Daily Market Outlook, December 10, 2021

Overnight Headlines

Asian equity markets are down this morning as risk sentiment turns more cautious. Reports suggest that China’s key annual conference for officials to discuss the economy will be primarily focused on supporting economic growth. That contrasts to the situation in the US and some other countries where the focus is increasingly turning to concerns about higher inflation. A vote on the latest Covid restrictions will be held in the House of Commons on Tuesday. Reports suggest that many Conservative MPs may either abstain or vote against the measures, possibly causing the government to rely on opposition support.

Just released UK GDP data showed a lower-than-expected monthly rise of just 0.1% for October. That belies indications from business surveys that growth had picked up heading into Q4. Services output grew by 0.4% on the month but industrial production fell by 0.6% and construction output by 1.8%, possibly reflecting the ongoing impact of supply constraints. The data will probably lead to some downgrade of Q4 GDP expectations and possibly also for Q1 given the recent evidence of the new Covid variant, which has prompted a tightening in some restrictions.

Also of interest in the UK today will be the latest Bank of England inflation attitudes survey. The BoE’s forecast that inflation will fall sharply through the second half of next year (after peaking in Q2) is partly predicated on inflation expectations remaining low and so this survey will be watched for whether expectations of future price rises remain well anchored.

In the US, for today’s November CPI report look for a rise from 6.2%y/y in October to 6.7%, which would make it the highest since 1982. Meanwhile, core inflation, excluding food and energy, is expected to rise from 4.6% to 4.8%. Also of interest will be how widespread the rise in prices. For most of this year, the bulk of the increase in inflation has been from commodity prices and goods affected by supply chain disruptions. However, last month’s report indicated that price rises may be broadening to services, adding pressure on policymakers to rein back monetary support.

The December University of Michigan consumer sentiment survey will provide evidence on US households’ reaction to the latest news including the ongoing rise in inflation and Omicron. Sentiment slipped sharply last month to its lowest level in more than a decade reflecting rising concerns about both current conditions and the future. The survey also includes questions about inflation expectations. Unsurprisingly short-term expectations have moved up sharply this year, but longer-term expectations have been more stable. The Federal Reserve is likely to be particularly interested in whether that is still the case in December.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1250 (1.0BLN), 1.1290-1.1300 (820M), 1.1320-25 (680M)

1.13-50-60 (530M), 1.1375-85 (1.75BLN)

USD/JPY: 112.50-55 (302M), 113.10-20 (1.2BLN), 113.50-60 (555M)

113.95-00 (780M), 114.25 (1.145BLN)

USD/CHF: 0.9140-45 (380M), 0.9250 (400M), 0.9340-50 (340M)

GBP/USD: 1.3200 (860M), 1.3225 (229M), 1.3250 (588M), 1.3300 (263M)

EUR/GBP: 0.8540 (200M). NZD/USD: 0.6925 (251M)

AUD/USD: 0.6900 (1BLN), 0.7000 (580M), 0.7100-05 (880M), 0.7115 (412M)

0.7185 (306M)

AUD/NZD: 1.0275 (330M), 1.0375 (400M), 1.0400 (330M). AUD/JPY: 78.10 (250M)

USD/CAD: 1.2615 (320M), 1.2740-45 (650M), 1.2800 (303M),1.2850 (714M)

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 112.50 Bearish below

AUDUSD Bias: Bearish below 0.7250 Bullish above