<p class=“MsoNormal“>UPCOMING
EVENTS:</p><p class=“MsoNormal“>Monday: US
NAHB Housing Market Index.</p><p class=“MsoNormal“>Tuesday: PBoC
Rate Decision, BoJ Rate Decision.</p><p class=“MsoNormal“>Friday:
Japan CPI, US PCE.</p><p class=“MsoNormal“>Last week we
got two important events: the US CPI and the FOMC Policy Decision. The <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-cpi-71-yy-vs-73-expected-20221213/“ target=“_blank“ rel=“follow“>CPI
missed expectations</a> and caused some risk-on in the market that
lasted for a very short time as the market started to look forward to the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/“ target=“_blank“ rel=“follow“>FOMC
Policy Decision</a>. In fact, the market was right in being defensive going
into the event. The Fed was more hawkish than expected and this
hawkishness is depicted in three details:</p><p class=“MsoListParagraph“>· Following
the miss in the CPI report, Fed members had the chance to revise the Dot Plot
until Tuesday evening, so that is after the CPI report, BUT they chose not
to do it.</p><p class=“MsoListParagraph“>· The <a target=“_blank“ href=“https://www.forexlive.com/centralbank/fomc-dot-plot-and-central-tendencies-from-dec-2022-meeting-eoy-2023-48-20221214/“ target=“_blank“ rel=“follow“>Dot
Plot</a> showed an overwhelming consensus from the Fed members in hiking rates
to 5% or higher and remaining higher for longer as no cuts are expected
for 2023 and a 4.1% rate is expected in 2024. </p><p class=“MsoListParagraph“>· <a target=“_blank“ href=“https://www.forexlive.com/centralbank/powell-opening-statement-we-have-more-work-to-do-20221214/“ target=“_blank“ rel=“follow“>Fed
Chair Powell sounded resolute</a> in keeping at it and pushed back against
expectations for rate cuts in 2023. </p><p class=“MsoNormal“>This
resulted in risk-off across the board the day after. The thing is that the
Fed cannot be confident in easing their policy until they have a strong view
that inflation is indeed falling back to their 2% target. The key here may be
the labour market as they continue to repeat that it’s extremely tight. They
want to see the unemployment rate to pick up notably. The problem is that
they always underestimate the eventual pain in the labour market as you can see
in the chart below:</p><p class=“MsoCaption“>Chart from TS Lombard</p><p class=“MsoNormal“>So, in the
end, this leads us to expect a deep recession coupled with a possible
overtightening from the Fed. These two things are the very worst for risk
assets and we should therefore see a flight to safety, which in the currencies
space results in USD buying. </p><p class=“MsoNormal“>This week is
all about a continuation from the previous one or a choppy price action as we
head into Christmas Holidays. </p><p class=“MsoNormal“>Monday: We will see
the latest NAHB Housing Market Index report. This index has fallen for 11
straight months and it’s sitting at the 33 level, which is way below the 50
neutral level that divides expansion from contraction. The housing market is
sensitive to interest rates and it’s also a leading indicator for housing
starts. This index is pointing to some really ugly things going forward. It’s
expected to show a little increase to 36 from the 33 level, but since the
fundamentals have not changed and the Fed wants to keep at it, the trend is
still heavily skewed to the downside.</p><p class=“MsoNormal“>Tuesday: The PBoC is expected to hold the rates unchanged
for both the 1Y LPR at 3.65% and the 5Y LPR at 4.30%. There’s a chance though
that the 5Y LPR could be lowered as the current government policy is to support
the economy. That may result in some very short-term risk-on sentiment but
ultimately should be a fade as the whole world is heading into a deep recession
with central banks still tightening. </p><p class=“MsoNormal“>The BoJ is
expected to leave policy unchanged and maintain its dovish stance. There was
also a report over the weekend that “Japan’s government is set to revise a
decade-old joint statement with the Bank of Japan (BoJ) that commits the
central bank to achieve its 2% inflation at the earliest date possible”.
With the revision, Prime Minister Fumio Kishida will aim at making the BOJ’s 2%
inflation target a more flexible goal with room for allowance, Kyodo reported.
The new statement could remove the phrase „at the earliest date
possible,“ or change the language to clarify that the 2% inflation
target is a medium- to long-term goal rather than one that needs to be achieved
quickly, Kyodo said. There’s some speculation in the market that once
Governor Kuroda departs in April next year, the BoJ may start to exit its
ultra-loose policy. </p><p class=“MsoNormal“>Friday: Japan CPI is
expected to remain unchanged at 3.7% for the Y/Y headlinefigure and to
edge up to 2.7% Y/Y from the prior 2.5% for the ex Food and Energy reading. The
BoJ has been pretty much ignoring the rising inflation figures but since we
are near the Fed peak in tightening and the BoJ may exit its ultra-loose policy
as Kuroda departs, the JPY should have bottomed and a “buy on dips” as the
global recession deepens. </p><p class=“MsoNormal“>The US PCE
is expected to show a dip to 5.3% from the prior 6% for the headline Y/Y figure
and a dip to 4.6% from the prior 5% for the Core Y/Y reading. The M/M figures
are expected to show an unchanged reading of 0.3% for the headline reading and
an increase of 0.4% for the Core reading. The PCE shouldn’t be a
market-mover as we already got to see the CPI report and the FOMC repeated its
commitment in keeping at it. </p><p class=“MsoNormal“>Wish you all
a Merry Christmas and a Happy New Year!</p><p class=“MsoNormal“>This article
was written by Giuseppe Dellamotta. </p>

