Olivia

Outlook: The new data in the US today is GDP, the Chicago Fed and the usual initial jobless claims. Tomorrow it’s core PCE, personal consumption and spending, and the Conference Board leading indicators.   Normally this array of fresh info would be interesting and market-moving, but the markets are only thinly populated these days and may brush off everything out of fear of no exit. GDP in particular is boring–it’s the final for Q3 and likely to be the same 2.9%.   The important information is likely that the consumer believes inflation is coming down. Reuters reports “Market-based inflation expectations show that on a five-year horizon, investors see inflation back at around 2.3%, whereas back in the summer, that rate was closer to 3.5%.” Further, the final reading of the core PCE index “is expected to show price pressures accelerated at a rate of 4.6% in the third quarter, in line with a second reading from late November. Sure, it's down from the 4.7% in Q2 and it's the third and final reading of what happened months ago now. But at 4.6%, it's still more than twice the central bank's 2% target…”   But never mind. Consumers almost never get… Read More »The consumer believes inflation is coming down, but is this really true?

Dollar Index can trade within 103-105 while Euro can remain within 1.05-1.07 region for the near term. EURJPY and USDJPY have bounced a bit and can test 142 and 136 respectively while Aussie and Pound may rise while above 0.66 and 1.20. USDCNY looks ranged within the broad 6.94-7.00 while USDRUB has bounced a bit and may re-attempt to test 72-74 while above 66/64. USDINR has scope to test 83 before falling from there. Watch price action near the upper end of the 82.50/60-82.80/83.00 range. EURINR looks ranged within 87-88.25 The US Treasury yields have risen back across tenors thereby keeping our bullish view intact to see more rise from here. The US PCE data release today will need a close watch to see its impact on the yields. The German yields continue to move up in line with our expectation. The yields have room to move up further from here. The 10Yr and 5Yr GoI have risen back but need to see if they can get a strong follow-through rise and move up further and avoid a fall. Dow is likely to trade within 32500-33500 region for some time. DAX has declined sharply giving back all the gains made… Read More »Morning Briefing: EUR/USD can remain within 1.05-1.07 region for the near term

Equity markets suffered a bruising year, crushed under the boot of rising interest rates and fading government spending. This weakness could extend into next year, as US valuations remain expensive by historical standards and leading economic indicators suggest a recession is a real possibility, spelling downside risks for corporate earnings. The good news is that every crisis passes, and any serious selloff might simply offer long-term investors more attractive entry points. 

A pre-Christmas rally finally seems to be in progress, as shrinking volumes and an emptying calendar give stocks the space to move higher. Stocks at last make headway “A marginally more festive atmosphere prevails across stock markets this afternoon, with Christmas now very much within sight for most investors. This Santa rally has been long-expected, and eagerly-awaited, but kept being delayed by central banks, inflation data and other road bumps that have prevented any meaningful bounce developing for most of the month so far. Perhaps, with so little on the agenda before Christmas Day, markets finally have scope for a decent rally to round off such a difficult year.” Oil prices push up following inventory data “Oil has had a good day too, with the rebound from oversold levels gaining strength following the drop in inventory data. A year of two halves has seen oil rally and then drop back, and with no sign of any cut in output from OPEC and a recession still likely next year we could well see further drops in price. Consumers will welcome this at least, since it provides a much-needed respite from the surge in fuel prices that dominated the first half of… Read More »Investors finally hear the jingling of sleigh bells

US stocks are rallying after consumer confidence bounces back and on strong earnings by Nike and FedEx. The news was too good today and that has made the many Grinches on Wall Street tentatively throw in the towel. Return of Confidence Today’s consumer confidence reading is a head scratcher for people expecting the economy to quickly fall into a recession.  The Conference Board’s confidence reading surged to 108.3, crushing the consensus estimate of 101.0, and hitting the highest level in 8 months.  Both the present situation and expectations readings improved significantly along with upward revisions to the prior month.  The CB’s Senior Director of Economic Indicators Franco noted, “Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus.”  Consumer spending trends are expected to shift to services as big-ticket items cool further.  The economy is still headed towards a recession, but the consumer continues to show signs of resilience which could delay a significant tumble for equities.  ​ Home Sales The data continues to deteriorate in the housing market.  Existing home sales declined more than expected as surging borrowing costs and weaker consumer hold off home purchases.  Fedex Fedex… Read More »Stocks embrace confidence data and earnings, Oil rallies, Gold wavers, Cryptos edge lower

