InvestMacro

By JustMarkets

In the US, the Personal Consumption Price Index (PCE) rose by 0.1% last month after rising 0.4% in October. The latest data signaled that the PCE index was slowing, reinforcing expectations for a smaller interest rate hike by the Federal Reserve and improving investor appetite for risk. At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 0.53% (+0.86% for the week), and the S&P 500 Index (US500) added 0.59% (-0.23% for the week). The NASDAQ Technology Index (US100) was up 0.21% on Friday (-1.96% for the week).

Holiday sales in the US rose by 7.6% despite inflationary pressures. Consumer spending accounts for nearly 70% of US economic activity, but Americans remain resilient. But problems began to appear, as higher prices for necessities are taking a larger share of total wages. The US durable goods orders fell by 2.1% in November, compared to an expected 0.6% decline.

According to CEBR (Center for Economic and Business Research), higher borrowing costs to fight inflation will cause several economies to contract next year. The report adds that the battle against inflation is not yet won. Analysts expect central banks to stick with their stance in 2023 despite the economic costs. The price of reducing inflation to a more comfortable level is the worst growth prospect for many years. The findings are more pessimistic than the International Monetary Fund’s latest forecast. CEBR takes its baseline data from the IMF’s World Economic Outlook and uses an internal model to forecast growth, inflation, and exchange rates.

Equity markets in Europe traded flat last week. German DAX (DE30) gained 0.19% on Friday (+0.04% for the week), French CAC 40 (FR40) lost 0.20% (+0.52% for the week), Spanish IBEX 35 (ES35) was down 0.01% (+1.84% for the week), British FTSE 100 (UK100) closed on Friday up by 0.05% (+1.92% for the week).

Britain’s turbulent year is coming to an end, and there are a few signs that 2023 will be more optimistic. Signs of a painful economic downturn in the UK continue to pile up. The options market is also showing skepticism, with traders still gloomy about the long-term outlook. Opportunities for growth next year may be limited by divergent central bank policies, as the Bank of England looks increasingly dovish compared to comparable banks. In addition, the UK economy is wobbly, budget deficits are skyrocketing, and double-digit inflation has caused the steepest drop in living standards in recorded history, curbing spending and causing the worst industrial turmoil in decades. The housing market also looks vulnerable. Yield spreads between two- and 10-year swaps tied to the overnight rate, an indicator of recession risks, also point to a longer recession in the UK than in other major economies.

Oil prices rose to a three-week high on Tuesday as China’s latest easing of COVID-19 restrictions raised hopes for fuel demand, and concerns that winter storms in the United States are affecting energy production continue to support prices. Cold freezing temperatures and a heavy snowstorm on Friday left thousands of homes in the United States without power, which not only increased heating and electricity prices but also increased the death toll. Airlines canceled about 2,700 flights in the United States after weather disrupted airports across the country.

Parts of the Asian market did not trade yesterday. Japan’s Nikkei 225 (JP225) gained 0.65%, China’s FTSE China A50 (CHA50) fell by 0.45%, Hong Kong’s Hang Seng (HK50) ended Friday down by 0.44%, India’s NIFTY 50 (IND50) rose by 1.17%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.63%.

On Monday, Bank of Japan (BOJ) Governor Haruhiko Kuroda denied the possibility of a short-term exit from the super-soft monetary policy but expressed hope that the growing labor shortage will force firms to raise wages. Kuroda said the Bank of Japan’s decision last week to widen the permissible range around its yield target was aimed at boosting the effect of its super-soft policy, not a first step toward canceling a massive stimulus program. The BoJ will aim for sustained and stable price targets accompanied by wage increases while continuing to ease monetary policy under yield curve control.

China sent 71 warplanes and 7 ships toward Taiwan. Of these, 43 planes also crossed the middle line of the Taiwan Strait, an unofficial buffer zone between the two sides. Taiwan’s official Central News Agency said it was the largest incursion by the Chinese Air Force to date. The White House said the United States was concerned about Chinese military activity near Taiwan, which it called “provocative” and “destabilizing,” adding that it could lead to miscalculation and undermine regional stability. China, for its part, is showing strength in response to the US defense bill, which authorizes increased security cooperation with Taiwan.

China infected 248 million people with COVID-19 in December. And last week, a new daily infection record was set, with 37 million Chinese infected in 24 hours. But despite such a surge in illness, Beijing and Shanghai returned to work on Monday. China raised its estimate of gross domestic product (GDP) growth in 2021 to 8.4% from 8.1% previously, the National Bureau of Statistics said Tuesday.