This article was written by ForexLive at www.forexlive.com.

<ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/us-sp-global-services-pmi-444-vs-468-expected-20221216/“>US S&P Global services PMI 44.4 vs 46.8 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/feds-williams-were-well-on-the-way-to-where-we-need-to-be-20221216/“>Fed’s Williams: We’re well on the way to where we need to be</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/feds-mester-recent-inflation-data-is-welcome-news-20221216/“>Fed’s Mester: Recent inflation data is welcome news</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/feds-daly-we-are-resolute-and-focused-on-bringing-inflation-down-20221216/“>Fed’s Daly: We are resolute and focused on bringing inflation down</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/more-from-feds-daly-i-dont-know-why-markets-are-so-optimistic-on-inflation-20221216/“>More from Fed’s Daly: I don’t know why markets are so optimistic on inflation</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/baker-hughes-oil-rig-count-5-to-620-20221216/“>Baker Hughes oil rig count -5 to 620</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/italys-central-bank-forecasts-73-inflation-in-2023-20221216/“>Italy’s central bank forecasts 7.3% inflation in 2023</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/canada-november-new-housing-price-index-02-vs-02-prior-20221216/“>Canada November new housing price index -0.2% vs -0.2% prior</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/canada-oct-wholesale-trade-21-vs-13-expected-20221216/“>Canada Oct wholesale trade +2.1% vs +1.3% expected</a></li></ul><p>Markets:</p><ul><li>Gold up $16 to $1793</li><li>US 10-year yields up 3.6 bps to 3.48%</li><li>WTI crude oil down $1.80 to $74.31</li><li>S&P 500 down 43 points to 3852 (-1.1%)</li><li>JPY leads, CHF lags</li></ul><p>The market continued to digest the Fed and ECB stance on Friday and the message is a souring of the mood, leading to selling of equities and the euro on slowing growth prospects. </p><p>USD/JPY fell as the bond market stridently expresses the view that the Fed won’t hike as high as it’s promising, with the terminal rate in Fed fund futures at 4.84% and US 2s lower than at the start of the week. USD/JPY fell after the S&P Global US PMI showed an economy slowing rapidly. It sank as low as 136.30 then bounced to 136.67 to wrap up the week. That move reversed all of yesterday’s rally in US trading.</p><p>Cable continued to struggle, falling a quarter cent on the day even as the US dollar felt some pressure elsewhere. There was some good news with energy prices falling on better weather forecasts but it didn’t translate.</p><p>Putting all the pieces together today was challenging with quad witching in stocks and year-end fast approaching. Next week will be all about flows but we did get a taste today of Fed messaging and officials pushed the idea of higher rates but not with the enthusiasm of Powell.</p><p>Oil may be exemplifying the intensifying fears on the global economy as it fell as much as $4 from high to low today. There was a surprise reprieve as the US announced purchases for the SPR starting in Feb. The 3 million barrels is a small amount but it would signal some support for crude.</p>