A surprise move by the Bank of Japan yesterday triggered a rise in bond yields and strengthened a move lower in the US dollar. US dollar index monthly chart courtesy of StockCharts.com annotations by Mish Yesterday, the Bank of Japan unexpectedly lifted its ceiling on 10-year government bonds from 0.25 percent to 0.50 percent.  Japan 10-year bond yield courtesy of Trading Economics The BOJ lifted the ceiling to stop an unwelcome slide in the yen.  In response, bond yields also jumped in the US. US Treasury Note 10-Year Yield  US 10-year bond yield courtesy of Trading Economics For the first time in a decade, all major central banks are tightening, with Japan still doing the least.  Long term, I doubt this rather pissy move by the Bank of Japan will do much of anything to US treasury yields.  And don’t expect the new cap to hold either. Speculators will again force the BOJ’s hand. Caps won’t work. They are a failed policy.  The same applies to ridiculous Buyers’ Cartel Oil Price Caps.  But what about the dollar? US Dollar Support Levels  On the monthly chart, there are strong support levels way below at 90 and 80.  A weekly chart shows additional support zones. … Read More »The top in the US Dollar is in, where to from here?

The Bank of Japan made a surprise move on Tuesday morning, extending the permissible yield range of 10-year government bonds. The decision caused the yen to strengthen by more than 3%, and the Nikkei225 index lost as much as 4% before recovering almost half of its initial decline. The central bank of Japan said at the end of its regular meeting that it would switch from a 0.25% yield target to a 0.0-0.50% target range instead. As yields had been held at 0.25% solely due to BoJ purchases, the range extension immediately sent yields to the upper end of the range. This decision meant that the BoJ would print fewer yen to buy government bonds for the FX market, strengthening the currency. Strictly speaking, the Bank of Japan has made monetary policy less accommodating. However, the difference with key rates of other countries remains disastrous, as it is the only one keeping rates negative with an active QE phase. On the other hand, the signal from the softer central bank itself is definite and could be a trial balloon for a fundamental policy reversal. Bank of Japan meetings are no longer boring. We also pay attention to the timing of… Read More »Bank of Japan surprise: Another sign of a global dollar reversal

USD/JPY slumps to over a four-month low in reaction to the BoJ’s unexpected hawkish twist. The BoJ shocks markets by adjusting the YCC program and provides a strong lift to the JPY. The Fed’s hawkish outlook, rising US bond yields underpins the USD and could lend support. The USD/JPY pair came under heavy selling pressure during the Asian session on Tuesday and dived to over a four-month low after the Bank of Japan (BoJ) announced its policy decision. In an unexpected hawkish twist, the Japanese central bank widened the allowable trading band for the 10-year government bond yield to 50 bps on either side of the 0% target from the 25 bps previous. The move is seen as a step towards the policy normalisation process. The BoJ, however, maintains its guidance to ramp up stimulus as needed and projects that interest rates will move at current or lower levels. Nevertheless, the surprise announcement, along with the prevalent risk-off environment, boosts the Japanese Yen. The market sentiment remains fragile amid worries that a surge in COVID-19 infections in China could delay a broader reopening in the country. To a more significant extent, this overshadows the recent optimism led by the easing… Read More »USD/JPY Outlook: BoJ-inspired slump marks a fresh bearish breakdown below 200-day SMA

Outlook: This week in the US it’s mostly housing data, consumer confidence and a biggie, personal income and spending on Friday–but Friday is the day before Christmas and almost certainly a short day in Europe and the US. Elsewhere the new include inflation and BoJ meeting in Japan. The IFO and Gfk indices in Germany, and a ton of data from Canada, including CPI and retail sales.   Canada will see a run of important releases headlined by consumer prices on Wednesday, where favorable results are the expectations, preceded by what is expected to be a strong rebound for retail sales on Tuesday and no change for monthly GDP on Friday. Two things count the most: the policy response to the Covid surge in China and US inflation. We have a boatload of opinion pieces on the Chine Covid surge situation. We take the view that China knew it would get a surge of cases and deaths of about a million, as described above, and lifted restrictions anyway. This decision was not to show the protesters what the government was protecting them from, but rather an economic decision. Harsh quarantines and city lockdowns were costing too much economically and lifting… Read More »Two things count the most: The policy response to the Covid surge in China and US inflation

The central bank torch will pass to the Bank of Japan next week. Even though the consensus is for no policy changes, the prospects for the yen have started to improve heading into a potentially stormy year. There’s also a heavy dose of data releases from Canada and the United States.