Photo - Andreas Zanin
Andreas Zanin
Analysis, Market Analysis | December 14, 2023

JASPER’S MARKET SQUAWK 14-12-2023

Fed Sends Dow to All-Time Highs

Investors cheered the Fed’s language and dot-plot tweaks pointing to rate cuts, signaling peak rates. Dow hit a record high on lower borrowing costs, and the 2-year plunged over 30bps, sending gold 2.50% higher.

Chart: GBPUSD

Key Factors for Today

  • Dow to All-Time Highs as Fed Finally Hints at Rate Cuts
  • Gold’s Glitter Restored with Fed’s Dovish Outlook
  • Oil Bounces Back After EIA Report and Fed’s Stance
  • UK Economy Shrinks, Raising Questions Ahead of BOE
  • Mixed Industrial and Energy Output in EU Raises Questions for ECB
  • New Zealand’s Economic Contraction Puts NO Pressure on Kiwi

Gold Shines Again Amid FOMC Peak Rate

The Fed left interest rates unchanged as expected, but FOMC’s dot-plot showed that policy would be 75 bps lower by the end of 2024. During the press conference, Chair Jerome Powell also said the Fed is “not likely” to hike any more, adding conviction to the language tweak about whether “any” policy firming would be needed. Markets went to price in a 90% May cut, up from 80% prior, and the Dow hit an all-time high on comments of lower borrowing costs. Markets have been running hot on that dovish view for a while, pointing to a potential exhaustion. Gold rose 2.5% to $2027 per ounce to quickly retake the $2K handle and continues to ascend early Thursday, eying $2075 next.

Oil Recovers After Fresh Low Following EIA and Dovish Fed

Crude oil prices increased after the EIA reported an estimated inventory draw of 4.3 million barrels for the week ending December 8 and the Fed’s dovish stance. The EIA said that while OPEC+ had reduced oil supply by 1.4 million barrels per day this year, non-OPEC producers had increased supply by 2.4 million barrels per day, offsetting the OPEC+ cuts. Meanwhile, OPEC kept its oil demand growth forecasts unchanged for this year and 2024, citing better-than-expected economic performance. WTI prices slid to a fresh June low before reversing to register a 1.60% gain shy of $70 a barrel. Above there, $71.50 remains a short-term resistance.

Cable Undeterred From UK GDP Contraction Ahead of BOE

UK’s GDP contracted by 0.3% in October as households and businesses faced pressures from rising cost of living, putting Prime Minister Rishi Sunak’s economic growth plans in jeopardy. Services, the UK’s dominant sector, show the biggest fall in output. It comes after wage growth disappointed in the three months to October, raising the probability of a vote change at today’s MPC meeting on growing recession chances. Cable fell to a November low before fully reversing on a weaker greenback to mark a 1% uptick off the low. Above $1.26 early Thursday, it leaves $1.2562 behind as support, potentially forging towards $1.27.

EU Energy Production Casts Doubts on ECB

Eurozone industrial production declined 0.7% in October, exceeding analysts’ expectations of 0.3%. Irish industrial output fell the most at 7.0%, while Greek output rose 6.0%. However, energy production rose by 1.1%, adding an interesting mix to the ECB’s inflation assessment before they meet today. Meanwhile, Germany’s coalition government has agreed to stick to the debt brake rules limiting new borrowing for 2024 and suspend it later if needed. The eurodollar rose 0.76% to $1.875 and has already reclaimed the $1.09 handle in today’s session, forming support at $1.085. If bulls can maintain momentum, $1.0941 may be the next resistance level.

New Zealand Unexpectedly Contracts, Weighing on Kiwi

New Zealand’s economy shrank by 0.3% in the September 2023 quarter, driven by a contraction in the goods-producing industries and exports of goods and services. The RBNZ had forecasted a minor GDP growth of 0.3% for the quarter, with the unexpected contraction putting pressure on households struggling with the rising cost of living. However, the NZ government decided to remove employment from its monetary policy remit as an objective and any references to the housing market, aiming to improve its effectiveness in fighting inflation. Coupled with a weaker dollar, the Kiwi hit a July high of $0.6250 to mark its 4th consecutive gain. Support is expected at 0.6194.

On The Docket

  • BOE Interest Rate Decision
  • ECB Interest Rate Decision
  • US Retail Sales
  • Initial Jobless Claims
  • ECB Press Conference
  • ECB Economic Projections
  • ECB Lagarde SPeech

FX 1-Day Relative Performance (USD)

  • Kiwi soaring 1%, Aussie lags at +0.91%
  • Euro and Pound 0.24% and 0.19% up
  • Loonie 0.33% higher, Franc up 0.29%
  • Japanese yen 0.91% in green territory
  • Gold 2.65% higher, Silver beats at 5.54%
  • WTI 0.43% up, Brent at positive 0.54%
  • Natural gas 1.46% in the green zone
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