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

<p>What a fakeout in stocks this week. The bulls were feeling great after the soft CPI and hopeful that Powell would tip the nod towards easier policy. Instead, he leaned in hard to hikes and that was followed by an even-more hawkish lean from Lagarde.</p><p>Now the bond market is signaling an unnecessary recession and US stocks posted an ugly outside day on the chart.</p><p>On the day:</p><ul><li>SPX -1.1%</li><li>Nasdaq Comp -1.0%</li><li>Russell 2000 -0.7%</li><li>DJIA -0.9%</li></ul><p>On the week</p><ul><li></li><li>SPX -2.1%</li><li>Nasdaq Comp -2.8%</li><li>Russell 2000 -1.9%</li></ul><p>There isn’t much to like on the S&P 500 weekly chart after this week’s outside reversal:</p>

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

<p>In the past year we’ve seen the implosions of:</p><ul><li>NFTs</li><li>Meme stocks</li><li>Crypto</li><li>Tech stocks</li></ul><p>With that, you would think retail traders would sober up. Instead, they’ve switched from hard liquor to crack cocaine in the of ultra-short-dated equity options. Here’s a chart from Goldman Sachs showing that 44% of SPX volume in the third and fourth quarter (so far) has been in options with less than 24 hours to expiration.</p><p>Today is quad witching so it makes me skeptical of price action but there’s also a bigger picture story here and it ends badly.</p><p>Whatever happened to investing?</p>

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

<ul><li>Seeing tentative signs that inflation rises are stabilizing; not calling a peak </li><li>Expects Fed to hike by more than its median forecast</li><li>It will take time for inflation to ebb</li></ul><p>Mester spoke on Bloomberg TV. </p><p>The Fed is going to spend the next month pushing back against the bond market. We’ll see who wins but the bond market is showing a lot of confidence so far.</p>

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

<p>It was a busy week and one of the things I missed was a <a target=“_blank“ href=“https://t.co/die4859YAs“ target=“_blank“ rel=“nofollow“>report </a>from the Philadelphia Fed’s research department that questioned non-farm payrolls numbers.</p><p>The report focuses on the March-June period and compares the comprehensive quarterly data against the usual monthly release. It’s not a small change:</p><blockquote>In the aggregate, 10,500 net new jobs were added during the period rather than the 1,121,500 jobs estimated by the sum of the states; the U.S. CES [non-farm payrolls report] estimated net growth of 1,047,000 jobs for the period. </blockquote><p>Said another way, non-farm payrolls were nearly nil from March-June.</p><p>Now some of those jobs appear to have been pushed to earlier periods so it’s not as bad as it seems but if the Fed is concerned with trajectory, then there might be more slowing than the monthly jobs reports have indicated.</p>

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

<ul><li>Will keep liquidity reasonably ample</li><li style=““ class=“text-align-justify“>To better coordinate epidemic prevention and control, social and economic development</li><li style=““ class=“text-align-justify“>Will step up macro economic adjustments, strengthen policy coordination</li><li style=““ class=“text-align-justify“>Will expand domestic demand, prioritise consumption recovery</li></ul><p>This of course comes after the two-day Central Economic Work Conference, with the state media citing remarks from China president Xi Jinping. These are all very on the surface as you would expect and they don’t show much deviation in terms of policy strategy from China. The headline is an interesting one though as it omits the phrase ‚prudent‘ and instead now puts emphasis on monetary policy being ‚precise‘ and ‚forceful‘. Let’s see if future remarks will adopt a similar wording.</p>

