Stocks wobble as Wall Street takes a breather

Headlines

* Stock rally stalls at start of a data-packed week

* ECB’s Lagarde sees more disinflation but seeks proof of return to 2%

* Bitcoin tops $53,000 to levels last seen in November 2021

* Oil rises on US physical market’s strength, China demand hopes

FX: USD had a quiet, down day after its first week of losses in five. Prices are trading just above the 200-day SMA at 103.73 but below the 50% mark of the Q4 selloff at 103.86. Focus is on the core PCE inflation data on Thursday. We do get second tier data today in the form of durable goods and consumer confidence tomorrow.

EUR pushed above its 200-day SMA is at 1.0826. On Friday, ECB’s Lagarde said that Q4 wage numbers are encouraging as pay growth slowed to 4.5%. She also stressed that the ECB is independent, hinting that it may not wait for the Fed to cut rates first.

GBP traded in a narrow range around its 50-day SMA at 1.2676. Bullish momentum on intraday and daily timeframes is looking better with five straight days of gains. But 1.27 is a barrier to more upside and it’s a quiet week for GBP with little data and just a few BOE speakers.

USD/JPY is edging higher as Treasury yields clawed back gains after Friday’s tumble. Prices look to edging up to the month-to-date top at 150.88. Focus is on CPI data released shortly. The intervention high at 151.94 looms very large.

AUD and NZD are softer on the muted risk mood and caution ahead of the RBNZ. The midpoint of the Q4 rally in AUD/USD sits at 0.6571. USD/CAD is a moderate underperformer on weaker commodity prices and risk sentiment. That said, crude has picked up after an initial sell-off. Wider spreads pulled the loonie lower after soft CPI last week.

Stocks: US equities were modestly in the red in a quieter session after last week’s fireworks. The benchmark S&P 500 closed 0.38% lower at 5,070. The Nasdaq 100 slid 0.02% to finish at 17,993. The Dow Jones settled 0.16% down at 39,069. Energy outperformed as did small caps. Berkshire Hathaway stock slipped after record earnings. In his annual letter, Warren Buffett said he did not see meaningful opportunities in deploying the company’s record $167.7 billion cash balance and Berkshire Hathaway has “no possibility of eye-popping performance. Nvidia added to last week’s record gains as options traders continued to add to bets that the stock will keep on rising.

Asian futures are mildly green. APAC stocks were generally subdued on Monday ahead of month end, with weekend macro news light. The Nikkei 225 outperformed hitting a fresh high after traders returned from a long weekend. In contrast, China snapped a nine-day win streak amid ongoing trade frictions with the US.

Gold paused for breath as yields rose. Its 50-day SMA is at $2023. The halfway point of the November rally resides at $2040.

Day Ahead – Japan CPI

We get Japan CPI numbers for January to kick off the day. They are expected to show both headline and core inflation moving to 1.9% from 2.3% in December, falling under the 2.0% Bank of Japan target for the first time since March 2022.

Tokyo CPI is a forerunner to the national figure and that showed a notable slowdown, falling to 1.6% vs 2% expected and the prior 2.4%. This was essentially due to base effects and a slowdown in food and services inflation which contributed to over 70% of the decline. Similar sized disinflation prints could prompt markets to price out a June hike.

Chart of the Day – USD/JPY edging higher

Bigger than expected falls in the CPI report would see buying pressure in USD/JPY. That could push the major beyond the 150.90 February highs and potentially test the 151/152 November highs. That was the previous area where markets suspected the Japanese authorities would intervene, as they had done for the first time in decades a year before.

In the end, falling US 10-year Treasury yields helped as they tumbled from above 4.50% down to below 3.80%. There is a strong correlation between those yields and the major. They have come up against the 4.33% resistance barrier recently, so this area is key for more upside in the pair.

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