Olivia

A flurry of central bank meetings in Central and Eastern Europe next week mark the last major events before the festive season gets underway. Hungary: Central bank unlikely to deliver changes to 'whatever it takes' stance The National Bank of Hungary (NBH) has made it clear on several occasions that the temporary and targeted measures, introduced in mid-October, will remain in place until there is a material and permanent improvement in the general risk sentiment. Although we’ve seen some progress here, we don't think enough has changed to trigger an adjustment in the monetary policy’s hawkish “whatever it takes” setup. See our preview here. Regarding the current account balance, we expect a significant deterioration compared to the second quarter. We see the deficit widening on energy items, considering the country’s energy dependency combined with significantly higher prices paid in hard currency. Czech Republic: Last CNB meeting of the year to confirm a dovish majority The Czech National Bank (CNB) will hold its last meeting of the year on Wednesday. We expect it to be a non-event, with rates and FX regimes unchanged. The new forecast will not be released until February, so it is hard to look for anything interesting at this meeting. Board members have been… Read More »Key events in developed markets and EMEA next week

EUR/USD retreated sharply from a six-month high touched after the ECB decision on Thursday. The risk-off impulse prompted short-covering around the safe-haven USD and exerted pressure. The pullback lacks any follow-through selling amid a more hawkish stance adopted by the ECB. Traders now look to the release of flash PMIs from the Eurozone and the US for a fresh impetus. The EUR/USD pair witnessed good two-way price swings on Thursday and finally settled near the lower end of its daily range, retreating nearly 150 pips from a six-month top. The shared currency strengthened across the board after the European Central Bank (ECB) delivered a widely anticipated 50 bps rate hike, taking its key rates to the highest level since 2008. In the accompanying policy statement, the ECB struck a hawkish tone and indicated that it will need to raise borrowing costs significantly further to tame inflation. The central bank noted that inflation remains far too high and is projected to stay above the target for too long. Based on new economic projections, inflation is expected to reach 8.4% in 2022, then ease to 6.3% in 2023, 3.4% in 2024, and 2.3% in 2025. Core inflation, excluding energy and food, is… Read More »EUR/USD Outlook: Hawkish ECB favours bulls, flash Eurozone/US PMIs eyed for fresh impetus

Risk assets are looking heavy as the week gets set to close out. The primary catalyst comes from this week’s Fed decision which leaned more hawkish on the revelation the central bank expects the terminal rate to rise above 5%.

Outlook: The calendar today has retail sales, the usual jobless claims, two regional Fed surveys (NY and Philly), plus industrial production and business inventories. Analysts will parse the jobless claims but the real winner will be retail sales. So far the consumer is spending nearly as usual, if not a little more. At what point does that show a retreat? Again, if Chinese factory output (and port and shipping capability) falters, the American consumer faces shortages and higher prices next year–but will that inspire restraint? The cat laughed.   The dollar got sold off again on the Fed story, evidence that once again the markets and the Fed are not marching to the same drummer. The Fed said higher for longer and the CME FedWatcher tool showed a drop in the expected rates for next year, especially May, which shed 10 points. The yield curve steepened even as the Fed was forecasting positive growth all next year–only 0.5%, less than before, but not a recession. And yet all the big cheeses at the big banks foresee recession.   The message was very clear the battle has not been won, even if hiking is decelerating. Everyone expects two more hikes next… Read More »The dollar got sold off again on the Fed story

Annual CPI in the US is forecast to decline to 7.3% in November. Core CPI is expected to edge lower to 6.1% from 6.3%. A soft inflation report could feed into ‘Fed pivot’ narrative. The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) figures for November on Tuesday, December 13. The US Dollar has been having difficulty staying resilient against its rivals since mid-October. The inflation report ahead of the year’s last Federal Reserve policy meeting could significantly impact the currency’s valuation. On a yearly basis, the CPI is forecast to decline to 7.3% and the Core CPI, which excludes volatile food and energy prices, is expected to edge lower to 6.1% from 6.3%. On a monthly basis, the Core CPI is projected to match October’s print of 0.3%.  The monthly Core CPI will likely be the figure that market participants will pay the most attention to because it will not be distorted by the base effect. Additionally, it will not reflect the more-than-6% decline witnessed in crude oil prices in October. In case monthly Core CPI in October arrives at 0.5% or higher, investors are likely to reinstate their US Dollar longs with anticipation that… Read More »US November CPI Preview: Gold is the asset to watch

