Global markets turned cautious before the Fed’s decision as strong U.S. retail sales cooled rate cut hopes, while China’s record capital outflows and BOJ hike speculation dominated currency price action on Tuesday.
Read on to see the exactly how the major assets traded in the last trading sessions!
Headlines:
- China’s capital markets outflow reached a record high of $45.7 billion in November
- U.K. jobless claimants in Nov: 0.3K (28.2K expected, -10.9K previous); Average earnings accelerated from 4.4% to 5.2% (4.6% expected) in Oct; The unemployment rate steadied at 4.3% as expected in Oct
- IfO: Sentiment among companies in Germany has worsened, down from 85.6 to 84.7 in December, marking its lowest since May 2020
- German ZEW economic sentiment shot up from 7.4 to 15.7 (6.8 expected) in December as snap elections loom
- Eurozone ZEW economic sentiment improved from 12.5 to 17.0 (12.2 expected) in December
- Euro Area trade surplus shrank from 12.6B EUR to 6.1B EUR (11.7B EUR expected) as imports (+3.2% m/m) outpaced exports (+2.1% m/m) in October
- Canada inflation slowed slightly from 2.0% y/y to 1.9% y/y in November; Monthly headline CPI was unchanged at 0.4%; Monthly core CPI slowed from 0.4% to -0.1%
- U.S. retail sales accelerated from 0.5% m/m to 0.7% m/m in November; Core retail sales steadied at 0.2%
- U.S. industrial production for November: -0.1% m/m (0.3% expected, -0.4% previous); Capacity utilization rate decreased from 77.0% to 76.8%
- Westpac: New Zealand consumer sentiment shot up from 90.8 to 97.5 in Q3 2024
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets played it safe ahead of Wednesday’s big Fed decision, with the Dow notching its ninth straight loss – the longest losing streak since 1978. Stronger-than-expected U.S. retail sales data put a dent in hopes for 2025 rate cuts, pushing Treasury yields and the dollar higher while weighing on riskier assets.
Gold fell for the fourth day in a row, as rising yields and a stronger dollar sapped demand for the non-yielding metal. Crude oil slipped on worries about slowing Chinese demand after data revealed record capital outflows from China’s markets in November. Still, prices managed a late rebound thanks to lingering tensions in the Middle East.
Bitcoin also edged lower alongside other risk assets, with traders staying on the sidelines ahead of the Fed meeting. Markets are laser-focused on whether the central bank hints at a slower pace of rate cuts next year, given inflation’s stubborn streak.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar strengthened against most major currencies after solid retail sales data cooled hopes for aggressive rate cuts in 2025. Still, gains were capped by growing speculation over the Fed’s next move. The yen stood out as a top performer, with rising expectations that the BOJ might finally ditch negative rates at Thursday’s meeting, pulling USD/JPY lower despite overall dollar strength.
The Aussie and Kiwi struggled during Asian trading, weighed down by concerns about China’s economy after data showed record capital outflows. Sterling held firm on stronger-than-expected UK wage growth, even with unemployment steady at 4.3%.
The Canadian dollar sank to fresh lows amid political drama surrounding calls for PM Trudeau’s resignation, while the euro dipped as German business sentiment hit a three-year low.
Upcoming Potential Catalysts on the Economic Calendar:
- U.K. CPI reports at 7:00 am GMT
- U.K. PPI reports at 7:00 am GMT
- U.K. retail price index at 7:00 am GMT
- German Bundesbank President Nagel to give a speech at 9:30 am GMT
- U.K. house price index at 9:30 am GMT
- Euro Area final CPI reports at 10:00 am GMT
- U.K. CBI industrial order expectations at 11:00 am GMT
- U.S. building permits at 1:30 pm GMT
- U.S. current account balance at 1:30 pm GMT
- U.S. housing starts at 1:30 pm GMT
- SNB quarterly bulletin at 2:00 pm GMT
- EIA crude oil inventories at 3:30 pm GMT
- U.S. FOMC statement at 7:00 pm GMT
- U.S. FOMC press conference at 7:30 pm GMT
- New Zealand GDP at 9:45 pm GMT
The European session kicks off with key U.K. inflation data, ECB member Nagel’s speech, and final Euro Area CPI reports, setting the tone for European markets.
In the U.S. session, all eyes will be on the FOMC statement at 7:00 pm GMT and Chair Powell’s press conference at 7:30 pm GMT, where traders will look for clues on future interest rate moves and economic projections, potentially setting the tone for USD trends for the rest of the week.
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