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.

The Swiss National Bank (SNB), the Bank of England (BoE) and the European Central Bank (ECB) all stood pat on rates yesterday.

The BoE

In a 6-3 vote (Greene, Haskel and Mann voted to hike by 25bps), the MPC left the Bank Rate unchanged at 5.25% for a third successive meeting. The post-rate statement repeated that the policy rate will need to remain in restrictive territory for ‘sufficiently long’ to return inflation back to the 2.0% target and that further tightening would be necessary in the event of ‘persistent inflationary pressures’. In a separate statement, BoE Governor Andrew Bailey commented that there is still some way to go before inflation returns to the central bank’s 2.0% inflation target. OIS swaps are pricing around 106bps of cuts for 2024 versus 115bps before the rate announcement. Odds of a rate cut in March also dropped as low as 30% probability.

The ECB

The ECB left the three key benchmark rates unchanged for a second consecutive meeting. The Deposit Rate, Main Refinancing Rate and Marginal Lending Rate remain at 4.0%, 4.5% and 4.75%, respectively. The post-rate statement repeated: ‘The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary’. You may also note that the sentence, ‘inflation is still expected to stay too high for too long’, was removed, and the following sentence was added: ‘While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term’. Projections for headline inflation were 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. In terms of growth, the statement noted that ‘Eurosystem staff see growth picking up from an average of 0.6% for 2023 to 0.8% for 2024 and to 1.5% for both 2025 and 2026’.

At the presser (thirty minutes following the rate announcement), ECB President Christine Lagarde echoed a similar vibe to Governor Bailey, and when questioned regarding rate cuts, Lagarde responded that the central bank remains data-dependent and not time-dependent, adding that ‘we should absolutely not lower our guard’. Interestingly, though, markets imply that the ECB could cut rates by a whopping 150bps next year, with the first rate cut potentially coming as early as March.

Other Data

In other data, as the holiday season is well and truly underway, US retail sales surprised to the upside in November, rising 0.3% and comfortably north of economists’ estimates of -0.1% (October was revised down to -0.2%). The core retail sales measure, which excludes autos, rose 0.2% from October to November, also above the consensus of -0.1%, with the control-group sales advancing 0.4%, beating a 0.2% consensus (previously revised down to 0.0% from 0.2%). Of relevance, 8 out of the 13 categories in the release displayed increases. At the same time, we also saw US weekly unemployment claims fall by 19,000 to 202,000 for the week ending 9 December, against analyst expectations to remain steady at around 220,000.

The Day Ahead

Overnight, China’s industrial production was stronger than expected at 6.6% in the twelve months to November (expected: 5.6%; previous: 4.6%), while retail sales for the same period were weaker than expected at 10.1% (forecast: 12.5%), though were up from October’s 7.6% reading.

Today’s calendar welcomes global flash PMIs from the eurozone, the UK and the US at 9:00 am, 9:30 am and 2:45 pm GMT, respectively. The NY Empire State Manufacturing Index is also up at 1:30 pm GMT, followed closely by industrial production data from the US at 2:15 pm GMT.

Markets

The dollar remained on the ropes yesterday, weighed post-FOMC and touched levels not seen since August, with the euro (EUR) and GBP punching higher.

On Thursday, the Dow Jones Industrial Average advanced 158 points (+0.4%) to 37,248, its second consecutive record close. The S&P 500 gained 12 points (+0.3%) to 4,719, while the Nasdaq 100 eased 24 points (-0.2%) to 16,537.

The commodities space saw spot gold (XAU/USD) extend recovery gains post-FOMC, adding +0.4%. However, technicals show price testing daily resistance in the shape of a trendline support-turned-resistance level taken from the low of $1,810. Overall, further outperformance for the yellow metal could see another layer of daily resistance enter the fold at $2,075, followed by the recent all-time high of $2,148. WTI oil posted another consecutive day in the green, though it remains trending southbound according to the daily chart.

In terms of the crypto space, things have quietened down of late. BTC/USD ended Thursday eking out modest gains and remains favoured to the upside. The weekly and daily charts exhibit clear uptrends, with resistance not expected until $43,828 on the daily chart and between $48,565 and $46,112 on the weekly chart.

G10 FX space as of 09:00 am GMT:

(Trading View)

Thanks for reading. Have a great day.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.