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

<p>Fun fact! What is the plural form of an index?</p><p><a target=“_blank“ href=“https://xpoken.com/“ target=“_blank“ rel=“follow“>Indices or indexes</a>? </p><p>It is both acceptable. But, the word „<a target=“_blank“ href=“https://xpoken.com/signup“ target=“_blank“ rel=“follow“>indices</a>“
has historically been used more frequently. Even if the use of the Americanized
plural „indexes“ has grown over time, it still seems far less common
than „indices“ around the world. Yet, according to Google Trends,
„indices“ is the most popular search word worldwide.</p><p>Now let’s discuss what a stock index or equity index is</p><p>Equities are grouped and priced to a base value at a particular
date to create equity indexes, which are an aggregate of statistical
importance. An equity index is a collection of securities that have been put
together to provide insight into price growth or total return over a given time
frame.</p><p>A fund applies the exact weighting mechanism on its stocks
because index funds are designed to follow a particular index.</p><p>The majority of the significant market indices are weighted by
market capitalization. Many fund companies have begun offering alternative
weighted index funds in recent years. But a price-weighted index was the
catalyst for everything.</p><p>Four Methodologies and their Pros & Cons</p><p>Stock indices or Equity Indices have Four Approaches.</p><p>The most popular methodology, known as the „market
value“ or „capitalization-weighted“ index (MWI), is based
on the size of each company. These refer to the terms large, mid, and small-cap
stocks. It is the standard way of determining a company’s size. </p><p>Most leading indices, including the S&P 500, uses the market
cap weighting method.</p><p>Pros</p><p>They ought to be more fully represented when evaluating the
market’s performance. That is accurate.</p><p>Cons</p><p>As a method of investing, it is absurd. An investor would
purchase more of a stock as its price increases and sell the stock as its price
decreases, according to a market-cap-weighted index. </p><p>Price Weighted Index</p><p>It’s the oldest and least used index approach, based on the
price average of the underlying stock. A stock with a higher price is given more
weight in the index. </p><p>Pros</p><p>The simplicity of calculation is the only benefit.</p><p>Cons</p><p>The main criticism of a price-weighted approach is that it
focuses too much on share price regardless of underlying factors. Additionally,
the cost indicates what a buyer is willing to pay. It makes no mention of the
index’s stocks‘ overall performance. It is seldom used because of this.</p><p>Equal Weighted Index</p><p>This is the first of two alternate weightings employed in
smart-beta funds. Because each stock is equally important regardless of its
fundamentals, market capitalization, or price, said, each stock in the index is
weighted equally. In exchange, each stock equally influences the index’s
performance.</p><p>Pros</p><p>It reduces the focus on market capitalization. Therefore, the index
fund is not compelled to sell more undervalued companies and buy more
overvalued equities. Equal-weighted index funds reduce it somewhat, but only
partially. Due to the identical weighting of each stock, it just tends to be
more unpredictable.</p><p>Cons</p><p>High turnover is a result of price adjustments. In maintaining
an equal balance, shares are continuously acquired and traded. This increases
the fund’s expense ratio and may also increase your tax liabilities.</p><p>Fundamentally-Weighted Index</p><p>A fundamentally weighted index emphasizes one or more variables,
such as sales, book value, dividends, cash flow, or earnings. Stocks that fit
those criteria are given more weight in the index.</p><p>Pros</p><p>The emphasis on performance factors is its advantage. This
eliminates the equal weighing and backward approach randomness that a market
cap weighting provides. </p><p>Cons</p><p>Higher costs become a concern in this index. But, more
importantly, any fundamentally weighted index fund needs enough investors to
use the exact strategy. </p><p>RUN-THROUGH</p><p>You can anticipate that other fund families will join if
equal-weighted or alternative-weighted funds become increasingly popular. The
potential may create some excellent opportunities for sector-specific funds.
You can find a different weighting system that matches your investment
philosophy with more research.</p>

This article was written by ForexLive at www.forexlive.com.

