serves as a dovish-impulse going
    into the announcement. Most recently, the key Regional Network was (as leaked)
    soft on the growth front but wage expectations were essentially unrevised;
    potentially giving rate setters some confidence that underlying pressures are
    falling. Overall, the decision is tough to call in the absence of November’s
    inflation data which is due on the 11th.

    Swedish CPIF (Thu):

    October’s release saw the Riksbank’s preferred
    measure (CPIF ex-Energy) come in at 6.1% Y/Y, which was markedly down from the
    prior 6.9% and shy of market expectations for a 6.3% print; however, this was
    above the Riksbank’s own forecast of 6.0%. Following this, the Riksbank
    undertook a neutral-hold in November and maintained pricing of a 40% chance of
    another hike, though Governor Thedeen described it as 50/50. Given the Riksbank
    doesn’t meet until January, they will also have access to December’s inflation
    data before making a decision. Nonetheless, for November CPIF is expected to
    continue moderating but SEB believes that unusually cold weather and an
    increase in electricity prices will result in it being above the Riksbank’s
    3.6% Y/Y forecast.

    Australian Jobs (Thu):

    Employment Change for November is forecast at 10k
    (prev. 55k) whilst the Unemployment Rate is seen at 3.8% (prev. 3.7%), and the
    Participation Rate is seen ticking lower to 66.9% (prev. 67.0%). Desks flag the
    jobs created by the 2023 Australian Indigenous Voice referendum dropping out of
    the employment count, with the Electoral Commission suggesting up to 100k jobs
    were created by the referendum. Analysts at ING also suggest some of the
    part-timers may however convert to full-time jobs. “The latest report from ANZ
    also showed a 4.6% M/M fall in job advertisements, the biggest drop since
    August 2021. This suggests that the labour market is cooling. The overall
    employment change is likely to be strongly negative. We expect the unemployment
    rate to edge up to 3.8% Y/Y”, says ING. Meanwhile, Westpac suggested “history
    tells us that previous referendums and major voting events have not had a major
    impact on employment (possible due to many election officials already being in
    employment when they take on these additional roles), and thus forecast an
    above-forecast figure of +25k for the employment change and a below-forecast
    3.7% for the unemployment rate.” It is also worth noting that alongside the
    Australian Labour Force report, the RBA bulletin will be released, and RBA
    Assistant Governor Jones is slated to speak.

    Chinese Industrial Production, Retail Sales, FAI (Fri):

    Industrial Production for November is forecast at
    5.6% Y/Y (prev. 4.6%), whilst Retail Sales are expected at 12.5% Y/Y (prev.
    7.6%), and the Fixed Asset Investments are seen at 3.0% Y/Y (prev. 2.9%). Using
    the latest Caixin PMI releases as a proxy, the metrics themselves showed
    improvements. “The macro economy has been recovering. Household consumption,
    industrial production and market expectations have all improved”, the
    manufacturing release noted, “But domestic and foreign demand is still
    insufficient, employment pressure remains high, and economic recovery has yet
    to find solid footing.” Analysts at ING believe that “Any improvement in
    industrial production is therefore likely to be quite modest. We are expecting
    industrial production to grow 5.8% Y/Y, but this will likely be helped along by
    favourable base effects. Meanwhile, the services release suggested “Both
    services supply and demand expanded, as the market continued to heal. The
    gauges for business activity and total new orders were above 50 for the 11th
    consecutive month and hit three-month highs. However, some surveyed companies
    reported that the market improvement was slightly weaker than expected –
    analysts at ING suggested: “favourable base effects could also help retail
    sales growth post double-digit Y/Y growth at 12%.” It’s also worth noting that
    an NBS press conference is slated after the data release.

    Eurozone Flash PMI (Fri):

    November’s final PMIs saw modest upward revisions,
    but the series remained well in contractionary territory. As such, HCOB’s
    nowcast indicates that the bloc will end the year in a technical recession,
    though it is expected to be very modest in nature. In December, we look for any
    indication that the growth outlook is more/less downbeat than currently implied
    by the nowcast or the timeliest Sentix data for the period which showed “no
    signs of an upswing in any region”. Growth aside, the focus point will be any
    fresh wage commentary after the November survey saw a wage-driven uptick in
    services cost pressures, particularly in Germany. A finding which is of
    particular note for the ECB; Vice President de Guindos pointed out that a wage
    increase could still result in an important inflationary impact. Note, the PMIs
    will be released one day after the ECB’s December announcement.

