π Market Report.
π Markets are nervously awaiting the US inflation data on Wednesday. The prospect of successive rate cuts that kept markets motivated seems to be fading.
πΊ At ATFX we have produced a special video report on Friday’s US data, giving a surprisingly strong labour market, as we forecast, and predicting that the outlook also points to possible high inflation.
π The inflationary trend is setting in. CPI inflation, which since Sep is rising in the US, from 2.4% to the current 2.7%. Core inflation is also on this path, rising from August to the present.
π«π· French Prime Minister FranΓ§ois Bayrou is negotiating to maintain the neutrality of a left section of the government ahead of a crucial speech. The government faces a no-confidence vote, with the Republicans unlikely to overthrow it. The left has presented a policy list, including increasing the health insurance budget and cancelling education job cuts. The most contentious issue is the left’s desire to repeal or suspend the law reducing France’s retirement age from 62 to 64, which could face opposition from the right.
πΈ Markets are concerned that Bayrou may undo pension reforms, potentially saving billions of euros for the government. The risk premium on French debt is at its highest level in over 12 years, as investors worry about political instability and a growing public deficit.
π Despite selling fewer vehicles than anticipated, Tesla overtook Audi in 2024 with 1.79 million vehicles. Tesla’s quick growth, which took advantage of Audi’s difficulties competing and the low demand for electric vehicles, contributed to this success. With fewer completely electric cars being delivered, Audi’s sales fell in North America, China, and Germany. We do not know whether it is real consumer preferences, or green policy incentives.
π Market View:
π US futures are trying to bounce higher, seeking to recover yesterday’s declines. The S&P 500 retraces its steps and approaches 5900 points, while the Nasdaq does the same, slightly exceeding 21,000 points. From technical analysis, this move is known as a pullback, which could be interpreted simply as a correction before further declines.
π΅ Both the rise in the dollar and in US bond yields have momentarily halted. The dollar index (DXY) is at 109.50 points, having reached and surpassed 110 points yesterday, as anticipated. The yield on the 10-year US bond reached 4.80% but has fallen back to 4.75%. As for the EUR/USD, it momentarily lost the 1.02 level yesterday, but now bounces back above 1.0250.
πͺπΊ In Europe, the DAX 40 is also showing signs of recovery and is above the 20,350 level. However, it is important to keep an eye on the possible pullback effect, which could be a pause before a new fall.
β½ The crude oil market continues to show volatility. Yesterday, Brent crude oil rose above $81.50, but has fallen back and is now trading at $80.35. On the other hand, gold futures have suffered a sharp correction, losing the level of 2700 dollars per ounce and now stands at 2680 dollars.
π° As for bitcoin, it lost the $90,000 level yesterday, but has managed to recover and is now trading close to $95,000. However, there is still a high risk of a bearish figure being triggered in this asset, which could drag it down to $75,000 or even lower.
π Geopolitics:
π The US government is implementing new regulations to restrict the export of artificial intelligence (AI) chips and technology, aiming to maintain its dominance in AI development and chip design. The regulations will limit the number of AI chips exportable to most countries, while allowing unlimited access to US AI technology for its closest allies. They also restrict advanced graphics processing units used for AI model training, affecting Nvidia and AMD. Major cloud service providers like Microsoft, Google, and Amazon will be allowed to seek global authorizations to build data centers, bypassing export licenses for AI chips. The long-term effectiveness of these measures will depend on the incoming Trump’s administration.
π The European Central Bank (ECB) has joined Bluesky, a micro-blogging platform that competes with Elon Musk’s X. The ECB, under President Christina Lagarde, has shared political positions like the green agenda, which is rejected by German society and industry due to its economic impact. Musk’s views on these policies contrast with the ECB’s. Politicians and bureaucrats accuse Musk and X of disinformation, motivated by his accusations against the political class. But European Union regulators have raised concerns even about Bluesky’s compliance with EU rules, including the lack of disclosure of user numbers. This seems to respond to a growing desire of the European bureaucracy to control all sources of opinion.
πΊπ¦ Ukraine’s European allies have become cautiously optimistic that U.S. President-elect Donald Trump won’t force Kyiv into premature negotiations with Russia, based on private talks with members of Trump’s team. The Trump officials appeared receptive to arguments that abandoning Ukraine could lead to a humiliation like the chaotic Afghanistan withdrawal. Italian Prime Minister Giorgia Meloni, who has met with Trump, believes the incoming administration will use both diplomacy and deterrence to strengthen Ukraine’s position before any talks. A rapid resolution to the war is now considered unlikely, with the timeline shifting towards Easter, as Russia has no incentive to engage in talks while solidifying its territorial gains. Trump’s team is weighing options like asking Ukraine to lower the conscription age to strengthen its battlefield position ahead of potential negotiations, But sending teenagers to war may not be the most effective deterrent, and will undoubtedly create a backlash among a Ukrainian population that has become exasperated with the situation. As US senator Lindsey Graham said, the war will continue βto the last Ukrainianβ. Sadly, the Ukrainian population has been deprived of the right to vote and elections have been suspended in the country.