Markets whipsaw on mildly hotter US CPI data

Headlines

* US stocks whipsaw on CPI, braced for bank earnings

* USD gives up early gains as Treasury yields eventually decline

* Bitcoin retreats from two-year high as US ETF trading commences

* Microsoft overtakes Apple as world’s most valuable company

FX: USD rose after sticky inflation data initially dampened the prospect of near-term rate cuts by the Fed. Both the headline and core figures ticked up higher than anticipated. Good weekly jobs data – the lowest continuing claims since late October – also dented policy easing hopes. But sellers emerged as rate cut bets persisted. A death cross has formed with the 50-day SMA moving below the 200-day SMA as the DXY continues to trade in its recent range.

EUR sold off after the stronger than expected US CPI report. But prices kept in the recent range with the midpoint of the December rally at 1.0931 offering initial support. ECB hawks and doves have had their say this week and it is obvious there is no consensus on the Governing Council. But even allowing for stagnation into year-end, there have been zero hints around policy easing any time soon.

GBP was one of the better major performers against the dollar. Again, prices remain rangebound with eyes on GDP tomorrow and then wage growth and CPI on Tuesday and Wednesday next week.  

USD/JPY pushed modestly north and into the 50-day SMA at 146.37. Treasury yields popped higher but then retraced, which saw the major close lower on the day. The 10-year yield hit resistance at the 200-day SMA at 4.06% and eventually settled lower and below the crucial the 4% level.

AUD was the worst performing major with prices breaking down towards the NFP spike low at 0.6640. A Major Fib level of the October rally sits at 0.6641 to reinforce this area of support. Focus will turn to next week’s jobs data on Thursday.

Stocks: US equities finished mixed after a round trip encompassing a 1% sell-off before a rebound into the close and a rise above record highs. The S&P 500 lost 0.07% to settle at 4,780. The tech-dominated Nasdaq 100 finished 0.17% higher at 16,820. The Dow gained 0.04% to close at 37,711.Price action was whippy with stocks selling off quite sharply after the marginally stronger CPI numbers. But the moves were pared through the session. Tech led the gains as Microsoft overtook Apple as the world’s most valuable company.

Asian futures are in the red. Stocks were firmer on Thursday after gains in the US. The Nikkei 225 continued its stellar run and broke 35,000 for the first time since February 1990. The Hang Seng was bid with advances in tech and autos, but the mainland lagged ahead of potential frictions from the imminent Taiwan election.

Gold looked to be turning lower for a second day as it touched the 50-day SMA at $2013. A stronger dollar and very marginal higher yields after the US inflation numbers didn’t help gold bugs. But the precious metal rebounded as yields moved lower in the last couple of hours of trading.

Day Ahead – China CPI and UK GDP

China slipped further into deflation during November, but this dip may ease closer back to zero in the final month of the year. Gasoline and food prices are not falling as much, and this may help allay fears of a deflationary spiral. Core inflation, which strips out energy and food costs, remained steady at 0.6% in November and some economists see it rising in the first half of 2024 due to a rise in policy support.

UK monthly GDP is expected to bounce after a disappointing October. Headlines will focus on the chance of a technical recession with a second straight -0.1% print highly possible. Stagnation seems like an old story so any type of upside surprise could be market moving. Real wage growth is improving and there may be tax cuts in the Spring Budget. This could underpin long-term support for GBP.

Chart of the Day – Dow consolidates near record high

As we said yesterday, the longer prices track sideways in narrow ranges, the bigger the breakout and range expansion will eventually take place. This is generally in line with the dominant long-term trend. The Dow made all-time highs at the end of last year and the very start of 2024. Since then, prices have traded in a relatively narrow range between support at 37,250 and 37,800 more or less.

The fourth quarter earnings season kick off tomorrow with major US banks reporting. FactSet predict the fourth highest earnings decline of all major 11 sectors for the financial sector. Focus will be on the state of the consumer and on default trends. Banks have enjoyed a wide rally in recent months on the hoped-for turn in interest rates and a soft landing for the US economy.

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