<p class=“MsoNormal“>We finally got past the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/“ target=“_blank“ rel=“follow“>FOMC
Policy Decision</a> and saw some weakness in the market creeping in
afterwards. The overall event was more hawkish than expected on two fronts. The
<a target=“_blank“ href=“https://www.forexlive.com/centralbank/fomc-dot-plot-and-central-tendencies-from-dec-2022-meeting-eoy-2023-48-20221214/“ target=“_blank“ rel=“follow“>Dot
Plot</a>, showing the peak rate, was revised to 5.1%, which is a bit higher than
the market expectations at the time of the event but more or less in line with
peak rate expectations in the past weeks/months. </p><p class=“MsoNormal“>The more hawkish stuff here is
that the majority of members saw rates peak at or above the 5% level, which
shows an unanimity among members, and the rate is expected to be cut to 4.1% in
2024, which is higher than previously indicated and shows a willing to stay
“higher for longer”. </p><p class=“MsoNormal“>The second more hawkish part came
from the <a target=“_blank“ href=“https://www.forexlive.com/centralbank/powell-opening-statement-we-have-more-work-to-do-20221214/“ target=“_blank“ rel=“follow“>Fed
Chair Powell press conference</a> where he pushed back against
bets that the Fed would reverse course next year and that they will “stay the
course until the job is done” to avoid the mistakes of the 1970s when the Fed
prematurely eased monetary policy and had to fight with repeated inflationary waves.
</p><p class=“MsoNormal“>The Fed also keeps on repeating
that the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-non-farm-payrolls-263k-vs-200k-expected-20221202/“ target=“_blank“ rel=“follow“>labour
market</a> is extremely tight. They probably won’t have conviction in lowering
interest rates until they see unemployment to pick up. Even though inflation
data may continue on showing relief, the Fed clearly wants to see the labour
market to show weakness as well. </p><p class=“MsoNormal“>To achieve this, they need a
proper recession and that’s what the bond market may be seeing. For the stock
market, on the other hand, it’s not good news as a possible overtightening from
the Fed and a serious recession are two of the worst scenarios. </p><p class=“MsoNormal“>DOW JONES Technical Analysis</p><p class=“MsoCaption“>Recent two weeks of price action and catalysts on the Dow
Jones on tradingview.com</p><p class=“MsoNormal“>On the technical side as you can
see in the chart above, the price has been chopping around for the last 2 weeks
as tier one economic data increased the fear of a possible surprise in the <a target=“_blank“ href=“https://www.forexlive.com/news/us-november-cpi-71-yy-vs-73-expected-20221213/“ target=“_blank“ rel=“follow“>CPI
report</a>, which in the end missed expectations. The market erred anyway on the
defensive side going into the FOMC meeting and got served a more hawkish than expected
event. The price now is compressed between an upward trendline and a strong
resistance.</p><p class=“MsoNormal“>Looking at the daily chart below
we can see that the 35192-35412 blue zone is a pretty strong resistance. The
price couldn’t break that area and got immediately rejected after the spike
from the CPI report. We can also see that there’s a <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-divergence-20220429/“ target=“_blank“ rel=“follow“>bearish
divergence</a> between the price and the <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-understanding-relative-strength-index-rsi-20220426/“ target=“_blank“ rel=“follow“>RSI</a>. This signals a weakening
momentum right at the resistance, which points more to the downside than the
upside. Will this FOMC event mark the top in the Dow Jones? </p><p class=“MsoCaption“>Daily chart of the Dow Jones on tradingview.com</p><p class=“MsoNormal“>We will see. As of now, the
levels to watch are the blue zone <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-support-and-resistance-20220405/“ target=“_blank“ rel=“follow“>resistance</a> and the blue upward <a target=“_blank“ href=“https://www.forexlive.com/Education/technical-analysis-trendlines-20220406/“ target=“_blank“ rel=“follow“>trendline</a>. If the price breaks up, we may
see the Dow Jones climb to the all-time-high at the 36832 level. If the price
breaks down, we should see the price reaching the first target at 31761 and a
further break below may lead to the low at 28660.</p>

This article was written by ForexLive at www.forexlive.com.

<ul><li style=““ class=“text-align-justify“><a target=“_blank“ href=“https://www.forexlive.com/centralbank/boe-raises-bank-rate-by-75-bps-to-300-as-expected-20221103/“ target=“_blank“ rel=“follow“>Prior</a> 3.00%</li><li style=““ class=“text-align-justify“>Bank rate vote 7-2 vs 9-0 expected (Tenreyro, Dhingra voted to keep rates unchanged at 3%, Mann voted to raise rates by 75 bps instead)</li><li style=““ class=“text-align-justify“>Further increases in bank rate may be required</li><li style=““ class=“text-align-justify“>Q4 GDP seen at -0.1% q/q (previously -0.3% in November)</li><li style=““ class=“text-align-justify“>Statement details to follow..</li></ul>

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