    UK Flash PMI (Fri):

    November’s release was subject to an upward
    revision for the composite which brought it more convincingly into expansionary
    territory at 50.7, a revision which S&P described as evidence of a modest
    rebound in business activity, after three months of decline. In reality, the
    data should be indicative of even greater relative GDP strength given the PMI
    omits the public sector. For December, Pantheon Macroeconomics believes the
    composite is more likely to increase further than fall given upside in the future
    activity index. Growth aside, inflationary developments will be sought with
    November’s steepest increase in service sector charges since July a hawkish
    development heading into December’s BoE and one that may well see the three MPC
    hawks continue their dissent. S&P said “service providers signalled another
    round of strong input cost pressures, largely due to rising staff wages …
    contributed to the fastest increase in output charges across the service
    economy for four months”; a point which BoE Governor Bailey may well use to
    justify any pushback on market pricing, which has pencilled in 75bps worth of
    easing in 2024. Note, the PMIs will be released one day after the BoE’s
    December announcement.

    This article originally appeared on Newsquawk

This article was written by Newsquawk Analysis at www.forexlive.com.

Go to Forexlive

S&P index is a new 52 week high. NASDAQ closes at its highest level this year 0 (0)

The US jobs report was stronger than expectations. That sent yields higher, but when the Michigan consumer sentiment also showed strength but with sharply lower inflation expectations, stocks rebounded. Although prices traded up and down and today, they are closing higher and in the process the:

  • S&P index traded to a new 52-week high and closed at the highest level since January 2022
  • Nasdaq index closed at a new 2023 high and closed at the highest level since January 2022
  • Dow Industrial Average closed at its highest level since the end of December 2021

The small-cap Russell 2000 rose 12.56 points or 0.67% at 1880.81.

In addition, all the major indices closed higher for the sixth consecutive week. The Dow Industrial Average eked out a 0.01% gain – the smallest of gains but still a gain.

A look at the final numbers shows:

  • Dow Industrial Average rose 130.49 points or 0.36% at 36247.80
  • S&P index rose 18.78 points or 0.41% at 4604.36
  • Nasdaq index closed 63.97 points or 0.45% at 14403.96

The Russell 2000 rose 0.97%

For the trading week:

  • Dow Industrial Average rose 0.01%
  • S&P index rose 0.21%
  • Nasdaq index rose 0.69%

The so-called „Magnificent 7“ mostly outperformed with the exception of Amazon and Alphabet. Alphabet moved lower on the day. Nvidia was the biggest winner with a gain of 1.95%:

  • NVIDIA Corp (NVDA): Price $475.03, Change +$9.07, +1.95%
  • Meta Platforms Inc (META): Price $332.71, Change +$6.12, +1.87%
  • Microsoft Corp (MSFT): Price $374.33, Change +$3.38, +0.91%
  • Apple Inc (AAPL): Price $195.64, Change +$1.47, +0.76%
  • Tesla Inc (TSLA): Price $243.76, Change +$1.12, +0.46%
  • Amazon.com Inc (AMZN): Price $147.35, Change +$0.55, +0.37%
  • Alphabet Inc (GOOGL): Price $134.97, Change -$1.96, -1.43%

For the trading week the Magnificent 7 all moved higher with the exception of Microsoft:

  • Nvidia +1.58%
  • Meta +2.44%
  • Microsoft -0.07%
  • Apple +2.34%
  • Tesla +2.10%
  • Amazon +0.31%
  • Alphabet +2.37%

Looking at the S&P components energy and information technology led the gainers (seven components rose). Consumer Staples, Utilities, and Real estate were the weakest:

  • SPN (Energy): Price $623.21, Change +$6.87, +1.11%
  • S5INFT (Information Technology Sector): Price $3302.75, Change +$29.54, +0.90%
  • S5C0ND (Consumer Discretionary Sector): Price $1369.42, Change +$5.87, +0.43%
  • SPF (S&P 500 Futures): Price $598.80, Change +$2.97, +0.50%
  • S5INDU (Industrial Sector): Price $918.96, Change +$3.03, +0.33%
  • S5MATR (Materials Sector): Price $513.86, Change +$1.70, +0.33%
  • S5HLTH (Health Sector): Price $1535.67, Change +$2.76, +0.18%
  • S5TELS (Telecommunication Services Sector): Price $237.51, Change -$0.37, -0.16%
  • S5REAS (Real Estate Sector): Price $237.00, Change -$0.52, -0.22%
  • S5UTIL (Utilities Sector): Price $319.57, Change -$0.69, -0.22%
  • S5C0NS (Consumer Staples Sector): Price $737.74, Change -$4.86, -0.65%

