Welcome to Key To Markets preview of the Week Ahead.
5-day performance as of December 21, 2023. 11:30 GMT
Source: finviz.com
In case you missed it…
Fed played down rate-cut bets. Several Fed speakers have tried to dampen expectations for rate cuts next year. The market has broadly shrugged off these comments.
Red Sea ships attacked. Houthis militants have been attacking ships in the Red Sea, causing major players in the shipping business to re-route away from the Suez Canal to the Cape of Good Hope.
UK inflation cooled by more than expected. UK CPI eased to 3.9% YoY in November, down from 4.6% in October and well below the 4.4% forecast, fueling BoE rate cut bets.
Nasdaq & Dow hit all-time highs. The US stock indices rose to all-time highs, boosted by hopes of rate cuts next year. The S&P 500 came to within 1% of its all-time high.
Micron Technologies lifted revenue guidance. The chip maker jumped after providing a strong revenue forecast for the current quarter as data centre demand makes up for slow PC demand.
Warner Bros Discovery held merger talks. The company held preliminary merger talks with media giant Paramount Global to discuss what a merger could look like.
Coinbase secured a crypto license in France. The move comes as the firm pushes deeper into Europe amid its rift with the SEC.
Alphabet settled $700M lawsuit. The Google parent paid $700 million to settle the Google Play feud, which states that the app store unlawfully dominates the Android mobile app market.
BoJ left rates unchanged. The central bank kept rates at -0.1% and gave no clues over when the BoJ could move to a less dovish stance.
US Q3 GDP was downwardly revised. The final reading for Q3 GDP was lowered to 4.9% from 5.2%. This was still the fastest pace of expansion since Q4 2021.
FedEx, often referred to as a bellwether for the US economy, tumbled 12% after weak demand hit the revenue outlook. It now expects a low single-digit decline in revenue for the fiscal year, down from previous forecasts of flat sales.
Given the strong correlation between FedEx and the cyclical economy, a strong bounce back in 2024 is questionable.
FedEx is not the market -but the chart shows how FedEx has moved in perfect tandem with the SPX for some time before tumbling lower. What does this mean for the SPX?
1. Red Sea developments
The situation in the Red Sea will be watched closely. Houthi attacks on ships in the Red Sea have resulted in some of the world’s largest shipping companies diverting journeys around the Cape of Good Hope, meaning that global supply chains could face severe direct disruption. The US has organized an international naval force for the region. If there are signs of security improving and ships returning to the Red Sea route, the outlook could improve, and oil prices could give up recent gains.
2. US Pending Home Sales
The economic calendar is quiet; attention will be on the few releases that there are, including data for the US housing market. Pending home sales will be in focus after dropping to a record low in October as mortgage rates rose sharply. Last week’s US housing data was better than expected; US housing starts surged 14.8%, which bodes well for this week’s data.
3. Japanese Retail Sales
Japanese retail sales data is due and could provide more clues as to when the Bank of Japan could start to adopt a more hawkish policy stance. The BoJ disappointed at the meeting last week, leaving rates on hold as expected but failing to give any clues about the timing of a possible hawkish pivot in 2024. Instead, the markets will be watching the data for clues. Retail sales fell 1.6% in October; another weak performance could raise concerns about the health of the consumer.
4. Santa Rally
The Santa Rally Is the tendency of the stock market to increase during the Christmas season, particularly the final five trading days of December and the first two trading days of January. On average, the S&P 500 has booked 1.3% gains in this period between 1950 – 2022. Buying is supposedly boosted by year-end tax considerations, the investment of year-end bonuses, as well as the generally upbeat mood around the holiday.
5. Bitcoin
Santa may not be so into Bitcoin. BTC/USD has declined six times in the past 10 in the Christmas to New Year period, between 2013 and 2022. Based on this historical data, it’s not possible to conclude that Bitcoin could enjoy the equity market trends to rally during the Christmas week. Although with the prospect of a spot bitcoin ETF approval expected in January, maybe this year will be different.
Source: FXStreet.com
TA of the major asset classes (Forex – Commodities – Indices).
EUR/USD (D1)
Trend: Bullish above the 50-day SMA, with recent higher lows marked by green fractals, signifying trend strength.
Support: 1.0920, 1.0800
Resistance: 1.1030, 1.1150
RSI: 61, indicating bullish momentum but not overbought.
GBP/USD (D1)
Trend: Bullish as it remains above the 50-day SMA, with a series of higher highs and lows indicated by fractals.
Support: 1.2520, 1.2380
Resistance: 1.2820, 1.2980
RSI: 58, suggesting bullish momentum is present without being overbought.
USD/JPY (D1)
Trend: Bearish below the 50-day SMA, with a sequence of lower highs and lows as indicated by the fractals.
Support: 141.70, 139.3
Resistance: 144.30
RSI: 34, which is nearing oversold territory, indicating bearish momentum.
XAU/USD (Gold vs. US Dollar) (D1)
Trend: Bullish trend above the 50-day SMA, with fractals showing higher lows.
Support: 2034, 1997
Resistance: 2078
RSI: 60, suggesting the bullish trend is still in place without overextension.
Brent Crude Oil (D1)
Trend: Neutral to bearish, below the 50-day SMA, with mixed fractal indications.
Support: 76.32, 72.33
Resistance: 83.91, 87.64
RSI: 52, indicating neutral momentum, neither distinctly bullish nor bearish.
S&P 500 Index (D1)
Trend: Bullish, consistently above the 50-day SMA with higher highs and lows indicated by fractals. Distance above the 50 SMA suggest the market is overextended.
Support: 4720, 4650
Resistance: 4768, 4817
RSI: 70, showing bullish momentum but also suggesting a potential overbought market condition.
Thank you very much for reading – and have a great week trading!
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