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Andreas Zanin
Analysis, Market Analysis | December 12, 2023

JASPER’S MARKET SQUAWK 12-12-2023

Wall Street at 2023 Highs

While investors waited for the latest CPI data and monopol decision, inflation trended lower. Still, many economists see neutral rates well above the Fed’s 2.5% target, in the 3-4% range, pointing to greater financing costs but also more room to cut in a downturn. The US yields and the dollar were a little up, with all indices in the US at fresh highs for the year.

Chart: USDJPY

Key Factors for Today

  • Inflation Expected to Soften, Supporting Fed’s Expected Hold
  • Gold Continues Fall on Rising Risk Appetite, Losing the $2K Handle
  • Yen Under Pressure As BOJ Pushes Back Early Exit Rhetoric
  • WTI Higher From Houthi-Controlled Attack on US Chemical Tanker
  • China’s Yuan Drops to 3-Week Low Due to Deepening Deflation

Gold Loses 2K Handle Amid Risk Rally

The New York Fed survey found that US consumers expect inflation to be at 3.4% a year from now, down from 3.6% in October, the lowest reading since April 2021. The softening will likely support the Fed’s decision to hold on Wednesday, but bond investors expect a push against early cut market pricing due to recent data resilience. Meanwhile, the reverse repo balance recently fell from $2.5 trillion to around $821 billion, signalling an earlier runoff. Gold continued its fall on Monday due to a stronger appetite for risk, falling over 1% to lose the $2K handle. $1960 is expected support if bulls fail to reclaim the round resistance.

Yen Weakens Over 1% Amid BOJ Pushback

Recent reports showed BOJ officials have not seen adequate proof to justify ending its ultraloose policy this month. It comes on the heels of expectations to pull short-term borrowing costs out of negative territory last week. The Japanese yen weakened over 1% against the dollar for a second straight day at some point but closed at 146.15, only 0.85% lower. Next up is the 147 hurdle unless USDJPY bears aim at 144.90. Meanwhile, Japan’s wholesale inflation slowed sharply to 0.3% in November from 0.9% the month prior due to falling fuel and commodity prices, supporting BOJ’s pushback.

WTI Slightly Higher From Attack on US Tanker

Concerns about potential disruptions to oil supply contributed to the slight uptick in oil prices on Monday after a Houthi-controlled attack on a US chemical tanker sparked fears of retaliation. Crude markets had its third bullish session, but gains were dismal yesterday, albeit above the $ 70-a-barrel support. Meanwhile, the COP28 climate summit draft deal called on countries to cut consumption and production of fossil fuels, including oil and gas, for the first time. While some praised the inclusion of all fossil fuels, Saudi Arabia opposed the draft text.

Yuan to 3-Week Low on Deeper Deflation Cracks

China’s yuan fell to a three-week low at 7.20 after data showed deflation worsened in November, with 7.2166 seen as the next milestone. Consumer prices fell 0.5% year-on-year and month-on-month, the fastest decline in three years due to weak domestic demand, declining global energy prices, and subdued winter travel. Producer prices also fell 3.0% year-on-year, marking the 14th decline, calling for more stimulus to boost growth.

On The Docket

  • GB Jobs Report
  • ZEW Economic Sentiment
  • Inflation Rate
  • API Crude Oil Stock Change

FX 1-Day Relative Performance (USD)

  • Kiwi 0.55% higher, Aussie follows at 0.40%
  • Euro 0.06% up, Pound 0.18% in green
  • Loonie up 0.15%, Franc 0.17% higher
  • Japanese yen 0.47% in green territory
  • Gold 0.46% up, Silver higher at +0.86%
  • WTI 0.76% in green, Brent up 0.67%
  • Natural gas a mere 0.25% lower
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