Daily Market Outlook - Tuesday, Dec. 12

By Patrick Munnelly of Tickmill

Tuesday, December 12, 2023 4:07 AM EDT

Stock, Trading, Monitor, Business, Finance, Exchange

Image source: Pixabay

Asia - Most Asia-Pacific stocks were positive following gains on Wall Street. The Nikkei 225 surged initially but steadily gave up nearly all of its gains as the effects of a firmer currency seeped through. Hang Seng and Shanghai Comp. were initially underpinned by China's Central Economic Work Conference and measures on integrated development of domestic and foreign trade, but the mainland index ultimately lagged.

Europe - The latest UK employment data indicates a shift in employment conditions and a more substantial than expected decline in wage growth. In October, the experimental unemployment rate held steady at 4.2%, but November saw a decrease in both payroll employees and job vacancies. Annual regular pay growth decelerated from 7.7% to 7.3% in October. As policymakers approach Thursday's Bank of England update, they may find encouragement in the easing of employment market pressures and the slowdown in wage growth. However, they are cognizant that wage gains, though moderating, still surpass levels consistent with sustaining the inflation target.The upcoming German ZEW survey is expected to provide an early insight into Eurozone economic trends in December. However, it should be noted that as a poll of financial analysts, its readings may be less reliable than other surveys such as the PMIs. In the previous month, there was a slight increase in the current conditions index and expectations rose for the fourth consecutive month. Despite these positive trends, both indices remain historically low. The forecast for December predicts a modest increase in both measures.

US - Stateside, this afternoon's update on US CPI inflation for November is the final significant data release preceding tomorrow's US Federal Reserve monetary policy announcement. In October, annual headline inflation experienced its first decline in four months, dropping from 3.7% to 3.2%, primarily due to lower oil prices. Core inflation, excluding food and energy, also saw a slight decrease from 4.1% to 4.0%. The November data is expected to be influenced by lower oil prices once again, projecting an overall inflation decrease to 3.1%, while the core rate may remain at 4.0%. This positive trend in inflation is likely to prompt the Fed to affirm on Wednesday that interest rates have likely peaked. However, the timing of when they will be confident enough to implement rate cuts remains uncertain.

FX Positioning & Sentiment

CFTC data from Friday showed that there has been a shift in positioning, with the net GBP position turning long in the week ending December 5. This is the first time since September that there has been a net long position in GBP, as it was previously net short by 7,895 contracts in the week ending November 28. Prior to that, the net short position was even larger at 27,730 in mid-November. The pound has recently reached three-month highs against both the dollar and the euro, with a peak of 1.2733 GBP/USD on November 29 and a subsequent low of 1.2504 on December 8. The Bank of England will be making a monetary policy announcement this week, which is expected to be hawkish. Traders have placed bets worth over $20 billion on the EUR/USD increasing in value. One particular bet is larger than all the other bets placed on the USD increasing. Traders still have significant bets on the USD rising against the JPY, AUD, CHF, CAD, NZD, and DXY. However, due to this one bet in favour of the EUR, traders are now overall short on the USD compared to other major currencies. Despite the falling value of the pair, speculators are still buying EUR/USD. Prior to the surge in November, approximately $3 billion worth of long positions were added, and since then, an additional $3 billion worth of long positions have been added as the pair dropped to 1.0724.

CFTC Data

During the period from November 29 to December 5, the net speculative position for the USD shifted from long to short. The $IDX increased by 1.35% during this period. The EUR$ decreased by 1.77% and speculators now hold 152,360 long contracts. The $JPY decreased by 0.24% and speculators now hold 104,956 short contracts. The Yen gained value after the period ended due to more hawkish talk from the Bank of Japan (BoJ), with a BoJ meeting scheduled for December 19. The GBP$ decreased by 0.88% and speculators now hold 11,665 long contracts. The AUD$ decreased by 1.4% and speculators now hold -57,681 contracts. The $CAD increased by 0.15% and speculators now hold -57,848 contracts. Bitcoin (BTC) increased by 15.6% during this period, with speculators reducing their contracts by 505 into new highs for 2023.