Olivia

Asia is commencing the final full trading week of 2023 on Monday. The surge in risk appetite, fueled by the U.S. Federal Reserve’s recent stance, has paused as S&P bulls are likely catching their breath at the open. Despite some pushback from Fed officials, interest rate futures markets are still currently pricing 150 basis points of rate cuts from the Federal Reserve next year. So, the recent decline in bond yields and the dollar is expected to underpin risk assets throughout the week. Asia’s two major central banks appear to be moving in different directions, contributing to market uncertainty. The Bank of Japan (BOJ) is contemplating raising rates, while the People’s Bank of China (PBOC) seems inclined towards easing policy to combat deflation and support sluggish growth. The lack of clarity on both policy fronts is causing some discord in Asian markets today.

Gold price is finding its feet near $2,020 amid a risk-off mood early Monday. US Dollar holds its recovery, as the US Treasury bond yields remain sluggish.   A bullish daily technical setup continues to favor Gold price upside. Gold price is holding its calm near $2,020 in the Asian session on Monday, following a sharp pullback that ended a volatile week on Friday. Progressing toward the pre-Christmas lull, Gold price awaits the key US inflation report due later this week for repricing of the US Federal Reserve (Fed) interest rate cut expectations for next year. Gold price calms down, as focus shifts to US PCE inflation this week Ahead of Friday’s US PCE Price Index inflation data, the Bank of Japan’s (BoJ) monetary policy decision will hold the key for fresh trading impetus in the US Treasury bond yields and the US Dollar, eventually impacting Gold price. Markets are widely expecting the BoJ to move away from its negative interest rate policy (NIRP) and a hint confirming the same is expected from the Japanese central bank when it concludes its two-day monetary policy review on Tuesday. Any surprise in the BoJ’s policy announcements is likely to spike up volatility around… Read More »Gold Price Forecast: XAU/USD buyers stay hopeful whilst above the $2,016 support

Markets The bears might still have a case, and one must acknowledge the known and unknown uncertainties until the year’s end. However, as of mid-December, the prospects for those betting against a Santa Rally appeared less promising. It’s worth noting that U.S. equities surged for a seventh consecutive week, propelled by a dovish stance from the Federal Reserve. Even though John Williams expressed some resistance, it seemed the market had largely tuned out dissenting voices by that point. The equity rally played a crucial role in alleviating tight financial conditions, complemented by a substantial decline in bond yields since October and a pronounced weakening of the dollar. As the S&P approaches record levels, market participants appear undaunted. The prevailing sentiment seems to be that there is no compelling reason to fade this rally until concrete evidence surfaces indicating significant economic or inflation headwinds. While PMI data released on Friday provided some indications that the recent easing in financial conditions( FCI) may have started seeping into the U.S. services sector, conclusive evidence that FCI easing is jeopardizing the “last mile” of the inflation fight may take months to emerge. And with bulls on a stampede, the Fed might not realize it… Read More »Asia open insights: What’s not to like?

As the week leading up to Christmas unfolds, market participants will likely show limited interest and engagement with economic releases and market events due to the proximity to the holiday season. However, the Bank of Japan (BoJ) remains a key focus. Earlier in the month, comments from Kazuo Ueda and a speech by Deputy Governor Ryozo Himino sparked speculation that the BoJ might be contemplating an exit from negative interest rates. The term “imminent” is used cautiously, as the timing of any potential policy changes remains uncertain. Since taking over from Haruhiko Kuroda, Ueda has adjusted the parameters of the BoJ’s yield-curve control program twice, with the most recent tweak in October as an acknowledgment that the existing framework may be outdated. Despite discussions around the possible exit from negative rates, a rate hike at the upcoming BoJ meeting is considered more of a tail risk than a highly probable outcome. Reports suggest that the central bank does not perceive an urgent need for significant policy changes before the end of 2023. This week will bring a wealth of housing data in the United States. The schedule starts with builder sentiment on Monday, housing starts and permits on Tuesday, existing home sales… Read More »Twas the week before christmas: Navigating markets and festive sentiments

It’s here. The FINAL full week of the trading year! While liquidity will begin to thin as we close in on the festive holiday, a number of tier-1 data are in the headlights this week. Tuesday Tuesday entertains the minutes from the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) Policy Rate announcement, followed by CPI inflation numbers out of Canada. 12:30 am GMT welcomes the RBA minutes; this will provide traders and investors with an in-depth review of the central bank’s latest rate decision. You may recall that the RBA held the Cash Rate at 4.35%, as expected, which followed a 25bp hike in October. Notes from the latest rate announcement saw the policy statement echo the data-dependent tone. The no-change follows inflation cooling to 4.9% on a year-on-year basis for October, according to the monthly CPI indicator, and Aussie unemployment jumping to 3.9%. The next quarterly inflation number due on 31 January next year will be an important watch, just ahead of the next central bank meeting on 6 February. According to rate pricing, markets are currently pricing in another no-change for this meeting. At 3:00 am GMT, the BoJ policy announcement is scheduled to… Read More »Week ahead: What are the markets watching this week?