Next week we will see if the string can extend to seven. The FOMC rate decision will be the biggest influencer. Higher stocks may keep the Fed chair from being too positive about rate policy/inflation into 2024.

This article was written by Greg Michalowski at www.forexlive.com.

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Forexlive Americas FX news wrap: A surprise fall in the US unemployment rate lifts dollar 0 (0)

Markets:

  • Gold down $26 to $2002
  • WTI crude up $1.82 to $71.16
  • US 10-year yields up 10.6 bps to 4.23%
  • S&P 500 up 0.5% to a 52-week high
  • CAD leads, NZD lags

It’s often said that even if you knew the results of the non-farm payrolls report ahead of time, it would be tough to make money. That was the case today as price action was extremely volatile in the aftermath of the report.

EUR/USD dropped to 1.0725 on the headlines, in a 50-pip drop in the direction you would expect due to a surprise drop in unemployment and slightly better headline jobs and wage growth. However that was erased in minutes and it was similar elsewhere. Then the dollar heated up again and made new highs on a few fronts, though not EUR/USD where it fell just short at 1.0731 but that certainly wasn’t it as the same pattern played out again over the following few hours, leaving both sides of the trade searching for answers.

The yen trade was particularly nasty as the first jump in the dollar appeared to attract those looking for exit liquidity and the pair was smashed 140 pips from the highs. A second round of bids emerged in a rally to 144.75 from 143.75 but again was beaten back into the London fix. A third round of bids eventually helped the pair to 145.00 as Treasury yields rose.

Mixed in was a UMich consumer sentiment report. The strong headline wasn’t the real story though as both short and long-term inflation metrics dropped, adding to the disinflation narrative that’s percolating.

US equities were slated to open softer but found bids early and that continued throughout the day as stocks posted a sixth week of gains.

The week ahead will build up to the Fed and ECB rate decisions, along with some important Treasury auctions. Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

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Signs of life from oil but it’s a long road back from seven weeks of selling 0 (0)

Sentiment in oil might finally be so washed out that it’s safe to wade in.

The US announced another 3 million barrels of purchases to refill the SPR today and that’s a modest positive catalyst as the White House is able to refill it at prices below what they paid. I’d argue that’s just more inventory down the line to keep oil below $100 but the oil bulls will take what they can get.

In the latest rout in oil, I wonder how many pair trades were involved with oil and bonds. Crude makes a great inflation hedge and with oil prices declining and bonds rallying, you wonder how many of those trades are being unwound.

Technically, there isn’t much to love here but there is some support in the $66-68 range, which equates to a positive risk-reward if you think OPEC+ can tighten the market in Q1 and US producers finally slow down. I don’t hate that trade but I would rather be late than early.

This article was written by Adam Button at www.forexlive.com.

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Crude oil settles at $71.23. A close below the 200 week MA is avoided. 0 (0)

The price of WTI crude oil futures are settling the week at $71.23. That’s up $1.89 or 2.73%. Monday, Tuesday and Wednesday saw the price tumble from Friday’s close of $74.07 to a low-price reached yesterday (before rebounding) at $68.80. The rebound today retraced some of the declines. However, for the week, the price is still down -2.58%.

Although sharply lower, there is some hope for the buyers. Technically looking at the weekly chart above, the price fell below its 200-week moving average for the first time since early May at $70.31 during yesterday’s fall. Today the price has rebounded back above that long term moving average. Closing back above the MA gives dip buyers some hope. Moreover, it is now a level that traders can once again lean against in trading going forward. As long as the price remains above, there is hope for further upside corrective probing.

Drilling to the hourly chart below, the rise today stalled near its 100-hour moving average. For dip buyers, if the price can get and stay above the 100-day moving average, the hope for more corrective price probing toward $72.63 (swing area), $72.93 (38.2% retracement) and the falling 200-hour moving average (at $73.81) are the next upside targets.

