Daily Market Outlook, December 9, 2024
Munnelly’s Macro Minute...
"Politburo Rhetoric Shift Supports Asian Markets; Investors Wary Of Another False Dawn”
The Chinese mainland and Hong Kong market have seen strong gains, and government bonds rose following a change in the politburo's language regarding monetary policy, indicating that additional easing measures may be implemented to support the struggling economy. The benchmark 10-year yields declined by about 2bps to a record low of 1.935%. The Hang Seng index increased by 2.5%, with technology shares rising by 3.8%. Japan's Nikkei share average experienced a rise on Monday, bolstered by gains from Wall Street at the end of the previous week. However, profit-taking in major semiconductor-related stocks limited the overall increase. After a day of fluctuating between gains and losses, the Nikkei ultimately closed up by 0.2%.
Despite ongoing volatility, gold oil prices have risen by about 0.4%, reflecting a modest response to the ousting of Syria's Assad, with no clear rush to safety among traders. The situation in the Middle East appears too complex for a decisive reaction. Russian President Putin faces significant challenges as he risks losing control of his only naval base in the Mediterranean, a consequence of supporting the Assad regime. Although Moscow claimed to have secured a deal to retain the base and associated facilities, it remains unclear if the rebels have accepted the agreement, as the potential loss would diminish Russia's influence in the region.
This week, the US will release the inflation report, evaluating the durability of the record-breaking stock market rally and providing crucial information that could impact the Federal Reserve's interest rate cut decisions. On Friday, the S&P 500 was on track for its third consecutive weekly gain, bringing its year-to-date increase to over 27%. Expectations of additional Fed interest rate cuts bolster the positive environment for stocks, even as the economy remains robust. Friday's employment report, which showed that monthly job growth exceeded expectations, has historically led to significant equity gains. However, this data is unlikely to indicate a significant change in labour market conditions that would prompt the Fed to alter its rate plans at the upcoming Dec 17-18 meeting. Nevertheless, the consumer price data scheduled for release on Wednesday could disrupt the optimistic outlook if inflation rates exceed expectations, presenting a challenge for soaring stocks.
Expectations for a rate cut by the Federal Reserve at its upcoming meeting increased following the November payrolls report. The report showed an increase of 227,000 jobs, although the unemployment rate edged up to 4.2%. By midday on Friday, trading in Fed fund futures indicated almost a 90% chance that the Fed would lower rates by 25 basis points, based on CME FedWatch data. Given the jobs numbers, the upcoming consumer price report now faces a "higher bar" to potentially prevent the anticipated rate cut at the Federal Reserve's next meeting. Reuters polling projects a 2.7% rise in the consumer price index for the year ending in November. Instead of halting rate cuts, if the CPI exceeds forecasts, the central bank might execute a "hawkish cut" by moderating expectations for cuts in 2025. Fed Jerome Powell has indicated that the Federal Reserve plans to integrate actual policies into their framework once they have a clear understanding of what political policies entail. At the same time, stocks keep climbing, which is causing worries that investor sentiment may be excessively optimistic. LSEG Datastream reported that the S&P500 valued at 22.6 times projected earnings for the upcoming year, marking its highest price-to-earnings ratio in over three years.
Overnight Newswire Updates of Note
EU Tech Chief Strikes Conciliatory Tone With Elon Musk
China Flirts With Deflation Despite Stimulus
China CPI Less Forecasts Amid Slowdown, Tariff Concerns
Gold Advances As China’s C. Bank Resumes Buying After Pause
Japan’s GDP Revised Up; BoJ Considers Rate Hike Timing
Japan's BoP Trade Deficit At ¥155.7B In October
RBNZ Welcomes New Financial Policy Remit
Kiwi, Aussie Turn South Amid Souring Mood
Dollar-Yen Trades Modestly Flat Amid Cautious Sentiment
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0300 (EU1.41b), 1.0600 (EU959.6m), 1.0400 (EU893m)
USD/JPY: 152.50 ($1b), 147.00 ($802m), 143.75 ($400m)
USD/CNY: 7.1900 ($580.3m), 7.1500 ($499.7m), 7.3100 ($451.4m)
AUD/USD: 0.6310 (AUD440m), 0.6440 (AUD305m)
USD/CAD: 1.3980 ($460m)
NZD/USD: 0.5922 (NZD320m)
USD/BRL: 6.0940 ($305.6m)
CFTC Data As Of 6/12/24
Equity fund managers cut S&P 500 CME net long position by 7,148 contracts to 1,096,911
Equity fund speculators increase S&P 500 CME net short position by 59,926 contracts to 370,331
Speculators increase CBOT US Treasury Bonds futures net short position by 11,361 contracts to 58,775
Speculators trim CBOT US 2-year Treasury futures net short position by 31,747 contracts to 1,202,899
Speculators increase CBOT US 5-year Treasury futures net short position by 95,529 contracts to 1,861,100
Speculators trim CBOT US 10-year Treasury futures net short position by 34,702 contracts to 891,901
Euro net short position is -57,489 contracts
Japanese yen net long position is 2,334 contracts
Swiss franc posts net short position of -41,094 contracts
British pound net long position is 19,326 contracts
Bitcoin net short position is -1,595 contracts
Technical & Trade Views
SP500 Bullish Above Bearish Below 6000
Daily VWAP bullish
Weekly VWAP bullish
Below 5990 opens 5930
Primary support 5795
Primary objective 6100 - TARGET HIT NEW PATTERN EMERGING
EURUSD Bullish Above Bearish Below 1.0450
Daily VWAP bullish
Weekly VWAP bearish
Above 1.0590 opens 1.0728
Primary resistance 1.0950
Primary objective 1.0728
GBPUSD Bullish Above Bearish Below 1.26
Daily VWAP bullish
Weekly VWAP bearish
Above 1.2760 opens 1.2859
Primary resistance 1.3050
Primary objective 1.2859
USDJPY Bullish Above Bearish Below 154
Daily VWAP bullish
Weekly VWAP bearish
Below 150 opens 148
Primary support 150
Primary objective is 157.50
XAUUSD Bullish Above Bearish Below 2600
Daily VWAP bullish
Weekly VWAP bearish
Below 2530 opens 2467
Primary support 2530
Primary objective is 2800
BTCUSD Bullish Above Bearish Below 92000
Daily VWAP bullish
Weekly VWAP bullish
Below 91000 opens 87500
Primary support is 85000
Primary objective is 100,000 TARGET HIT NEW PATTERN EMERGING
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Past performance is not indicative of future results.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!