Repricing continued in the rates markets this week as central bankers did little to talk rates back up. The market is currently pricing in the US short-term rates to fall below 4% by end of next year. In euro area, short-term rates are priced to approach the 2% mark late next year. Optimism about rate cuts arriving sooner rather than later has driven long-term rates lower and equities higher. The US 10y yield has fallen by more than 100bps from late October to below 4% and the S&P500 index is closing in on the all-time high levels. We agree that rate cuts loom in the horizon but consider market expectations on the pace too optimistic. We also highlight that recent easing in financial conditions poses an upside risk to inflation next year. In this week’s meeting, the FOMC cut down its median forecast for core PCE in 2024 while also revising down the dots (now showing a total of 75bps cuts). After the meeting, we were happy to see our long-held call for the first Fed rate cut in March has now become market consensus. Yet, thereafter, we think the market is too aggressive in pricing the pace for cuts.  For the euro… Read More »Weekly focus: Central bankers boost Christmas spirit

The European Central Bank (ECB) and the Bank of England (BoE) refused to join the Federal Reserve (Fed)-thrown pivot party. Both Christine Lagarde and Andrew Bailey declined to discuss cutting interest rates judging a policy loosening too early as the inflation threat looms. BoE’s Bailey pointed at the possibility of another rate hike, as three MPC members favoured hiking rates, while the ECB announced to accelerate EXIT from the PEPP stimulus, and the Norges Bank popped up with a surprise rate hike.  As a result, the rally in global stock and bond markets slowed. The S&P500 hit a fresh nearly 2-year high but closed nearly flat, the Stoxx 600 – I guess didn’t hear the news yet so it just – kept rallying. The US 10-year yield rebounded after tipping a toe below the 3.90% level. Note that there is growing speculation that the 10-year yield will fall to 3%, but I think that’s overstretched, and the dollar index had a rough day, because the hawkish European central banks further plummeted appetite for the greenback.   The USDNOK fell sharply to the lowest level since summer and the EURUSD shortly flirted with the 1.10 level, as yesterday’s ECB announcement threw… Read More »Something doesn’t feel right

What a week it’s been. Central bank anticipation first. Then, evidence of a holiday party at the Fed. Followed by failed attempts from Frankfurt and London to poop that party. But there’s no stopping this one. Everything is getting bought in a one-way market. We know we can’t simply extrapolate the last few days endlessly. But leaving the party early is tough. Central banks are acting to diverge rates, but direction is one way and bullied by the US Two things we can say about current price action. First, it is clearly being directed from the US. The change of tone from Chair Powell after the FOMC was as dramatic as it could be against a backdrop where, in fact, a whole lot hasn’t actually changed. Rate cuts in 2024 are, therefore, a go. At least there is no clear objection from the Fed. The question is when and by how much. We’ve been at 150bp of cuts in 2024 for some time, so no change here. We’ve noted before that the bond markets love cycle turns towards cuts, and we’re getting a strong flavour of that. Second, the ECB and the Bank of England are adopting a more traditionally… Read More »Rates spark: Already overshooting to the downside

After getting off to a strong start yesterday, with both the DAX and CAC 40 trading up at new record highs, European markets lost momentum after firstly the Bank of England, and then the European Central Bank decided to play the Grinch in contrast to the Fed’s Santa and push back on following a similar rate cut outlook, with the DAX finishing the session lower. While yields in the US managed to finish close to their lows of the day, German yields closed well above their daily lows, helping to pull the euro up towards the 1.1000 level against the US dollar. The contrast between the ECB’s tone and the Fed’s tone could not have been starker, and yet when you look at the numbers the divergence becomes even more bizarre. Here we have a situation with the Fed announcing a dovish pivot with Q3 GDP growth of 5% and headline CPI of 3.1%, while the ECB has maintained its hawkish stance when its 2 largest economies are showing a contraction in Q3, and its headline inflation rate is lower. If anything, the policy stances should be in reverse, especially given the ECB says it is data dependent, which would… Read More »Fed euphoria starts to fade as we head into the weekend

EUR/USD stabilized at around 1.1000 following a two-day rally. Near-term technical outlook highlights overbought conditions for the pair. ECB-Fed policy divergence is likely to continue to support EUR/USD. Following Wednesday’s upsurge, EUR/USD gained more than 1% and touched its highest level since late November above 1.1000. Although the pair’s near-term technical outlook suggests that there could be a downward correction, investors could refrain from betting against a steady rebound in the US Dollar (USD) after the dovish Federal Reserve (Fed) surprise. The European Central Bank (ECB) left key rates unchanged following the December meeting as anticipated. Although the ECB revised inflation projections lower, it reiterated that future decisions will ensure that policy rates will be set at sufficiently restrictive levels for “as long as necessary.” In the post-meeting press conference, ECB President Christine Lagarde said that they did not discuss rate cuts at the meeting and added that it wasn’t time to lower their guard since they had more work to be done. Lagarde’s hawkish tone provided a boost to the Euro, allowing EUR/USD to gather bullish momentum.