Daily Market Outlook - Thursday, Dec. 12

By Patrick Munnelly of Tickmill

Thursday, December 12, 2024 6:15 AM EST

person using MacBook Pro on table

Image Source: Unsplash

Asian markets climbed on Thursday, spurred by a tech-driven rally on Wall Street, as an expected U.S. consumer inflation report strengthened predictions of a Federal Reserve interest rate cut next week. Japan's Nikkei index surpassed 40,000 for the first time since mid-October, supported by gains in the chip sector. The yen's decline also aided the exporter-heavy index, as traders lowered their expectations for a Bank of Japan rate hike next week. Meanwhile, the Australian dollar surged after employment figures far exceeded forecasts, bouncing back from Wednesday's drop following a Reuters report hinting that Beijing might allow further yuan devaluation next year. Given that China is Australia's largest trading partner, the Australian dollar is often viewed as a liquid stand-in for the yuan. The yuan held steady above a one-week low after the central bank set a slightly stronger official rate.

At today’s ECB meeting, expectations for a rate cut may clash with Lagarde's reluctance to make firm commitments. A 25 basis point reduction in the ECB’s deposit rate, bringing it down to 3%, is the most probable outcome from the Governing Council’s meeting today. Therefore, the market's attention will be on hints regarding future actions. If a 25 basis point cut occurs today, the market anticipates over 60 basis points of cumulative easing spread across the January and March meetings. In other words, market expectations suggest a significant likelihood that one of the first two meetings in 2025 will see a 50 basis point cut, alongside a 25 basis point reduction at the other meeting. Since October, expectations had initially leaned towards a larger cut in December before tapering off. The immediate concern is that the forecasts for January and March may need to be adjusted downwards at this point. Historical patterns indicate that Lagarde tends to use press conferences to avoid making firm commitments and emphasise a'meeting by meeting' decision-making process. A continued trend of poor PMI data, for instance, could further bolster expectations for rate cuts in early 2025, but that will be addressed next week. At this moment, it may be overly optimistic to expect Lagarde to completely endorse the market's dovish outlook.

Stateside, the US is set to release its Producer Price Index (PPI) figures later today. This announcement comes just a day after the market received a consumer inflation report that was in line with expectations and not excessively high. This particular reading of consumer inflation has significantly influenced market sentiment, leading many to believe that the Federal Reserve is likely to implement a rate cut during their upcoming meeting on December 18. The anticipation surrounding these economic indicators reflects the ongoing concerns about inflation and the overall health of the economy, as investors and analysts closely monitor the Federal Reserve's actions and decisions in response to these economic signals.

Overnight Newswire Updates of Note

Swiss Central Bank Cuts by 50bps
ECB Set To Cut Rates For Third Time In Four Months
China To Expand Private Pension Program Nationwide In Reform
China Must Innovate In Chip Design Or Risk Global Market Lag
BoJ Leaning Toward Keeping Rates Steady Next Week, Sources Say
New Zealand Primary Exports Tipped to Recover Despite Trade Risk
Australia Jobless Rate Falls, Labour Market Stays Tight
RBA Alert To Trump Tariffs Inflation Risk
Trump Seen As Unlikely To Stall Pace Of Sustainable Debt Sales
Brazil Central Bank Pledges To Hike Rates To 14.25% By March
Gold Edges Higher As Fed Rate Cut Prospects Support
Adobe Gives Tepid Sales Outlook, Stoking AI Disruption Fears

(Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

EUR/USD: 1.0475 (1BLN), 1.0500 (1.7BLN), 1.0525 (566M), 1.0550 (2.1BLN),
1.0560 (476M), 1.0575-85 (1.2BLN), 1.0600 (1.6BLN)
USD/CHF: 0.8790 (543M), 0.8850 (331M), 0.8900 (313M)
EUR/CHF: 0.9300 (540M), 0.9325-35 (716M)
EUR/GBP: 0.8190 (417M), 0.8280-90 (561M)
GBP/USD: 1.2715 (300M), 1.2745-50 (530M), 1.2760 (217M), 1.2800 (451M)
AUD/USD: 0.6390-0.6400 (730M), 0.6450 (1.4BLN), 0.6485-90 (591M)
0.6500-10 (1.3BLN)
USD/CAD: 1.4100 (1.3BLN), 1.4230 (1.3BLN), 1.4250 (710M)
USD/JPY: 152.00 (820M), 152.15-25 (1.1BLN), 152.70 (1.3BLN)
153.00 (320M), 153.25 (351M)

CFTC Data As Of 6/12/24

Equity fund managers cut S&P 500 CME net long position by 7,148 contracts to 1,096,911
Equity fund speculators increase S&P 500 CME net short position by 59,926 contracts to 370,331
Speculators increase CBOT US Treasury Bonds futures net short position by 11,361 contracts to 58,775
Speculators trim CBOT US 2-year Treasury futures net short position by 31,747 contracts to 1,202,899
Speculators increase CBOT US 5-year Treasury futures net short position by 95,529 contracts to 1,861,100
Speculators trim CBOT US 10-year Treasury futures net short position by 34,702 contracts to 891,901
Euro net short position is -57,489 contracts
Japanese yen net long position is 2,334 contracts
Swiss franc posts net short position of -41,094 contracts
British pound net long position is 19,326 contracts
Bitcoin net short position is -1,595 contracts