In the commodities market, futures on gasoline (+11.24%), WTI crude (+6.57%), cocoa (+6.55%), BRENT oil (+6.24%), sugar (+4.53%), coffee (+4.5%), cotton (+3.93%), platinum (+3.09%), wheat (+2.79%) and palladium (+2.69%) showed the biggest gains by the end of the week. Futures on natural gas futures (-24.02%) and orange juice futures (-3.35%) showed the biggest drop.

S&P 500 (F) (US500) 3,844.82 +22.43 (+0.59%)

Dow Jones (US30) 33,203.93 +176.44 (+0.53%)

DAX (DE40) 13,940.93 +26.86 (+0.19%)

FTSE 100 (UK100) 7,473.01 +3.73 (+0.050%)

USD Index 104.33 -0.11 (-0.10%)

• – Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
• – Japan Retail Sales (m/m) at 01:30 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By ForexTime

Stock markets are gaining while the US dollar is softening after China announced it would drop its quarantine requirements for inbound visitors. This further eases three-year border controls aimed at curbing Covid-19.

The authorities also downgraded the seriousness of the virus as it gradually evolves into a common respiratory infection. The latest policy moves from China indicated that economic activity in most major cities may return to normal very quickly which is positive for investors.

Asia-Pacific stocks are in the green while the aussie is the standout currency major. Some markets including in Hong Kong and Australia remain closed on Tuesday.

US stocks futures are showing decent gains with markets in holiday mode with thin volumes and liquidity.

Wall Street had closed higher on Friday with the benchmark S&P500 ending 0.6% higher but Friday’s gains were not enough to stop both the benchmark broader index and the tech-heavy Nasdaq closing lower for a third week in a row.

That is the first such losing streak since September and with four days of trading left this year, sees the S&P500 and Nasdaq losing around 20% and 33% respectively, which is the worst performance since the GFC 2008 crisis.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By JustMarkets

In the US, higher-than-expected Gross Domestic Product (GDP) growth of 3.2% in the third quarter – compared to forecasts of 2.9% growth – has returned fears of an interest rate hike to the market. This led to a strengthening of the dollar index and a selloff in the stock market. As the stock market closed, the Dow Jones Index (US30) decreased by 1.05%, and the S&P 500 Index (US500) lost 1.45%. The Technology Index NASDAQ (US100) closed the day at minus 2.18%.

Strong economic data may force the Federal Reserve back to a more hawkish mood. The Fed is especially concerned that a strong labor market gives more oxygen to inflation, which has declined slightly in recent months but is still at its highest level in decades. Therefore, the Fed may have to continue raising interest rates and keep them high for a long time.

Shares of Micron Technology Inc (MU) fell more than 3% after posting quarterly results that didn’t meet expectations. The gloomy macroeconomic backdrop continues to weigh on demand. Deutsche Bank estimates there is a risk of further declines as Micron estimates point to a recovery in demand by mid-2023.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE30) decreased by 1.30%, France’s CAC 40 (FR40) lost 0.95%, Spain’s IBEX 35 (ES35) fell by 0.39%, and the British FTSE 100 (UK100) closed Thursday down by 0.37%.

ECB spokesman Luis De Guindos said yesterday that inflation in the Eurozone would be around current levels for the next 2-3 months. This coincides with other comments from ECB policymakers. In addition, de Guindos supported the hawkish stance, saying that 50 bps is now the new standard for suppressing rising inflationary pressures in the Eurozone. The ECB is expected to raise interest rates twice more with a 0.5% step.

China reiterated its focus on boosting economic growth in 2023, which helped revise the impact of crude oil demand upward. China, the world’s largest consumer and importer of crude oil, naturally influences the overall price depending on the state of the economy. Increasing demand for oil with limited supply will drive up oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.46%, China’s FTSE China A50 (CHA50) added 0.69%, Hong Kong’s Hang Seng (HK50) increased by 2.71%, India’s NIFTY 50 (IND50) was down by 0.39%, and Australia’s S&P/ASX 200 (AU200) was up 0.53% on the day.

In Japan, inflation data showed that consumer prices (excluding food energy prices) rose from 3.6% to 3.7% year-over-year, the highest since 1981. The Bank of Japan expects inflation to peak around 4% early next year. After the Bank of Japan’s shocking decision this week to let bond yields rise, higher inflation will support speculation that the central bank is nearing a policy reversal. A policy change could come in the spring of 2023 after a new governor takes the helm of the Central Bank.

