With U.S. stock markets closed for the day, market participants turned their attention to changes in market sentiment, as well as the Challenger jobs report and Fed commentary.
Risk assets had a mixed run, with commodities like gold and crude oil raking in strong gains while bitcoin continued its slide below the $100K mark.
Let’s dive into the latest market updates!
Headlines:
- Japan cash earnings rose 3.0% y/y – the fastest in 32 years – in November (2.7% expected, 2.2% previous)
- Australia retail sales for November: 0.8% m/m (1.0% expected, 0.5% previous)
- Australia goods trade surplus for November: 7.08B AUD (5.62B AUD expected, 5.67B AUD previous)
- Chinese Inflation Rate YoY in December: 0.1% m/m (0.20% forecast; 0.20% previous)
- Chinese PPI YoY in December: -2.3% (-2.40% forecast; -2.50% previous)
- German industrial production in November: +1.5% m/m (0.5% forecast, -0.4% previous)
- German trade balance in November: 19.7B EUR (14.7B EUR forecast, 13.4B EUR previous)
- Swiss foreign currency reserves up from 725B CHF to 731B CHF in December
- Euro area retail sales in November: +0.1% m/m (0.3% expected, -0.3% previous)
- U.S. Challenger job cuts in December: 11.4% y/y (26.8% previous)
- FOMC officials emphasized gradual data-dependent approach to easing:
- Fed official Collins noted that the December cut provided insurance for the labor market
- Fed official Harker says they remain on a rate-cutting path but might be appropriate to pause given uncertainties
- Fed official Schmid mentioned that their interest rate policy may be “near” its long-term target and that they are “pretty close” to achieving both its mandates
- Fed official Bowman said that the December cut was the “final step” in recalibrating policy and that she even considered voting to hold
- U.S. stock markets closed on a national day of mourning for former President Carter
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Market activity was relatively subdued early on, as major asset classes traded sideways. Crude oil, which initially spent most of the Asian and London sessions in the red, turned higher as the day went on and eventually closed 1.07% in the green.
Gold also picked up steam on its climb, as it likely took advantage of safe-haven flows stemming from trade-related uncertainties, ending 0.27% higher for the day despite a stronger U.S. dollar. Bitcoin, however, extended its current decline and dropped more than $3,000 to trade just slightly above the $91,000 level.
Treasury yields bottomed out after the Challenger job cuts report was released and found more support from relatively upbeat remarks from Fed officials.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar was on solid footing for the most part of the day, staying in the green against majority of its counterparts, except the much stronger Japanese yen.
Safe-haven flows on account of global uncertainties from trade and geopolitical tensions likely kept the lower-yielding currency supported, along with an improvement in the Challenger job cuts report and somewhat neutral to hawkish remarks from FOMC members.
In particular, Fed officials Collins, Schmid and Bowman sounded a tad more hawkish than before, citing that the Fed may be closer to hitting its inflation targets while still emphasizing a gradual easing path.
The dollar chalked up its strongest lead versus the relatively weaker pound, which still seemed to be reeling from the rise in U.K. gilt yields and the prospect of the government ditching its fiscal plans.
The Aussie and Kiwi also saw weakness, likely weighed down by unimpressive Australian data and talks of an RBA cut, along with risk-off vibes and deflation woes sparked by China’s CPI release.
Upcoming Potential Catalysts on the Economic Calendar:
Whether or not the Greenback can hold on to its latest winnings could hinge on the upcoming U.S. non-farm payrolls report for December, as a strong print could underscore the Fed’s relatively rosy outlook.
Look out for additional volatility among Loonie pairs as well since Canada will be releasing its latest employment figures, likely influencing the Bank of Canada’s policy bias.
