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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. 

Outlook: Today the data overload slows down and the main event is the S&P manufacturing PMI for Dec, expected unchanged at 47.7 from Nov, with services perhaps up to 45.5 from 46.2. San Francisco Fed Daly speaks at noon. As the data above indicates, everybody is slowing down, if by less than the gloomsters were predicting only a few weeks ago. All the central banks that raised rates this week and promised an unbreakable commitment to killing inflation are calling for a soft landing. The US economy is slowing, if not fatally so. The Atlanta Fed’s latest Q4 GDPNow stands at 2.8%, from 3.2% last week. Each of the big factors fell. Christmas is 9 days away and while interest in year-end closing levels is as keen as ever, the quality of the analysts’ work gets smudgy and weak. There is too much distracting attention to Musk, who is nearing Trump in obnoxiousness and narcissism. Are we getting the dollar bounce that so many factors seem to justify, or was yesterday a flash in the pan? To get to an answer, we need to decide whether the Fed in particular will chicken out if data shows recession—go back and look at the Empire State… Read More »The Dollar is higher for longer, alongside the Fed’s narrative

BoE raised rates yesterday by 50bp as expected, but speculators look towards the end of the hiking cycle due to recession risk which was highlighted by BoE’s Tenreyro & Dhingra. They said that 3% bank rate is more than enough to bring CPI back to target. In fact, Dhingra warned of a deeper longer recession with higher rates already before. As such, it’s not a surprise to see the pound weakening since yesterday. Notice that the price fell below the wedge, likely stepping into a corrective phase. 1.19-2.0 is support. We talked about this technical reaction a few days before the market turned as you can see on our screenshot of Elliott wave analysis below. The question is where we go from here? Well, we try to focus on a minimum expectation which in our case is a three-wave drop, ideally wave four. Stocks are already weakening and if this will be the case in the next few sessions we think that pound can very easily make an A-B-C pattern to the south. Updated analysis Broken wedge suggests that temporary top is in and that market is making a three wave decline. Elliott wave analysis GBP/USD Past Elliott Wave expectations… Read More »GBP/USD: Elliott Wave analysis and reaction to BoE

For the third time since April, the S&P500 index faces a sharp sell-off from the 200-day average. And all times, the fundamental reason is a more hawkish Fed policy than the markets had hoped for. In June-August and October-December, the S&P500 started with a technical reversal after it oversold the market. Later buying was supported by signs of weakening inflation, which fed hopes that the Fed would soften its tone. However, Powell and co have been persistent in embedding the idea in the markets that the fight against inflation will be extended. About as insistent as assurances about the “transitory” nature of inflation in 2021.  Even if the Fed is wrong in its forecasts now, it can raise the rate so sharply that it will first put a heavy burden on the financial market and, through it, on the entire economy. It is believed that it takes several quarters before the effects of a change in monetary policy are fully reflected in the economy. This is probably why the economy has continued to create jobs despite the most violent monetary tightening cycle since the 1980s. More problems lie ahead, which is predicted by the Fed, expecting GDP growth of only… Read More »Fed stops market rally again, but there is some hope

WTI Oil  The WTI oil price heads lower for the second straight day, as sentiment soured on unexpected hawkish stance of three major central banks, though optimism on hopes about China’s demand recovery and fears on supply disruptions, remains alive. The WTI contract, despite losses in past two days, is on track for bullish weekly close that may delay larger bears, which face headwinds from psychological $70 support, where the action was repeatedly rejected. Signals from daily chart are in favor of further weakness as negative momentum is strengthening and MA’s are in bearish setup, while stochastic emerges from overbought territory. This suggests that the downside remains at increased risk, especially if Friday’s action closes below 10 DMA ($74.39) which would open way for renewed attack at pivotal $70 zone. Firm break below $70 would risk fresh acceleration and expose targets at $68.50 (50% retracement of $6.52/$130.48) and $65.05 (200WMA) in extension. Near term bias is expected to remain with bears while the action stays below the double-top at $77.73/79 (Dec 14,15) and only firm break here would ease downside pressure and allow for stronger bounce. Res: 75.97; 76.55; 77.79; 79.79. Sup: 73.03; 71.91; 70.00; 68.50. Interested in WTI technicals? Check out… Read More »WTI Oil outlook: Risk of retesting $70 support rises as recovery lost traction

