JASPER’S MARKET SQUAWK 19-12-2023

Steady As She Goes

Investors remain hopeful that rate cuts are imminent, building on the previous week’s gains during a ‘light’ Monday. Several Fed members pushed back on the case for rate cuts, but stocks still ended higher despite the US treasury yield closing slightly up.

Chart: WTI

Key Factors for Today

• Investors Optimistic Despite Fef Members Push Back
• Oil Prices Surge After Red Sea Attacks Prompt 3.50% Spike
• BOJ Stands Firm, No Changes in Policy or Guidance
• ECB Officials Curb Early Rate Cut Speculations
• German Recession on The Horizon After Ifo Index Dips

FOMC Members Push Misalignment Rhetoric

Fed officials are sending signals that the market’s expectations are inconsistent with the FOMC. Chicago Fed President Austan Goolsbee pointed out that investors misinterpreted the Fed’s message, and Cleveland Fed President Loretta Mester pushed back against expectations of abrupt rate cuts. On the other hand, San Francisco Fed President Mary Daly said three rate cuts could be appropriate next year, which seemed a better choice of tone for a market pricing in six rate cuts. The S&P 500 is next in the queue to hit record highs, with 4810 points away. Meanwhile, the labour market still shows tight conditions. Average wages offered by US employers surged to a 2014 high.

Red Sea Huthi Attacks Prompt 3.50% Oil Price Spike

Oil prices rose nearly over 3.50% on concerns about disruptions to shipping traffic and supply costs after Houthi attacks on ships in the Red Sea. BP temporarily paused all transit through the waterway in response. The attacks added to shipping costs and insurance premiums, supporting oil prices, but gains quickly dissipated, leaving WTI 1% higher to $72.85 per barrel. Support lies at $71, whereas yesterday’s top at $74.60 remains a resistance.

BOJ Retains Policy, No Forward Guidance Signals

The BOJ kept its ultraloose monetary policy unchanged and maintained its forward guidance in a closely awaited decision. Some still expect the BOJ to revise its policy in January-March next year. Following the disappointing meeting, the Japanese yen fell more than 0.6% against the US dollar, widening its distance from the 142.50 support on its way to a 3-day streak and 144.

ECB Officials Quell Rate Cut Expectations

ECB officials played down expectations for an interest rate cut in March. The Greek central bank governor, Yannis Stournaras, says the ECB must not cut interest rates before “unit labour costs, unit profits and inflation expectations must all point to inflation going back to 2%”. ECB Governing Council member Peter Kazimir said premature easing would be a bigger risk than staying tight for too long. Another ECB policymaker, Bostjan Vasle, said the ECB would need until at least spring to reassess its policy outlook. EURUSD rose some 0.25% to $1.0926 Monday, leaving behind support at $1.0896 while opening the door to $1.0952.

German Recession Looms After German Ifo Dip

The German Ifo business climate index fell to 86.4 in December versus forecasts of 87.8. Both companies’ expectations and current conditions declined, with the expectations component falling to 84.3 and the current situation index down to 88.5. The data pointed to a slight contraction in German GDP in the fourth quarter and two consecutive quarters of negative growth, meeting the technical definition of a recession. Germany’s 40 index came under pressure after reaching record highs last week, with a break lower than 16625 eying 16500 next.

On The Docket

• EA Inflation Rate
• CBI Industrial Trends Orders
• CA Inflation Rate
• Building Permits
• Housing Starts

API Crude Oil Stock Change

• FX 1-Day Relative Performance (USD)
• Aussie 0.21% up, Kiwi leads at +0.31%
• Euro 0.04% higher, Pound ahead at 0.10%
• Loonie barely positive, Franc 0.11% higher
• Japanese yen 0.49% in negative territory
• Gold 0.08% in red, while Silver 0.1% in green
• WTI 0.04% down, while Bretn 0.15% higher
• Natural gas 0.8% into the positive zone