Global Market Quick Take: Asia – December 18, 2024

Key points:

• Macro: FOMC decision due today and BOJ tomorrow
• Equities: Equities fell with Dow down for the 9^th day in a row
• FX: GBP gained on wage data, CAD weakness extends on CPI and politics
• Commodities: Gold prices fell to their lowest level in over a week
• Fixed income: February Fed funds futures saw increased buying activity

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Disclaimer: Past performance does not indicate future performance.

Macro:

• US retail sales for November rose 0.7%, above the expected 0.5%, and lifting from the prior, revised higher, 0.5%. Retail sales ex-autos came in beneath forecasts at 0.2% (exp. 0.4%, prev. 0.2%), and ex-gas/autos was 0.2% (prev. 0.2%). Retail control printed 0.4%, as expected, lifting from October’s -0.1%. The solid headline was led by vehicle sales (+2.6% M/M) but still showed signs of broad-based strength, with control group sales increasing at a healthy pace too.
• UK wage data out yesterday was hawkish. Aug-Oct wages exc. bonus +5.2%y/y (exp. 5.0%); Unemployment rate 4.3%. Traders trimmed bets on chances of Bank of England interest-rate cuts which now imply 61 basis points of cuts to the end of 2025, down from 73bps prior to the release.
• Chinese leaders plan to raise the budget deficit to 4% of GDP next year, sources tell Reuters. The economic growth target remains around 5% for 2025.
• Canada CPI was slightly cooler Y/Y, but Median and Trim came in hot M/M; the average of the BoC eyed measures ticked down to 2.43% from a revised up 2.50%.
• FOMC preview: The Federal Reserve is widely expected to deliver a 25 basis-points (bps) rate cut this week, reducing the target range for the federal funds rate to 4.25-4.50%. The 2025 dot plot could shift to signal only three cuts from four earlier, with fewer cuts expected further in 2026 as well. This would make the December rate cut a hawkish one. To read more on what the Fed is likely to do and how to position, read our preview article here.
• BOJ preview: The Bank of Japan policy decision is out tomorrow, and communication has shifted lately to suggest that the bank is likely to wait as the BOJ views delaying tightening as low-risk and waits for more wage growth evidence and Trump policy risks in Jan 2025. With both Fed and BOJ within 12 hours, there is heightened volatility in the Japanese yen. Our Traders Desk have elaborated a short strangle option strategy for USD/JPY in this article.

Equities: 

• US - Stocks fell on Tuesday, with the S&P 500 down 0.4% and the Nasdaq 100 dropping 0.3%. Dow lost 267 points, marking its ninth straight loss. Nvidia fell 1.2%, Broadcom dropped 3.9%, while Tesla gained 3.5%. Strong retail sales data, up 0.7% in November, raised concerns about the Fed's potential hesitation to ease policy. Traders are watching the Fed's 2025 rate outlook, with a 0.25% cut expected Wednesday amid inflation worries.
• China - HSI fell 0.5% on Tuesday, marking its third consecutive decline. This drop follows a sharp fall in U.S. futures after a record Nasdaq close, ahead of the Fed's expected rate cut on Wednesday. The index reached its lowest in over a week, pressured by ongoing losses in Chinese markets and caution ahead of the PBoC's upcoming lending rate review.
• Earnings - Micron, Lennar and General Mills

FX:

• The USD was marginally higher with Fed announcement awaited today. JPY, GBP and CHF outperformed while commodity currencies AUD, NZD and CAD were the underperformers.
• USDJPY reversed from highs of 154.48 with action packed next 30 hours as both Fed and BOJ announcements are scheduled. Pair touched a low of 153.16 before reversing back higher to 153.60 in early Asia hours today.
• Hawkish UK wage data pushed back Bank of England’s rate cut expectations. BOE is not expected to cut rates on Thursday. GBPUSD broke above 1.27 to highs of 1.2729.
• USDCAD continued to push higher and broke above April 2020 highs to reach 1.43+. Canadian CPI was flat MoM for Nov with exp at 0.1%. YoY rose by 1.9% vs exp 2.0%. Political concerns in Canada a new reason for CAD weakness as market sees widest yields spreads between US and Canada since 1997.

Commodities:

• Oil prices steadied after a two-day drop, with reports of a significant decrease in US crude inventories. WTI stayed above $70, and Brent near $73. The API noted a 4.7 million barrel stockpile reduction, potentially marking a fourth consecutive decline, while gasoline inventories increased.
• Gold prices fell as traders anticipated central bank rate decisions, including from the US Federal Reserve. Bullion was near $2,640 an ounce after modest gains, amid mixed US data showing strong service growth and declining New York factory activity.

Fixed income:

• Treasuries remained steady after recovering from earlier declines linked to losses in gilts. A drop in crude oil prices helped the rebound, but weak demand at the 20-year bond auction stalled it. Fed funds futures were active ahead of tonight’s expected rate cut. February Fed funds futures saw increased buying activity, with open-interest data indicating a strong long position for January and February.
• U.S. 10-year yield closed at about 4.40%, flat from Monday. UK 10-year yield rose over 8 basis points due to strong wage growth data, reducing expectations for Bank of England rate cuts.

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