US markets Stock futures were down slightly overnight after a negative day for U.S. equities on Wednesday. After announcing a half a percentage point interest rate hike, the Federal Reserve said it would continue to increase interest rates throughout 2023 and forecasted that the terminal rate will go above 5.1%, higher than expected. U.S. interest rates are currently at a 15-year high of 4.5%. The current 10 Year U.S. Treasury yield is set at 3.50270%. Market Price Move Dow Jones 33,947.10 -1.40% S&P 500 3,998.84 -1.79% Nasdaq 11,239.94 -1.93% Russell 2000 1,840.22 -2.78%   Canadian markets The Canada Food Price Report forecasts that the cost of groceries will increase by 7% next year. The report estimates that a family of four will need to spend CA$16,288 on groceries in 2023, an increase of CA$1,065 from this year. A single woman in her 40s is expected to spend CA$3,740 on groceries, while a single man would spend CA$4,168. Vegetables are expected to rise by 8%, seafood by 6%, fruit by 5%, and milk by 11%. 20% of Canadians will likely continue relying on food banks, the report says. Market Price Move TSX 20,242.26 –1.19%   European markets European markets saw losses on Monday… Read More »Today’s key market insights

Europe We’ve seen further weakness in European markets today, with the DAX falling to five-week lows and the FTSE100 to four-week lows, as the fallout from yesterday’s hawkish pivot from the European Central Bank continues to ripple through the market. These concerns have been exacerbated by further hawkish interventions from ECB insiders doubling down on that narrative who suggest the prospect of at least another three times in a row. The DAX has fallen to its lowest levels in 5 weeks, while the FTSE100 is tracking 4-week lows, as investors come to terms with the prospect of higher inflation and higher rates for longer. On the day, rising recession concerns prompted declines across the board after November retail sales missed expectations, with non-store retailers underperforming due to Royal Mail strikes impacting on online sales, with Black Friday not offering much of a boost. Food shopping was the only area that saw any sort of growth, although that hasn’t really helped Ocado which has slipped back sharply and is amongst the worst performers this week. A sharp rise in UK gilt yields also appears to be weighing on house builders, with the likes of Persimmon, and Taylor Wimpey underperforming, with Rightmove… Read More »ECB hawkish pivot pushes European markets to five-week lows

Summary Forecast Changes We have not made significant changes to our country-specific or global growth outlooks, and continue to believe the global economy will enter recession in 2023. As of now, we believe over 35% of the global economy will slip into recession next year, and forecast global GDP growth of just 1.7%. Should our global GDP forecast prove accurate, the global economy will grow at the slowest pace since the early 1980s. While inflation has likely peaked, we believe central banks will continue to prioritize controlling inflation and will raise interest rates into early 2023. However, tightening cycles are likely to end early next year, and as inflation recedes, we believe most central banks will shift toward supporting growth. We expect select G10 central banks to ease monetary policy by the end of 2023; however, central banks in the emerging markets may decouple and initiate easing cycles earlier in the year. Our view on the U.S. dollar is little changed, and we continue to believe the greenback can experience a bout of renewed strength into early 2023. With the Fed likely to deliver more hikes than markets are priced for, a hawkish Fed should support the greenback. In addition,… Read More »2023 global economic outlook

As investors hope for a Santa Claus rally in the days ahead, the Grinch is looking to steal their holiday cheer.   Federal Reserve chairman Jerome Powell announced another interest rate hike on Wednesday – this time by half a percentage point. Although the bump up in rates was smaller than previous hikes this year, it wasn’t exactly the pivot stock market bulls had wanted. They fear the economy is already heading for a deep recession next year and worry any additional increases in borrowing costs could destabilize the highly leveraged financial system. Stocks got pounded on Thursday and Friday. Precious metals markets succumbed to the broader selling pressure as well. Metals markets had been performing strongly over the past two months. This week’s sell-off doesn’t necessarily mark a change in that trend. So far it’s merely a pullback. There is, of course, a chance that interest rate jitters could spark further downside volatility in gold and silver prices. But persistent inflation pressures are likely to provide a longer-term floor underneath hard asset markets.  Even if the Fed gets inflation rates down, all that means is that the currency will depreciate at a less rapid pace. There is no chance… Read More »Stocks get pounded as gold and silver remain strong

In a week dominated by central bank meetings, the end result was a more hawkish impression despite inflation data for November generally surprising to the downside. In the US, the Fed hiked by 50bp as expected, but with 17 out of 19 FOMC members indicating a Fed funds rate above 5% in 2023 and Chairman Powell saying that the labour market is extremely tight and wage growth high. However, Powell also left a door open for more modest rate hikes in the future, and markets seem to have interpreted the meeting as more or less neutral. Markets were also supported by November inflation data being lower than expected, at just 0.1% m/m for headline CPI and 0.2% m/m for core. However, we note that wage-sensitive components of CPI did not really slow down, and we also see the Fed’s message as rather hawkish, pointing to high rates being maintained for long. The ECB also delivered a 50bp rate hike as expected but with a clear message that rates are going up and that this will not be the last 50bp hike. ECB projections showed inflation exceeding the 2% target even in 2025 and the recession in 2023 being very mild… Read More »Weekly Focus: Softer inflation, harder central banks