Stocks have taken the US PPI data relatively calmly, and hopes of a year-end rally are no doubt playing a part in this, says Chris Beauchamp, chief market analyst at online trading platform IG. China hopes prop up FTSE 100 “China’s reopening has a long way to go, but it has been enough this week to provide a hope of improvement in the outlook. The FTSE 100 has seen some benefit from that today, edging back up after falling to a one-week low. IHG’s 3% rise on hopes of more good news from China has helped that move, helping to steady the index and put it on course for a move up towards 7600 as the year heads to its close.” Stocks hold firm despite US inflation figures “While US factory-gate inflation points towards the need for still more rate rises, stocks can now scent the potential for a rally into the end of the month. Such a bounce would repair more of the damage suffered in 2022, even if the post-Christmas blues do set in. The PPI data was unable to have much of a negative impact, although it does set us up for another hot CPI figure and… Read More »Indices steady despite US PPI rise

The US Oil crashed and erased yesterday’s minor gains. Now, it was trading at 72.31 at the time of writing. The bias remains bearish despite temporary rebounds. It could only test and retest the immediate resistance levels before dropping deeper. Crude Oil tried to rebound only because the US Crude Oil Inventories came in at -5.2M versus -3.5M expected. Today, the US PPI, Core PPI, and the Prelim UoM Consumer Sentiment could have an impact.

USD/JPY The USDJPY accelerated lower on Friday after a triple daily Doji, adding to signals that short recovery from 133.62 (Dec 2 low, the lowest since Aug 16) might be over. Fresh bears hit 50% retracement of 133.62/137.85 upleg and eyeing key 200DMA (135.03) for retest, after attacks on Dec 2/5 failed to register a clear break lower. Rising negative momentum and most of moving averages being in bearish setup on daily chart, add to negative signals. Weekly close below 200DMA would be a minimum requirement to keep renewed bears in play and neutralize signals from formation of inverted hammer, reversal signal, on weekly chart. Res: 136.81; 137.85; 138.40; 140.00. Sup: 135.47; 135.03; 134.41; 133.62. Interested in USD/JPY technicals? Check out the key levels

Outlook: We get PPI and consumer sentiment today, scheduled to cause a stir but just as likely to fizzle. As noted before, PPI has been declining nicely since April. It was 8.0% y/y last month from 8.4% the month before and expected down to 7.2% today. A 7.2% reading would be 4.5% under the March peak reading–pretty darn big. Notice that for most of the year, expectations have been too high and the resolution of many supply chain issues has resulted in lower-than-expected outcomes.   Somewhat strangely, a “good” number like 7.2% or anything lower is bad news for the dollar, because it keeps awake that idea the Fed can do less and will start doing less sooner. A higher number would be a shock and give the dollar some support, if fleetingly.   Ah, the difference between what they say and what they do–sentiment surveys like the University of Michigan's index do not capture reality. In November, the index ended up revised higher to 56.8 from the preliminary of 54.7. The subindex for expectations was revised higher to 55.6 from 52.7. And inflation expectations for the year ahead lost momentum at 4.9% from 5.1% in the flash while the… Read More »Is it possible China is preparing for another lockdown at some critical level of Covid cases?

While gold’s sleigh is flying high, is a crash on the horizon? With so many narratives floating around, bullish seasonality, recession fears and consumer resilience have combined to create a mixed picture on Wall Street. However, with the gold price running well above its fundamental value, investors’ game of hide-and-seek should end in substantial liquidations.  For example, the S&P 500 has fallen by more than 17% in 2022. Yet, the bulk of the decline has been driven by four sectors. Source: Fidelity To explain, the red box above shows how communication services, consumer discretionary, real estate and information technology have been the worst-performing S&P 500 sectors year-to-date (YTD). In contrast, financials and materials (where the PMs live) have endured low double-digit declines, while defensive sectors like utilities, consumer staples and health care have fallen modestly.  Now, the four laggards have largely suffered due to higher interest rates, while economically-sensitive sectors like financials, materials, industrials and energy have mostly escaped investors’ wrath. For context, their outperformance is another example of why positioning does not support the ‘imminent recession’ narrative.  But, the important point is that with recession winds poised to grow stronger in late 2023, economically-sensitive sectors should catch up to the laggards… Read More »Will Santa Claus save Gold from bearish prospects?