A strong close on Wall Street was followed by a broad rally across Asian markets. An unexpected slowdown in US inflation boosted bets that the Fed’s tightening cycle is over, which brought down yields and benefited equity markets. UK inflation numbers this morning also came in a tad below market consensus, which put pressure on the Pound as investors upped bets that the BoE is also done hiking rates. The markets also brought forward the timing of rate cuts with an 88% probability of a 25 bp easing in May, and 50 bps priced in by July with 100 bps in cuts in 2024. Short covering, FOMO, and the break of technicals added to the gains. The belly of the Treasury curve outperformed on the Fed implications.
- US House voted for a short term funding bill, probably averting a partial government shutdown on Saturday (336 to 95).
- UK: CPI fell to 4.6% y/y from 6.7% y/y in the previous month. It was the lowest since October 2021 and less than half the recent peak of 11.1% y/y in October 2022. Output as well as input prices are already creeping up again and headline numbers for consumer prices remain far too high for the BoE’s liking.
- China: Data was mixed but mostly disappointing, reflecting ongoing sluggish to weak activity heading into the end of the year. Fixed property investment dropped to a -9.3% y/y rate, extending the -9.1% pace of contraction in September. It is disappointing but not surprising given the deepening troubles in that sector. It is the fastest pace of contraction since the -10.0% y/y in December. Residential property sales fell, new property construction & fixed asset investment were down.
- PBoC left its 1-year median lending rate unchanged at 2.50% for a fourth consecutive meeting. The Bank offered 1.45 tln yuan ($200 bln) in cash, the largest net injection since December 2016 as officials try to counter the weakness from the beleaguered property sector.
- EURUSD has soared 2 figures to 1.088, the best since August. It was helped earlier by a better than expected German ZEW investor confidence report.
- USDJPY slumped to 150.25 from the day’s peak of 151.78. It’s been above 150.00 since November 6 and may be able to hold the line there as the BoJ still shows little inclination of normalizing policy this year.
- Stocks surged with the US100 jumping 2.37%, while the US500 climbed 1.9 and the US30 surged 1.43%. Strength was broadbased with every S&P sector closing in the green.
- USoil steadied and Gold edged higher to $1971.
- TODAY: US Retail Sales & PPI.
Interesting Mover: USDIndex plunged the most in a year, dropping 2 big figures intraday to a low of 103.81 before closing at 104.05. Next support is at 102.7-103. area.
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Andria Pichidi
Market Analyst
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