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Andreas Zanin
Analysis, Market Analysis | January 11, 2024

JASPER’S MARKET SQUAWK 11-01-2024

Markets Optimistic Pre-CPI

US equities rose on Wednesday, led by big tech and lack of safe-haven demand, as investors wait for CPI for further clues about the Fed’s path. Fed official Williams said the current rate is high enough to cool inflation to target but expects a restrictive stance going forward.

Chart: GOLD

Key Factors for Today

  • Fed’s Williams Eyes CPI for Inflation Insight
  • ECB Policymakers Hold Tight Despite Recession Signals
  • BOE’s Bailey Cautious on Rate Cuts Amid Price Risks
  • OECB Encourages BOJ Policy Shift Despite Wage Concerns
  • EIA Reports Unexpected Stockpile Build, WTI Drops

Fed’s Williams Maintains Status Quo with an Eye on CPI Data

New York Fed President John Williams noted that monetary policy is tight enough to drive inflation back to the Fed’s 2% target, suggesting peak rates. However, he said that policy needs to stay restrictive and pointed to more evidence of cooling inflation before cutting, signifying today’s CPI release. Gold gained some ground in Wednesday’s trading but eventually ended the session mixed and in red. Losing $2015 may exert further downward pressure towards $2K unless bulls reclaim $2045 per ounce.

ECB Policymakers See Risks to Economy, No Cuts Yet

ECB Vice President Luis de Guindos suggested the eurozone may have suffered a recession in H2 2023, and risks to growth remain. Despite some policymakers believing the shared economy may have hit bottom, the near-term outlook remains weak. Isabel Schnabel said wage growth would fall despite the resilient labour market and unemployment being at historic lows. She noted it is too early to discuss cuts as inflation remains elevated. The dollar’s decline pushed EURUSD 0.40% higher to $1.0973 but within the $1.09-$1.10 range, the pair remains mixed.

Bailey Reiterates BOE’s Stance on Inflation, Warns of Risks

BOE governor Andrew Bailey reiterated getting inflation to target and did not indicate future interest rate cuts during his testimony to MPs yesterday. However, he pointed to the Middle East as a key risk driving energy prices higher. While acknowledging mortgage rates have eased, rental inflation is around 6% and unemployment remains robust. Yet, money markets expect five cuts in 2024, with the first coming as early as May. Cable appears to be heading towards $1.28 early Thursday after rising off $1.27 lows, leaving behind support at $1.2685.

OECD Urges BOJ to Start Normalisatino Despite Falling Wages

Japanese stocks hit a fresh 34-year high as investors continued to ponder if the BOJ would normalise policy soon after wages fell. As a result, USDJPY extended 0.89% higher to 145.75, exposing 146.65. The bank’s latest “Sakura” report showed only two out of 9 regions announcing wage raises. Still, the OECD believes the conditions are ripe to gradually increase the 10-year yield target or move to a short-term one, assuming inflation stays around 2%.

Surprise EIA Stock Build Reverses WTI From Earlier Gains

EIA crude stocks rose by 1.3 million barrels last week amidst strong refining activity and imports rising by 1.32 million barrels per day. Despite crude inventories at the Cushing hub falling by 506K barrels, distillate rose by 6.5M barrels. The surprise build saw WTI prices reversing earlier gains to $73.50 a barrel, weakening 1.25% to $71.25 and bringing the $70 round support back into focus.

On The Docket

  • ECB Economic Bulletin
  • US CPI Inflation
  • Initial Jobless Claims
  • Fed Barkin Speech

FX 1-Day Relative Performance (USD)

  • Aussie and Kiwi 0.31% and 0.42% up
  • Euro 0.12% higher, Pound leads at 0.23%
  • Loonie and Franc 0.17% in green zone
  • Japanese yen 0.22% in negative zone
  • Gold 046% up, Silver 0.73% higher
  • WTI and brent 0.81% and 0.78% up
  • Natural gas 0.23% into negative
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