S&P 500 (F) (US500) 3,822.39 −56.05 (−1.45%)

Dow Jones (US30) 33,027.49 −348.99 (−1.05%)

DAX (DE40) 13,914.07 −183.75 (−1.30%)

FTSE 100 (UK100) 7,469.28 −28.04 (−0.37%)

USD Index 104.43 +0.27 (+0.26%)

• – Japan National Core CPI (m/m) at 01:30 (GMT+2);
• – Japan Monetary Policy Meeting Minutes at 01:50 (GMT+2);
• – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
• – US Core Durable Goods Orders (m/m) at 15:30 (GMT+2);
• – US PCE Price index (m/m) at 15:30 (GMT+2);
• – Canada GDP (m/m) at 15:30 (GMT+2);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
• – US New Home Sales (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By ForexTime

The week following the Christmas weekend features sparse economic data releases and events, as markets wind down 2022.

As much of the western world continues revelling in the festivities, markets may adopt a more Asian-centric focus over the coming week:

Monday, December 26

• JPY: BOJ Governor Haruhiko Kuroda speech
• US, UK, and European markets closed

Tuesday, December 27

• CNH: China November industrial profits
• JPY: Japan November retail sales, jobless rate
• UK markets closed

Wednesday, December 28

• JPY: Bank of Japan summary of opinions, Japan November industrial production

Thursday, December 29

• EUR: ECB releases Economic Bulletin
• USD: US weekly initial jobless claims

Friday, December 30

• US bond market closes early

The Japanese Yen could receive special attention, in light of the recent stunner by the Bank of Japan.

In case you missed it, on December 20th, the BoJ unexpectedly widened the band on 10-year yields, which also doubled the ceiling from 0.25% to 0.50%.

The Japanese Yen soared alongside the surge in yields, with markets now believing that this week’s policy tweak paves the way for an eventual rate hike by the Bank of Japan in 2023.

Following the recent policy shocker, Governor Haruhiko Kuroda harped on the idea that the tweak to the BoJ’s yield curve control programme was not a rate hike.

Yet, markets believe otherwise.

At the time of writing, markets are forecasting 4 rate hikes by the BoJ in 2023, with the first perhaps to be triggered in April, when Kuroda steps down as the central bank governor.

READ MORE: Why is the Japanese Yen soaring?

Such expectations will frame BoJ Governor Haruhiko Kuroda’s speech on Monday.

If Kuroda lets slip more hawkish policy clues, that may translate into JPY strength before this calendar year is over.

And the JPY could push higher if the following economic data out of Japan over the coming week also point to some resilience in the Japanese economy, which would lower the bar for BoJ rate hikes in 2023.

2 reasons for the Yen’s pullback today (Friday, Dec 23)

1. Japan’s (slightly) lower-than-expected November inflation

   Japan’s National consumer price index (CPI) released earlier today (Friday, Dec 23) came in at 3.8% for November, a touch below market forecasts of 3.9%.

   That is casting slight doubts on whether Japan’s inflation is problematic enough to warrant a BoJ rate hike, with such doubts perhaps prompting the paring of JPY’s gains against all of its G10 peers.

   Yet, that 3.8% headline inflation figure is still rising at its fastest pace since 1981.

   That suggests that the BoJ would ultimately have to make a pivot away from its ultra-dovish stance, having kept its benchmark rate unchanged at negative 0.1% all of this year. That’s in stark contrast to its global peers have been hiking aggressively to combat the inflation scourge.

2. Recovery from “oversold” conditions

   USDJPY’s 14-day relative strength index has recently bounced off the 30 threshold which denotes ‘oversold’ conditions (this currency pair fell too far too fast).

   However, once the froth has been cleared, it could pave the way for further declines for USDJPY.

Potential technical catalyst for further USDJPY declines

At the time of writing, note how this currency pair’s shorter-term 21-day simple moving average (SMA) is just pips away from dropping below its longer-term, 200-day counterpart.

Such a bearish technical event may send USDJPY even lower.

However, USDJPY bears must first overcome a key support region around the 131.0 mark, which helped shored up this FX pair back in August, while also serving as a crucial resistance level back in April/May.

Hence, this coming week’s combo of:

• fundamental factors: Kuroda speech, Japan economic data
• technical factors: bearish cross?

 … may combine to force USDJPY even lower over the coming week and set the tone for USDJPY in 2023, especially given market expectations for the eventual BoJ rate hike(s).

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com