Stock indices waver and await catalysts as USD steadies

Headlines

* Risk markets mostly subdued ahead of earnings and CPI

* USD regains losses with support from stable Treasury yields

* Bitcoin chaos after “unauthorised” SEC post signals spot ETF approval

* US trade deficit unexpectedly narrows as services surplus rises

FX: USD bounced back from Monday’s losses but remained in a relatively narrow range and held above the 102 level. Yields stayed steady with eyes on Fedspeak and US inflation data. The first two months of the year are seasonally positive for the greenback.

EUR drifted lower in another narrow range day. There was mixed data with poor German industrial production and the lowest ever unemployment rate in the region (6.4%). The tight labour market should bolster the ECB hawks to refrain from rate cuts in the coming months.

GBP ended its run of consecutive days of gains. But ranges were narrow, and an inside day printed. Bank of England Governor Bailey speaks today and is expected to push back against rate cuts which have been priced into markets.

USD/JPY outperformed as the BoJ reined in bond buys, but prices bounced off the 200-day SMA at 143.35. Core inflation in Tokyo slowed for the second straight month in December but was in line with consensus estimates. Tokyo CPI acts as a leading indicator for the national inflation data, which is due to be released next week. Easing prices potentially take some pressure off the Bank of Japan to rush into an exit from its ultra-loose monetary policy. A key part of the puzzle is higher wage growth and markets get an update early today with November data.

AUD underperformed on the weaker risk mood and softer metals.  USD/CAD is again looking to break higher after consolidating over recent sessions. Resistance is at 1.34 ahead of the midpoint of the summer sell-off and 200-day SMA just below 1.35.  

Stocks: US equities were muted with mixed performance. The S&P 500 lost 0.15% to settle at 4,756. The tech-dominated Nasdaq 100 finished 0.17% higher at 16,678. The Dow lagged again as Boeing slipped for a second day.There were few major drivers of equities as investors await the PCI data on Thursday and then the start of the fourth quarter earnings season. The majority of the 11 major S&P sectors fell with energy the weakest.

Asian futures are mixed. Stocks benefitted from the strong tech performance on Wall Street helped by lower yields and a sharp fall in crude oil prices. The Nikkei printed at its highest since March 1990 and rallied just shy of 34,000. The ASX 200 climbed above 7,500 with tech and consumer-related sectors leading the gains.

Gold traded in a narrow range as bond yields also didn’t veer much. The 10-year US Treasury, the global proxy for borrowing costs, hovered just above the key psychological 4% level.

Day Ahead – Australia monthly CPI

Inflation is hopefully falling decisively through the 5% marker in the November print released today. It is expected to cool to 4.4% from 4.9%. Unseasonal cold weather last year saw food and energy prices spike. But this is unlikely to be repeated and there could be a downside surprise on these base effects. We note that the RBA’s preferred price gauge is the quarterly data.

Last month saw the RBA leave rates unchanged after a November 25bp hike. That came after four straight months of unchanged rates and then a rebound in inflation. That hike bucked the pausing trend among most developed central banks. But markets interpreted the statement as an implicit admission that rates have peaked at 4.35%. Going forward, some economists reckon there are outside risks of hawkish surprises, certainly in comparison to the Fed and its potential easing cycle. Inflation remains sticky and the RBA remains on watch.

Chart of the Day – AUD/USD retrace held up

AUD/USD dropped to a 12-month low in late October at 0.6270. Since then, prices pushed higher in an ascending channel until the top late last month at 0.6871. Long-term resistance was seen above here, with the peaks from June and July last year just below 0.69. The major sold off through to the start of this year with prices dipping to a major Fib level of this move (38.2%) at 0.6641. Below here is the 50-day SMA at 0.6613, with the pair just currently edging out of the bull channel.

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