Daily Market Outlook - Monday, Dec. 4

By Patrick Munnelly of Tickmill

Monday, December 4, 2023 4:53 AM EDT

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Asia - Stocks in the Asia-Pacific region had a mixed trading session with a slight inclination towards positivity following gains on Wall Street last Friday. The positive momentum on Wall Street was attributed to a decrease in yields and an increased likelihood of Federal Reserve rate cuts next year, despite Fed Chair Powell's reluctance. However, the region's upside was limited due to a lack of significant macroeconomic news over the weekend and in anticipation of key events scheduled for the upcoming week. Gold miners experienced a boost after the precious metal initially surged above USD 2,100 per ounce, reaching a fresh record high before retracing the majority of the initial spike. The Nikkei 225 index lagged, declining by 0.6%, and briefly approaching the 33K handle to the downside, influenced by recent currency strength. The Hang Seng index and Shanghai Composite index traded indecisively, with the People's Bank of China (PBoC) Governor Pan's repeated support pledges offset by a substantial net liquidity drain. Additionally, geopolitical frictions in the South China Sea added to the uncertainty. Attention was also on Evergrande's windup hearing in a Hong Kong court, which was adjourned to January 29th, providing the company with some breathing space to work on its restructuring proposal.

Europe - There are no major UK releases today. Dovish Bank of England Monetary Policy Committee (BoE MPC) member Dhingra is scheduled to speak this morning at the final report of The Economy 2030 Inquiry event. Overnight on Tuesday, there will be the release of an early 'unofficial' indication of November nominal retail sales from the British Retail Consortium (BRC), which is expected to incorporate Black Friday sales. In October, the organisation reported annual growth of 2.6% in like-for-like sales. These events and releases provide insights into the economic conditions and consumer spending trends in the UK. The data from the BRC, especially around the Black Friday period, can be closely watched as it gives an indication of consumer behaviour and the retail sector's performance during important shopping events. Additionally, speeches and comments from MPC members can offer insights into the central bank's perspectives on the economy and potential future monetary policy decisions. Later in the week, key releases for the Eurozone include German October industrial production and the final reading of Eurozone November services PMI. Today's Eurozone Sentix survey for December, while likely to attract limited attention, provides an early gauge of investors' assessment of economic activity and prospects. Remarks today from European Central Bank (ECB) President Lagarde and Vice-President Guindos will be closely watched for insights into the central bank's perspectives on economic conditions and potential policy considerations. Investors often analyse these releases and speeches to assess the current state and outlook of the Eurozone economy.

US - Stateside, this week's headline data release is the US November labour market report scheduled for Friday. Recent data suggest that both economic activity and inflation are softening, fostering hopes of a soft landing in 2024. There are no Federal Reserve speakers scheduled for this week ahead of the policy meeting on December 12-13. Indications from Fed officials suggest that the likelihood of any policy change is remote. While some Fed policymakers have pushed back against market expectations for an early 2024 rate cut, including comments from Chair Powell on Friday, markets continue to explore that possibility. Today's US factory orders data is forecasted to show a drop of 2.4% in October after the 2.8% increase in September. Investors and analysts will closely monitor these developments for insights into the economic trajectory and potential policy adjustments.

FX Positioning & Sentiment

In December, a significant concern arises from the massive bet placed on the EUR/USD rising, as traders have wagered nearly $20 billion on this outcome. This large bet is likely to impede the upward trend. Traders tend to reduce their risk as the year comes to a close, which further exacerbates the impact of any flows on the market due to decreased liquidity. Throughout this year, the EUR/USD pair has remained within the range of 1.05-1.10. However, after reaching a point above 1.10, the EUR/USD has experienced a drop, possibly due to profit-taking.

CFTC Data

The net speculative long position for EUR has increased, while the short position for GBP has been significantly reduced. On Tuesday, the net speculative long position for EUR rose to 143,165 from the previous week's 129,654. The net speculative short position for JPY also increased to 109,237 from 105,454. Additionally, the net speculative short position for AUD decreased to 71,219 from 77,970. However, the short position for GBP decreased significantly to 7,895 from 26,098. Furthermore, there has been an increase in short positions for CHF and NZD.