The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.

Good morning.

It was all about US CPI inflation data on Tuesday, which was largely in line with market consensus.

Headline inflationary pressures cooled to 3.1% in the twelve months to November from October’s 3.2% gain, while core inflation was unmoved at 4.0% over the same period. Month on month, headline inflation increased slightly to 0.1%, up from 0.0%, while the monthly core measure came in as expected and rose 0.3%, up from the 0.2% gain in October.

Digging deeper into the numbers, food prices slowed to 0.2%, down from October’s 0.3% gain, with ‘food at home’ slowing to a 0.1% gain from 0.3% in October. Gasoline prices fell 0.6% in November from 0.5% in October, though electricity prices jumped 1.4% from 0.3% over the same period. Shelter continued to rise in the month of November, up 0.4% from 0.3% in October.

Looking Ahead

In early Europe, traders and investors welcomed the latest UK monthly GDP numbers. Economic activity in the UK unexpectedly contracted in October; GDP, or Gross Domestic Product, fell 0.3%, considerably lower than the no-change expected following September’s expansion of 0.2%. According to the Office for National Statistics (ONS), the fall was driven by the services sector, contracting by 0.2%. Gilts rallied at the open, with sterling immediately trading south against its US counterpart following the release.

Today’s focus will, of course, be on this evening’s FOMC rate decision at 7:00 pm GMT. Yesterday’s inflation print is unlikely to alter the Fed’s rate decision; the market is fully pricing in a no-change, leaving the Fed Funds target range unchanged at 5.25%-5.50% for a third consecutive meeting. However, recent data could influence the accompanying Summary of Economic Projections (SEP), particularly the dot plot (which will be used to assess the future path of rate cuts in the New Year). As of writing, market pricing suggests around 110bps of cuts for 2024, down from 125bps. You may recall in September’s SEP that real GDP growth of 1.5% was projected by the end of 2024, with unemployment to tick higher to 4.1% and core PCE inflation to slow to 2.6% over the same period.

Markets

In the FX space, although the Dollar Index ended Tuesday considerably off worst levels, the buck finished down around -0.3% and snapped a two-day winning streak. Technically, the dollar still shows signs of an early uptrend brewing on the daily chart, as noted here. However, as of writing this morning, most of yesterday’s downside has been reclaimed, up +0.2%. Ahead of the European open this morning, the New Zealand dollar (NZD) is a notable laggard across the G10 space.

On Tuesday, US stocks extended their rally to a fourth session. The Dow Jones Industrial Average climbed 173 points (+0.5%) to 36,577, the S&P 500 gained 21 points (+0.5%) to 4,643, and the Nasdaq 100 jumped 132 points (+0.8%) to 16,354. Energy stocks were a clear laggard on the session, down -1.4%, with financials and tech leading the pack at +0.7%.

In the commodities space, spot gold (XAU/USD) remained on the ropes. For anyone who read the week-ahead post for the precious metal, you may recall that the team highlighted possible follow-through selling south of the widely watched $2,000 level, which has indeed come to fruition. WTI oil also took a hammering yesterday, refreshing multi-month lows and erasing nearly -4.0%.

The major crypto BTC/USD is still on the back foot after touching highs of $45,000 last week. Having seen bids cleared at daily support from $41,500 in recent trading, further underperformance could be on the table for the major crypto to as far south as weekly support coming in at $38,523.

G10 FX space as of 08:45 am GMT:

(Trading View)

Thanks for reading. Have a great day.

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