Financial Markets Today: Quick Take – December 22, 2022

Note: This is the final Saxo Market Quick Take until Monday January 2, 2023.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

S&P 500 futures rallied 1.5% yesterday closing above the 50-day moving average as positive earnings from Nike helped lift sentiment yesterday and provided a positive assessment of the US consumer. Equity trading will slowly enter hibernation as the holiday period approaches so expect little price action today and tomorrow.

Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied on stimulus rhetoric and talk of shortening quarantine

The Hang Seng Index rallied 2.4% and CSI 300 climbed 0.4% as of writing, after China’s State Council, the People’s Bank of China, and the China Securities Regulatory Commission separately released meeting readout or statements to pledge to implement the decisions from the recent Central Economic Work Conference to boost the economy, support the property sector, and the internet platform companies. Adding to the risk-on sentiment is market chatter about the shortening of quarantine to three days. Mega-cap China internet stocks surged 3% to 6%. Leading retail and catering stocks jumped by 2% to 11%.

FX: choppy markets as USD starts day on a weak footing

Some gentle back and forth in FX yesterday as the USD put on a show of rallying, while most of the action has been in the crosses and the greenback has eased back lower after a strong session for risk sentiment yesterday and lower US treasury yields helping USDJPY back lower after its traumatic sell-off and broad JPY rally on Tuesday’s surprise tweak of BoJ policy. The biggest mover to the upside has been the Aussie, which is enjoying the more friendly diplomatic tone with China and has suddenly rallied in the crosses, especially in AUDNZD, on more rhetoric overnight from China on its intent to boost growth.

Crude oil (CLG3 & LCOG3) rally extends on US inventory data

Crude oil closed at the highest level since December 5 after the US DoE inventory reports showed a nearly 6M barrel draw on crude oil stocks, while gasoline inventory levels rose nearly 2.5M barrels, a half million more than expected, and distillates inventories fell –242k vs. A rise of 1.5M barrels expected. Gasoline and distillate stocks have been generally building of late, but the latter remains slightly below the inventory range of the past 5 years.

Gold (XAUUSD) and silver (XAGUSD) remain near recent highs

... after surging in the wake of the Bank of Japan policy tweak on Tuesday and despite yields easing lower yesterday in the US. BOth 2020 and 2021 saw gold ending the year on a strong note and then sharp follow-on rallies in January were quickly reversed.

Yields on US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) remained subdued despite surge in US Consumer Confidence

US Treasury yields eased lower all along the curve yesterday despite a large and unexpected surge in US Consumer Confidence as that same survey’s drop in inflation expectations may have received more attention. Later in the day, a strong US 20-year auction, where bidding metrics were the firmest since this spring. End-of-year portfolio rebalancing may obscure the next bigger move for treasuries until we roll into the New Year.

What is going on?

Mixed U.S. data: weaker home sales, higher consumer confidence, lower inflation expectations

Economic data were mixed. The 1-year-ahead inflation expectation in the Conference Board Consumer Confidence survey softened from 7.1% in November to 6.7% in December, the lowest since September of 2021. On the other hand, Headline consumer confidence as well as the present situation and expectations components rose in the Conference Board Consumer Confidence survey. The headline consumer confidence improved to 108.2, (vs consensus 101.0; Nov: 101.4), the highest level since April this year. Elsewhere, the annualized rate of existing home sales fell -7.7% in November, the 10th consecutive month of declines as the historic surge in US mortgage rates this year continues to pressure the US housing market.

Micron shares down 2% as glut in memory chips continues

The US memory chip manufacturer delivered last night a positive surprise on FY23 Q1 (ending 1 December) adjusted EPS at $0.04 vs est. $-0.88 and announced a 10% headcount reduction to reduce costs. The real negative surprise was the Q2 revenue outlook of $3.6-4bn vs est. $3.9bn and the Q2 adjusted gross margin of 6-11% vs est. 17.8% suggesting significant pricing headwinds compared to market expectations. Micron is also drastically reducing its 2024 capex plans.

China and Australia seek to improve the relationship between the two countries

During a phone call to mark the 50th anniversary of the official diplomatic relationship between China and Australia, China’s President Xi told Australian Prime Minister Anthony Albanese that China would seek to “promote a sustainable development of the China-Australia comprehensive strategic partnership”. Meanwhile, Australian Foreign Minister Penny Wong told reporters that China and Australia agreed to continue high-level dialogue on issues including the removal of China’s trade sanctions on Australian goods.

What are we watching next?

Japan’s November Inflation data up tonight

After an historic move in the JPY this week, the market will be watching the latest batch of Japan’s CPI data, which has surged to multi-decade highs recently and is expected in at +3.9% YoY for the headline and +2.8% YoY ex Fresh Food and Energy. The rally in the JPY by some 12% from its lows of two months ago will help moderate the relative inflation risks for Japan.

US PCE inflation data for November out tomorrow

This is arguably the last interesting macro data point out of the US until the first week of the New Year. The PCE data is expected to show that core inflation will drop sharply to 4.6% YoY vs. 5.0% in October, while the headline is expected in at 5.5% versus 6.0% in October. Hotter than expected inflation readings will be an interesting test for markets in coming months as the market has a strong view that the Fed is poised to halt rate hikes as soon as Q2 of next year and will be cutting by year end, despite the Fed “dot plot” projections suggesting the Fed will have a policy rate at the end of next year of above 5% (versus 4.25%-4.50% now).

Earnings to watch

The earnings calendar is winding down for the year, with payroll and HR-services company Paychex reporting today before the market opens and struggling US used car seller and servicer CarMax, which is trading near its lows for the year, likewise reports before the market open today.

• Today: Paychex, CarMax
• Friday: Nitori

Economic calendar highlights for today (times GMT)

• 1100 – Turkey Rate Announcement
• 1330 – US Weekly Initial Jobless Claims
• 1530 – US Weekly Natural Gas Storage Change
• 2330 – Japan Nov. CPI

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