JASPER’S MARKET SQUAWK 20-12-2023
Investor Optimism Grows
Investors are the most optimistic since the beginning of 2022 as expectations of policy easing are fueling a rush into bonds and technology stocks. The rally continued as the 10-year came under pressure, but FedEx’s disappointing earnings left investors tasting a pinch of salt.
Chart: GOLD
Key Factors for Today
- Fed Officials Cautious On Rate Cuts Despite Rising Expectations For Next Year.
- Housing Starts Surge to 6-Month High, Indicating Strong Economy
- Inflation Slows in the Eurozone, But ECB Remains Vigilant on Liquidity
- API Built Offset by SPR, Stocking Fears of Red Sea Disruptions
- Germany and EU Ramp Up Energy Efforts to Shield Consumers
- PBPC Keeps Rates Unchanged, But Further Action Expected
Fed Officials Continue to Push Back on Rate Cuts
Some Fed officials continue to push back on the timing of rate cuts given the economy’s current strength. On the one hand, housing starts were the last to support the pushback, rising from 1.36M expected to 1.56M in November. On the other, recent data showed inflation falling below 3% for the first time since 2021. Fed Bank of Richmond President Thomas Barkin said that cuts would only come if inflation consistently falls. Pressure on the greenback allowed gold to move to $2040 an ounce, leaving behind support at $2025 while eying $2050 ahead.
Eurozone Inflation Slows, But ECB Still Concerned
ECB member Francois Villeroy de Galhau said lower rates can come in 2024, reaffirming that inflation should return to target by 2025. It follows Eurozone inflation confirming a 2.4% drop in November, though some economists expect pressures to increase. Meanwhile, the ECB said it had raised capital requirements for 20 banks after judging they had not set aside enough cash to cover defaults and liquidity issues arising from increased funding costs. EURUSD ended the session higher on a weaker greenback but still failed to retest $1.10, exposing $1.0935.
WTI Higher Amid SPR Purchases, Task Force
The DOE said on Tuesday that the US bought 2.1M barrels of oil for its strategic reserve (SPR), but API inventories rose 939K against expectations of a 2.23M decline. Influenced by the positive SPR development, oil traders seemed more interested in buying fears of further oil disruptions following the US launching a task force to safeguard Red Sea commerce. The dollar was also weak. WTI was seen trading shy of $75 a barrel, gaining for a 5th session. However, the impact of the Huthi attacks on oil supply has been limited, with exports rerouted via the Strait of Hormuz. This sees expected support at around $72/bbl.
Europe Ramps Up its Energy Security Game
Germany’s state-controlled firm Securing Energy for Europe (Sefe) signed a $55 billion natural gas deal with Norwegian energy giant Equinor to supply around 10 billion cubic meters of natural gas annually from 2024 to 2034. The gas supplies will contribute to energy security for Germany and Europe, which extended the emergency price cap on natural gas prices by another year on Tuesday. The emergency gas price cap has not been triggered so far, but the geopolitical situation remains fragile, and the emergency measures help shield consumers from higher prices.
PBOC Holds Rates, But Further Action Expected
China’s central bank kept its lending rates unchanged as expected at 3.45% and 4.20%, respectively, for the 1- and 5-year rates. However, analysts expect further easing from the PBOC to support the country’s economic recovery. The bank injected a record 800 billion yuan of liquidity into the banking system last week in its likely effort to revive the property market before taking more aggressive action. The USDCNY is trading on a stronger footing early Wednesday, with support at 7.1216 and resistance at 7.1480.
On The Docket
- GfK Consumer Confidence
- GB Inflation Rate
- CB Consumer Confidence
- Existing Home Sales
- EIA Crude Oil Stock Change
FX 1-Day Relative Performance (USD)
- Aussie 0.07% up, Kiwi at leads t 0.09%
- Euro 0.21% down, Pound at negative 0.15%
- Loonie 0.11% lower, Franc down 0.08%
- Japanese yen 0.09% in positive territory
- Gold 0.14% in plus, Silver at +0.26%
- WTI 0.16% up, Brent follows at 0.06%
- Natural gas 2.05% into the green zone