Note: If the price were to close below the 200-week moving average it would have been the first close below that moving average since January 2021. Although the price fell below the 200-week moving average in March and again in May, it could not close below that moving average level

This article was written by Greg Michalowski at www.forexlive.com.

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USDCHF approaching key resistance, traders eye targets on the daily and hourly charts 0 (0)

The USDCHF has moved higher this week. The low was reached on Monday. The high was reached in trading today. At session highs, the price reached the low of a swing area on the daily chart between 0.88167 and 0.8838. In trading next week, if the buyers are to take more control they would need to get above 0.8838 level.

Drilling down to the hourly chart below, the 38.2% retracement of the move down from the end of October high to the December 1 low comes in at 0.8836 just two pips lower than the 0.8838 target on the daily chart. The same resistance target near 0.8838 on both the daily and the hourly chart increases at levels importance, and makes it a key barometer going into the new trading week.

So traders next week will have a choice.

  • Do they go higher above the 0.8838 level and extend toward higher targets including the 100-day moving average?

OR

  • Is the 0.8838 level a resistance target that attracts new dollar sellers and leads to a resumption of the most recent downward trend in the USDCHF?

That is what will be decided next week near the 0.8838 level.

For a detailed look at the charts defining these levels, watch the video above. Be aware. Be prepared.

This article was written by Greg Michalowski at www.forexlive.com.

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A mixed US jobs report to come later? 0 (0)

A strong and decent enough non-farm payrolls print but perhaps a tick higher in the unemployment rate. That seems to be the growing consensus going into the US jobs report later and that would give markets plenty to think about. The former is likely the case after the resolution of the UAW strikes while the latter is a sign of softening in labour market conditions as the economy slows down.

So, what will that tell us if we do see things play out this way?

All else being equal, that should reaffirm that the Fed is done with rate hikes. The wage numbers are also expected to come in at 4.0% year-on-year, the smallest annual growth since the middle of 2021. So, that should rebuff the narrative that we’re navigating towards a soft landing with gradually declining price pressures.

In other words, markets can find reason to cheer on a mixed report with the dollar potentially struggling in the aftermath and risk trades ripping higher once again. Just some food for thought.

Here’s a quick snapshot on the expectations and estimates going into the report today: Preview: November non-farm payrolls by the numbers

This article was written by Justin Low at www.forexlive.com.

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Reasons Forex Traders Fail 0 (0)

Forex trading can be an extremely profitable venture, but it is also true
that a significant percentage of traders fail to achieve consistent success in
this market. Why do forex traders fail? There are several common reasons that
contribute to their lack of success. Let’s explore some of these reasons:

Lack of Proper Education and Knowledge

One of the primary reasons why many forex traders fail is their lack of proper education and knowledge about
the market. Forex trading is not as simple as it may initially seem; it
requires a deep understanding of various factors that influence currency
movements such as economic indicators, political events, and global market
trends. Without a solid foundation of knowledge and education, traders are more
likely to make mistakes that lead to losses.

Poor Risk Management

Another crucial factor contributing to forex trading
failures is poor risk management. Many traders enter trades without adequately
considering the potential risks involved. They may trade with too much
leverage, risking a significant portion of their account on a single trade.
This lack of risk management can quickly lead to substantial losses and
ultimately wipe out their trading capital.

Emotional Decision Making

Emotional decision making often proves to be the downfall of
many forex traders. The volatility of the forex market can evoke strong
emotions such as fear and greed, which can cloud judgment and lead to impulsive
and irrational trading decisions. Emotion-driven trades rarely end well and can
result in significant losses.

Lack of Discipline

Successful forex trading requires discipline and adherence
to a well-defined trading plan. However, many traders fail to develop or stick
to a trading plan. They may deviate from their strategies, chase after quick
profits, or make impulsive trades based on short-term market fluctuations.
Without discipline, it becomes challenging to maintain consistency in trading,
leading to poor results.

Overtrading

Overtrading is another common mistake made by forex traders.
Some traders become addicted to the thrill of trading and feel compelled to be
constantly in the market. This leads to excessive trading, taking trades that
do not meet their criteria, and increasing the risk of losses. Overtrading can
also result from a lack of patience and discipline.

