📊 Market Report.
💷 The Bank of England’s Monetary Policy Committee voted 6-3 to keep interest rates at 4.75%, a decision that was larger than expected due to disagreement among policymakers on how to respond to a slowing economy and high inflation pressures. Governor Andrew Bailey emphasized the need for a gradual approach to rate cuts, with uncertainty over the timing and magnitude of future cuts. Analysts expect the BoE to cut rates by 0.25 percentage points in February. Despite the BoE leaving rates uncut and the Fed cutting rates, the GBPUSD seems to be losing support.
🇨🇳 China’s central bank PBoC also stands pat, along with the Bank of England. The People’s Bank of China kept its benchmark interest rates unchanged at its December meeting for the second month in a row.Both the one-year base rate and the five-year base rate, which serve as benchmarks for most corporate and consumer loans, were held steady at 3.1% and 3.1% respectively.
🇯🇵 Japan’s core inflation accelerated in November, with the nationwide core CPI rising 2.7% year-on-year, higher than the 2.6% forecast, putting pressure on the Bank of Japan (BOJ) to raise interest rates further. Service-sector inflation remained steady at 1.5%, suggesting firms continued to pass on rising labor costs. The BOJ maintained its interest rate at 0.25% on Thursday, but the data highlights the central bank’s challenges in achieving its 2% inflation target. The yen’s recent declines could further pressure prices by pushing up import costs, adding to the BOJ’s policy dilemma.
📉 The Reuters prediction indicated that Tokyo’s core consumer price index (CPI), a key gauge of pricing patterns across the country, would have increased from 2.2% in November to 2.5% year-over-year in December.
📈 Today, the PCE rate is the only significant data we have left before the year ends. Forecasts for core PCE focus on a 0.2% monthly increase in November. While an increase of 0.3% or more would raise questions about any policy easing by the Fed next year, a flat result is likely to help calm things down a little.
🌍 Emerging countries are fighting back. Central banks from Brazil to Indonesia scrambled to defend their struggling currencies after the Federal Reserve indicated it may not cut rates as much as expected next year. Central banks in these countries intervened in currency markets and issued strong verbal warnings to try to stabilize their currencies. The Brazilian real hit a record low, and even a $3 billion intervention failed to substantially lift the currency until a larger $5 billion intervention. Indonesia’s central bank prioritized currency stability over a rate cut, highlighting the challenges many EM central banks will face. The Chinese yuan also weakened past the key 7.3 per dollar level, with the PBOC dampening the daily reference rate to support the currency. The Fed’s hawkishness, combined with the expected impact of Trump’s policies, is seen as an added burden on already struggling emerging markets.
🇺🇸 A spending bill backed by President-elect Donald Trump failed to pass the U.S. House of Representatives, as dozens of Republicans defied the president-elect. The vote exposed divisions within the Republican Party that could resurface when they control the White House and both chambers of Congress next year. The failed bill would have increased spending, suspended debt limits, and paved the way for Trump’s promised tax cuts, which Democrats, who have approved sending hundreds of billions of dollars to foreign wars, criticized as fiscally irresponsible.
📉 Market View:
📊 The Mini S&P 500 futures seem to have found support at the 5,920 level where they are currently trading. Meanwhile, the Mini Nasdaq 100 futures have lost the key support at 21,500 points and are now resting on their 200-period intraday average at 21,275 points.
📉 The DXY index remains unstoppable: in recent hours it has reached 108.50 points, which has put pressure, for the second time this week, on the EUR/USD towards the 1.0350 level. If this trend continues, the pair is likely to fall below this critical support. On the other hand, the US 10-year bond approached the 4.60% yield yesterday and is currently trading above 4.50%.
🇪🇺 In Europe, the DAX 40 is struggling to hold the 20,000 level, having lost it briefly during yesterday’s session before bouncing higher. It is currently trading at 20,050 points. The EuroStoxx 50 is showing clear signs of weakness: yesterday it lost the 4,900 level and is now trading below 4,875.
💰 Gold, meanwhile, has fallen back to 2,600 points, a significant decline over the last week, mainly due to the surprising strengthening of the dollar, the main proxy for gold reserves.
Crude oil also continues its downward trend in a progressive manner. As we predicted last week, Brent crude has fallen from $74 to the current $72.50 a barrel.
📉 As for Bitcoin, it has suffered a sharp pullback, falling from over $108,000 on Tuesday to the current $97,900. However, as mentioned above, the area around $98,000 is probably acting as a key support that could catapult it back upwards.
🌍 Geopolitics:
🇷🇺 Russian President Vladimir Putin said he is ready to compromise and negotiate with President-elect Donald Trump to end the war in Ukraine. Putin said any deal would need to be signed with the Ukrainian parliament, as he does not consider Zelenskyy a legitimate signatory at this time. He ruled out agreeing to a temporary ceasefire, saying only a long-lasting peace deal with Ukraine would suffice. Putin touted Russia’s development of the “Oreshnik” hypersonic missile, saying he is ready to organize another launch at Ukraine to test Western air defenses. “Elijan una instalación en Kiev, enfréntenlos y vean quién gana”.
🇩🇪 Growing tensions within the German government and the potential implications for the future of European support for Ukraine. Olaf Scholz is being criticized for softening his stance on providing military support to Ukraine. This shift in position has alarmed some of Scholz’s European allies, who fear Germany may be backtracking on its commitment to Ukraine.
🇨🇳 China staged a spectacular drone event that surpassed the lights recorded by Americans in the sky, causing mass hysteria in the US. President Donald Trump stated that authorities are aware of the origin of this phenomenon and could intervene to stop it, suggesting it is more of a show to distract the population.
