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.

A very good morning to all our readers as we wrap up the final full trading week of the year. Liquidity, as expected, has thinned this week, with most major asset classes remaining rangebound.

US GDP was a talking point on Thursday; the third estimate (Final) missed market expectations and was revised lower to 4.9% for Q3, down from 5.2%, according to the preliminary (second) estimate. You may recall that economic activity in Q2 rose 2.1%. The release revealed that the revision was due to a downward amendment in consumer spending.

Also on the docket yesterday, markets welcomed US weekly unemployment filings and the Philadelphia Fed Manufacturing Index.

The former observed jobless claims increase by 2,000 to 205k for the week ending 16 December; albeit slightly increasing from the prior, the release was south of economists’ estimates of 214k. Continued claims for the week ending 9 December fell by 1,000 to 1.87 million and fell short of the market’s median estimate.

The latter—the Philly Fed Survey—revealed that manufacturing activity dropped more than expected in the region for December to -10.5, down from -5.9 in November, marking its 17^th negative reading in the past 19 months, according to the release. Survey details showed negative numbers for new orders (-25.6 [down from 1.3]), while the prices paid index jumped by 10 points to 25.1 for December, up from 14.8 in November, and employment dipped a toe back into negative terrain to -1.7 for the month, down from 0.8.

The Day Ahead

The day ahead will see traders draw to the Core PCE Price Index data at 1:30 pm GMT, a release that excludes volatile food and energy prices; this is the highlight event today and, as many of our readers are aware, is the Fed’s preferred measure of inflation. Year on year, the median estimate suggests the Core PCE Price Index will slow to 3.3% in November, down from October’s reading of 3.5%. Of relevance, the estimate range is between 3.5% and 3.1%. Month on month, however, analysts forecast the Core PCE Price Index to increase 0.2%, unchanged from the prior month.

Traders and analysts will be watching for signs of further softness in the release today, which, if it comes to fruition, could further underpin an already hot equity market and bolster bonds (pushing yields southbound). Softer economic activity and, of course, easing inflationary pressures will be welcomed news at the Fed.

Futures traders are now pricing around 150bps of Fed rate cuts for 2024 (see Bloomberg’s WIRP below). Needless to say, the depth of easing now priced into the markets is wide and there is nearly an 80% chance priced in for a 25bp cut as early as March (May’s meeting remains fully priced for a 25bp rate cut, however).

Bloomberg

Markets

The FX space witnessed a notable sell-off in the Dollar Index, taking the widely watched measure to lows of 101.74, levels not seen since August. For any chart pattern enthusiasts reading, the Index ruptured the lower boundary of a bearish pennant formation on the daily scale (taken from the low of 101.77) in recent trading, a move unearthing a pattern profit objective as far south as 99.56. Procyclicals outperformed on Thursday; the AUD, NZD and CAD added +1.1%, +0.8% and +0.7%, respectively, with safe havens also benefitting against the lacklustre greenback.

Dollar Index Daily Chart:

(Trading View)

Across the equity space, major US benchmarks staged a U-turn yesterday, Led by consumer discretionary stocks, communication and tech, the S&P 500 climbed 48 points (+1.03%) to 4,747 and is nearing its all-time high of 4,818. In other markets, the Dow Jones Industrial Average rose 322 points (+0.87%) to 37,404 and the Nasdaq 100 was up 203 points (+1.23%) to 16,757.

Commodities saw oil prices finish the session pretty much unchanged. WTI oil eked out a modest gain (+0.2%), though ultimately wrapped up things in the shape of an indecision candle on the daily chart. Spot gold (XAU/USD) refreshed weekly highs in early Asia this morning, reaching $2,055. Technical studies reveal room for further outperformance to $2,075 resistance on the daily chart, with subsequent pressure north of this barrier opening the door to challenge the all-time high at $2,148.

BTC/USD continues to push northbound, closing in on the year-to-date pinnacle of $45,000. Follow-through buying at this point could expose daily resistance coming in at $45,525, shadowed closely by a weekly resistance area between $48,565 and $46,112.

G10 FX space as of 07:30 am GMT:

(Trading View)

Thanks for reading. Have a great day.

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