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Asian markets experienced mixed performance overnight, as investors await a series of interest rate decisions from central banks, including the Federal Reserve, scheduled for this week. Chinese equity markets showed modest gains. Reports suggest that Beijing aims to set a growth target of around 5% for the coming year, alongside increasing the budget deficit to 4% of GDP. Chinese economic activity remained weak in November, with industrial production steady at +5.4% y/y, but retail sales growth fell to 3.0% y/y from 4.8% in October, below the expected 5.0%. Consumer confidence remains low, impacting consumption, which is tied to the property market outlook. Home price declines slowed, with new homes at -6.1% y/y and used homes at -8.5%. Activity is improving in tier one cities, but there is a significant overhang of unsold homes (60-80mn) nationwide. Property investment is decreasing, and while there are pockets of interest, the market needs to reach equilibrium between supply and demand for stability.The focus for the remainder of the week will be on several central bank policy announcements, especially from the United States and Japan. U.S. sentiment is generally optimistic, with the Federal Reserve’s expected quarter-point rate cut on Wednesday anticipated to boost support and further drive stock market gains. The yen ended a six-day losing streak after falling to over 154 against the dollar overnight. Its sharp decline to 155 against the dollar last week has prompted concerns that further depreciation might lead to intervention from authorities and increase pressure on the Bank of Japan to raise interest rates. Swap market pricing indicates that traders see less than a 20% chance of a rate hike in December.The December PMIs revealed a significant divergence between the US and euro area, with the US composite indicator rising to 56.6 while the euro area remained in contraction at 49.5. The UK’s composite index was at 50.5, indicating modest expansion, but employment dropped sharply due to rising costs. This situation complicates the BoE’s stance, as UK price indices remain high, leading to expectations of no change at the upcoming MPC meeting.The latest UK labour market news exceeded expectations, with employment up 173k in October compared to a +5k consensus and average weekly earnings growth at 5.2% versus an anticipated 4.6%. However, the ONS report highlights methodological issues with the Labour Force Survey, focusing on technical details rather than current outcomes. Additionally, LFS data only goes up to October, before the budget, which has altered employment outlooks. A recent flash PMI indicated a drop in the employment index for December, suggesting a more accurate reflection of employment trends. Notably, private sector regular pay rose to 5.4% in October, up from 4.9%, making it likely that Q4 will surpass the 5.1% forecast from the November MPR projection, posing challenges for MPC hawks.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 13/12/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 6000
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EURUSD Bullish Above Bearish Below 1.0450
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GBPUSD Bullish Above Bearish Below 1.26
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USDJPY Bullish Above Bearish Below 154
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XAUUSD Bullish Above Bearish Below 2600
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BTCUSD Bullish Above Bearish Below 92000
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