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 an interesting one yesterday.

Asia Pac trading witnessed the Bank of Japan (BoJ) maintain its negative short-term Policy Rate at -0.1% as well as its yield curve control (YCC). The central bank also made no change to its (dovish) policy guidance, despite some desks anticipating a tweak in the language to signal when we may see an end to negative interest rates. Following the release, the USD/JPY fleetingly dropped to a low of ¥142.47 before reclaiming pre-announcement levels and clocking a high just beyond ¥144.00.

Later in the day, just ahead of the US cash open, US housing starts and Canadian CPI came in stronger than expected. Year-on-year inflation was unchanged at 3.1%, though notably topping the estimate range high of 3.0%, while US housing starts, also for November, jumped to 1.56 million, up from 1.37 million.

Fed officials were also out and about yesterday. Atlanta Federal Reserve President Raphael Bostic communicated that there is ‘no urgency’ to cut the Fed Funds rate. Federal Reserve Bank of Richmond President Thomas Barkin, in an interview on Yahoo Finance, noted that the US economy is making solid progress on inflation, and Chicago Fed President Austan Goolsbee said that he is ‘confused’ by the market’s reaction to Fed Chair Jerome Powell’s rate-cut remarks.

The Day Ahead

Earlier this morning, UK CPI inflation in the twelve months to November eased to 3.9% against the 4.4% median consensus and the 4.6% print in October. Core inflation—excludes food, energy, tobacco and alcohol, also slowed to 5.1%, down from 5.7% and was comfortably south of the estimate range low of 5.3%.

The immediate aftermath of the release saw GBP/USD dive southbound, depreciating -0.3% in the space of five minutes, clocking a low of $1.2655, while the UK’s FTSE 100 rallied on the news. Rate pricing via Bloomberg’s WIRP observed a dovish response, with 126bps of cuts now priced in until November 2024—the first 25bp cut is fully priced in as soon as May.

Bloomberg

Looking ahead, consumer confidence data (December) from the US Conference Board and existing home sales (November) are out at 1:30 pm GMT today. The median estimate for the former risk event is to increase to 104.0 from 102.0 in November (the estimate range is between 111.6 and 100.0), while existing home sales are expected to marginally slow to 3.77 million in November from 3.79 million in October.

Markets

The dollar, according to the US Dollar Index, ended Tuesday on the back foot, extending Monday’s moderate downside move and chopping away at Friday’s upside push. Aside from this, the buck remains in a clear-cut downtrend as per the daily chart. The Japanese yen (JPY) lagged in recent trading, sending the USD/JPY currency pair to resistance on the daily chart at ¥144.68. In fact, the USD/JPY offers an interesting technical perspective now.

In the equity space, major US equity indices continued their Santa Rally and eked out another positive session. The Dow Jones Industrial Average extended its winning streak to a ninth session, as it rose 251 points (+0.7%) to a fresh record close of 37,557. The Nasdaq 100 climbed 82 points (+0.5%) to 16,811, its highest close on record, and the S&P 500 gained 27 points (+0.6%) to 4,768.

Oil prices remained firm on Tuesday, according to WTI and Brent. WTI oil registered a fifth consecutive day in positive territory yesterday and is fast approaching a vulnerable channel resistance on the daily scale extended from the high of $94.99. Given that price failed to test the lower boundary last week, this suggests buyers are gaining in confidence and could attempt to overthrow the channel resistance soon and target daily resistance found at $79.19.

WTI Oil Daily Chart:

(Trading View)

G10 FX space as of 09:00 am GMT:

(Trading View)

Thanks for reading. Have a great day.

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