Global Markets Start With A Positive Tone
STOCK INDEX FUTURES
Global markets have started the holiday-shortened week with a mildly positive tone. Chinese and Japanese equities saw a second day in a row with moderate gains, while major European stock indices and US stock index futures are showing moderate early gains. China has taken further steps to reduce their Covid restrictions including removing a quarantine requirement for overseas visitors. Chinese industrial profits came in lower than trade forecasts. The Dallas Fed’s December manufacturing business index is expected to have a mild uptick from November’s -14.4 reading.
E-Mini S&P 500: The market experienced an impressive rally this morning and also saw a recovery bounce on Friday, but the market is still inside of Thursday’s big range down day. Further easing of China COVID rules seems to be the key supportive force, but this does not seem to be the type of information that will drive markets higher. In fact, the market does not seem to have the forces in place that would cause investors to chase the market higher into the end of the year. Strong economic data is considered bearish to equity markets as that could trigger fears of recession from over tightening.
OTHER US INDEXES: The lack of urgency from investors to own equity markets along with decent returns for Treasury Notes are factors which might limit the upside on this rally. Technically, the Dow remains oversold and vulnerable to year end short covering, but it appears that investors may be waiting for a better sign of a short-term low before new buying.
DOLLAR: While the Dollar has extended a coiling price pattern since the start of last week, the longer-term trend continues to head to the downside going into year-end. Relaxation of more Chinese Covid restrictions have given more fuel to a post-holiday “risk on” mood that has put early pressure on the Dollar. Recent US economic numbers have provided mixed results that have not been uniformly strong enough for the Dollar to regain upside momentum. Near-term resistance is at 104.05 as the Dollar is unlikely to put any brakes on this pullback unless there is a flare-up of risk anxiety early this week.
EURO: The Euro has extended its recovery move through the weekend and is in striking distance of reaching a 1-week high early in today’s action. While there have few Euro zone data points for the market to digest, news that German 2-year yields have reached their highest levels since 2008 have helped to underpin the Euro early this week. In addition, the Euro should benefit from this week’s early “risk on” mood throughout global markets
YEN: While the Yen remains within the upper portion of last Tuesday’s updraft, it is on-track for a fourth negative daily result in a row. While there was a surprise downtick in Japanese unemployment, the latest Japanese retail sales reading was lower than expected. With China relaxed more of their Covid restrictions, the Yen will also be pressured by safe-haven outflows.
SWISS: The Swiss franc has pivoted back to the upside with sizable early gains this morning. The SNB appears to be more accepting of the Swiss franc’s premium to the Euro as they appear to be holding back on currency intervention, and that should keep a longer-term bullish outlook in place through year-end.
POUND: The Pound has underperformed since mid-December as it has struggled to climb back above the 200-day moving average and remains below its November month-end close. With the UK still out on holiday and with daily work stoppages weighing on sentiment, the Pound is likely to have trouble sustaining upside momentum.
CANADIAN DOLLAR: The Canadian dollar has been able to extend its recovery move back above the 50-day moving average coming into this morning’s action. Last week’s data included stronger than expected readings for Canadian GDP and Canadian CPI, and that should keep the Bank of Canada in a hawkish policy stance during the first quarter.
Treasuries have started this week within fairly tight trading ranges, but Bonds and Notes have both fallen to 4-week lows coming into this morning’s action. News that China has further reduced their Covid Restrictions has helped to fuel a “risk on” rally in many market sectors, and has put pressure on Treasuries early today. While US economic and inflation data continue to show signs of softening activity and moderating inflation pressures, the markets generally expect the Fed to continue to raise rates next year which has left some fear that a recession will take place. Stronger than expected US third quarter GDP readings, strong personal income results for November, and US jobless claims remaining close to their lowest levels since September signal that the potential for a soft landing (or better) has improved.
While the latest durable goods readings were disappointing, consumer sentiment and new home sales posted surprise upticks on Friday. The November US goods trade balance is expected to have a modest downtick from October’s $98.8 billion monthly deficit. November wholesale inventories are forecast to have a mild downtick from October’s 0.5% reading. The October Case-Shiller home price index is expected to have a moderate downtick from September’s 10.4% year-over-year rate. The October FHFA housing price index is forecast to have a modest downtick from September’s 0.1% reading. The Dallas Fed’s December manufacturing business index is expected to have a mild uptick from November’s -14.4 reading.
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