JASPER’S MARKET SQUAWK 22-12-2023

Markets Rebound After Brief Breather

Investors appear bullish ahead of the core PCE release following the US GDP growing less than expected and PCE prices missing expectations. Markets rebounded from yesterday’s brief losses, with the S&P 500 rising 1% while treasury yields held near five-month lows.

Chart: EURUSD

Key Factors for Today

• US GDP Growth Falls Short of Expectations, Dollar Slumps to 5-Month Low
• ECB De Guindo’s Comments Support EURUSD, Pair Back Above 1.10 Again
• Japan’s Core Inflation Slows Down, Raising Chances of BOJ Policy Exit Delay
• Turkish Central Bank Hikes Rates to Staggering 42.5%, USDTRY Eyes 30 Next

US GDP and PCE Miss Send Dollar to 5-Month Low

The US economy remained resilient at 4.9% growth but missed expectations of a 5.2% print, raising optimism that the Fed pivot is near. PCE prices also declined 20bps more than expected to 2.6%, adding to the sentiment. Jobless claims were slightly upbeat, too, helping Wall Street rebound. Moreover, the leading economic index fell 0.5%, continuing to signal a recession. Annual growth has hovered around -8% since Q3, with equities being the only positive contributor. The dollar slid to a 5-month low, sending gold 0.70% higher to $2046 per ounce near a 3-week high, leaving behind support at $2033.

ECB’s De Guindos Adds to EURUSD 1.10 Move

Despite contrasting beliefs between bankers and markets, ECB Vice President Luis de Guindos said it was too early to discuss rate cuts. Coupled with rising expectations of Fed cuts supporting risk appetite, EURUSD retested 1.10 again, where it’s expected to hover around until the PCE report later today confirms the short-term direction for the dollar. If bulls manage to push past the round resistance, the pair could rally towards 1.1017. On the flip side, technical support lies at 1.0950.

Japan CPI Gives BOJ More Time to Access Exit

Japan’s core inflation rate slowed as expected to 2.5% in November from 2.9% prior, giving the BOJ more time to assess its policy exit. While service prices continued to rise, the increase was too little to create the demand-driven inflation the BOJ has been hinging on. Although economists expect the exit in April, the bank may extend its support given Japan’s weak economic state.​ USDJPY rose above the key 142 support in response, opening the door to 143.17. Minutes also showed that members agreed to maintain the current stance.

Turkish Central Bank Hikes Interest Rates to 42.5%

The Central Bank of Turkey raised its rates by 250bps to 42.5% as expected, its highest in two decades and closer to positive real rates. Analysts expect one more rate hike early next year. Despite credit default swaps indicating growing confidence, high borrowing costs will make it harder to roll over debt as the country deals with a real cost of living crisis.​ The USDTRY pair briefly tested the 29 resistance and held above, rising speculation of 30.

On The Docket

• GB GDP Growth
• GB Retail Sales
• Core PCE Price Index
• Durable Goods
• Personal Income
• Michigan Consumer Sentiment
• New Home Sales

FX 1-Day Relative Performance (USD)

• Aussie 0.29% in red, Kiwi also down 0.24%
• Euro 0.13% down, Pound only 0.03% lower
• Loonie lower by 0.08%, Franc at -0.12%
• Japanese yen 0.418 into the red zone
• Gold 0.45% in green, Silver up 0.24%
• WTI and Brent oils up by 0.65% each
• Natural gas 0.16% in positive territory