Inability to Adapt to Changing Market Conditions

The forex market is highly dynamic and subject to constant
changes. Traders who fail to adapt to changing market conditions are likely to
struggle. Markets can shift rapidly due to economic news, geopolitical events,
or shifts in investor sentiment. Traders need to adjust their strategies and
approaches accordingly to stay ahead. Those who fail to do so often find
themselves out of sync with the market and unable to generate consistent
profits.

In conclusion, there are several reasons why forex traders
fail, including a lack of proper education, poor risk management, emotional
decision making, a lack of discipline, overtrading, and an inability to adapt
to changing market conditions. To improve their chances of success, traders
must invest in their education, develop effective risk management strategies,
control their emotions, maintain discipline, trade selectively rather than
impulsively, and continuously adapt to market dynamics.

This article was written by FL Contributors at www.forexlive.com.

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Pros and Cons of Trading CFDs 0 (0)

CFDs, or Contracts for Difference, are a type of derivative
financial product that allow traders to speculate on the price movements of
various underlying assets without owning the assets themselves. While CFD trading offers certain advantages, it also presents risks and
drawbacks. In this article, we will explore the pros and cons of trading CFDs.

Pros:

  1. Leverage: One of the primary benefits of CFD trading is the availability of leverage. With leverage,
    traders can control larger positions with a smaller amount of capital.
    This means that potential profits can be magnified, leading to higher
    returns on investment. However, it is important to note that leverage can
    amplify losses as well, so caution must be exercised.
  2. Access to Multiple Markets: CFDs offer access to a range of markets, including
    stocks, indices, commodities, and currencies. This provides traders with a
    wide variety of trading opportunities and the ability to diversify their
    portfolios. Moreover, CFDs allow traders to take both long and short
    positions, enabling them to profit from both rising and falling markets.
  3. Flexibility: CFDs offer flexibility in terms of trading
    strategies. Traders can choose from a variety of order types, such as
    stop-loss and take-profit orders, to manage risk and lock in profits.
    Additionally, CFDs can be traded on margin, allowing traders to hold multiple
    positions simultaneously and potentially increase their overall market
    exposure.
  4. No Ownership Required: Unlike traditional investing, CFD traders do not need
    to own the underlying assets they are trading. This eliminates the need
    for physical delivery or storage of assets, making CFD trading more
    convenient and cost-effective.
  5. Availability of Information: CFD traders have access to an abundance of market
    information and analysis tools. Many trading platforms provide real-time
    data, charts, and technical indicators to help traders make informed
    decisions. This wealth of information can be invaluable in identifying
    trading opportunities and managing risk.

Cons:

  1. Leverage Risks: While leverage can amplify profits, it can also
    magnify losses. If a trade moves against a trader, they may face
    substantial losses that exceed their initial investment. It is crucial to
    use leverage judiciously and employ risk management strategies to protect
    capital.
  2. Counterparty Risk: CFD trades are typically executed through a broker
    who acts as the counterparty to the trade. This means that traders are
    exposed to the credit risk of the broker. In the event of a broker’s
    insolvency, traders may suffer financial losses. To mitigate this risk, it
    is important to select reputable and regulated brokers.
  3. Complexity: CFD trading can be complex, especially for
    inexperienced traders. Understanding the intricacies of margin
    requirements, rollover costs, and contract specifications requires a
    thorough knowledge of the market and trading mechanics. Lack of
    understanding can lead to costly mistakes.
  4. High Volatility: The markets in which CFDs are traded can be highly
    volatile. Rapid price movements can result in significant gains, but they
    can also trigger unexpected losses. Traders must be prepared for market
    volatility and have appropriate risk management strategies in place.
  5. Overtrading Risk: Due to the ease and accessibility of CFD trading,
    there is a risk of overtrading. Overtrading can lead to emotional
    decision-making and impulsive trades, which can be detrimental to
    profitability. Traders should exercise discipline and adhere to well-defined
    trading plans.

In conclusion, CFD trading offers several advantages,
including leverage, access to multiple markets, flexibility, no ownership
requirements, and availability of information. However, it is essential to be
aware of the risks associated with leverage, counterparty risk, complexity,
high volatility, and overtrading. Like any form of trading or investment, CFD
trading requires careful consideration and risk management to maximize
potential gains while minimizing potential losses.

This article was written by FL Contributors at www.forexlive.com.

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