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Morning Brew December 18 2023
Erik Schafhauser
Senior Relationship Manager
Summary: BOJ and PCE up this week after Fed Pivot
Good Morning
Before my holiday, I raised the question it the Fed projection was off or if Rate traders were wrong in their rate cut expectation, The Fed caved in and is now seeing three cuts in 2024. A small but powerful tweak to the statement provided the strongest signal that the tightening cycle is over. A key phrase from the last statement — “in determining the extent of additional policy firming” — was changed, with “additional” replaced by “any.” This reinforce the markets view that the Fed believe rates are sufficiently restrictive, and that no more hikes are needed. Rate traders now see 6 cuts in 2024 – the year end rate is being traded at 3.84. The ECB is seen to cut six and a half time, the Bank of England four times and the Swiss National Bank three times.
Last week`s moves were astounding to say the least: Equities surged after the Fed signaled lower borrowing costs in 2024. For the week, the Dow gained 2.9%, the Nasdaq 2.8% and the S&P 500 2.5%. Volume on U.S. exchanges was huge at 19.76 billion shares, compared with the 11.80 billion average
John Williams hit the wires with hawkish comments on Friday, reversing the massive USD weakness somewhat, the USD Index rose from 102.59 from a low below 102 – over the weekend the USD index is a little lower again to 102.43.
US Ten Year yields are at below 4% at 3.91, EURUSD fell to 1.0895 from almost 1.10 but still 1.2% higher than a week ago, GBPUSD gained 1% in the week, USDJPY fell 2.7%. Gold rose nearly 2% last week to close at 2019 and Silver gained 4.6%. The two precious Metals are now back in the Uptrend. They are also one of the key stores of the week, here the key articles:
Read Ole lates update on Gold here: https://www.saxotrader.com/d/article/9d89eace-ab55-44a7-bc06-5e2490ca7af0
And: https://www.saxotrader.com/d/article/9dd8df4f-0e98-4d6a-b993-b9c4acb9a7b2
Technical update from Kim Cramer: https://www.saxotrader.com/d/article/672f6d2e-dd28-4517-853a-8db8b49bae90
Ole Points out that bullish commodity bets held by leveraged funds slumped 46% in the week to December 12 to a fresh three-year low ahead of the FOMC pivot. Leaving the sector exposed to a strong price rebound should the tech and/or fund outlook turn more favorable. Crude oil long at an 11-year low https://x.com/Ole_S_Hansen/status/1736398944110789069?s=20
Maersk and Hapag Lloyd will avoid the Suez Canal, as Houthi militants attack ships in the area. This will have an impact on shipping times
The Week ahead is already light in terms of data but we have significant event risk form mainly the EU HICP tomorrow, the Bank of Japan and we will head into the Christmas break with a bang: Friday afternoon we are expecting the US PCU and Durable Goods orders.
As usual, be careful with wide Swap points over the holidays, avoid them by using forwards or options. Feel free to contact us if you need guidance.
Key Events:
Monday
- Data: Germany IFO,
Tuesday
- Data: EU HICP, US Housing Starts, Canada CPI, Japan Rate Decision
Wednesday
- Data Japan Trade, China Rate decision, UK CPI, EU & US consumer confidences
Thursday
- Data: Turkey Rate decision, US GDP, Canada Retail Sales
Friday
- Data Japan CPI, US Core PCE, US Durable Goods orders, University of Michigan