OVERNIGHT
Global equity markets were mixed overnight with markets tracking lower easily outnumbering those trading higher. Critical economic data released overnight included stronger than expected Chinese industrial production, weaker than expected Chinese retail sales, stronger than expected Jibun Japanese bank services PMI readings for December, stronger-than-expected Japanese machinery orders, much softer than expected Swiss producer and import prices for November, soft French and German HCOB manufacturing PMI readings for December, better-than-expected French and German HCOB services PMI readings for December. Also released this morning were better-than-expected euro zone HCOB manufacturing and services PMI readings and a minor downtick in Italian consumer price index readings for November. The North American trading session will bring Canadian housing starts which are expected to be stronger, a much weaker New York Empire State Manufacturing index for December, and softer US S&P global manufacturing and services PMI readings.
CURRENCIES
Even though the dollar has mostly traded below last Friday’s close in the early trade today, we leave a thin edge with the bull camp. In addition to soft euro zone PMI business activity the dollar should draft support from very dovish statements from the ECB president overnight regarding the potential for future rate cuts from the central bank. We also see the euro remaining under pressure from rising French bond risk premiums resulting from turmoil in the French government. Furthermore, the European job market continues to soften with German business activity finishing 2024 in a contraction mode. On the other hand, Japan continues to generate strong data providing headwinds for the US dollar. In fact, JGB yields continue to rise along with US treasury yields despite market expectations that the Bank of Japan might not raise rates on Thursday. However, long term Chinese yields overnight hit record lows providing the dollar with some countervailing lift from the Asian markets.
STOCK INDEX FUTURES
A rounded top or sideways to lower consolidation pattern continues to unfold with short-term technical measures suggesting minor lower lows ahead. It appears that the markets have heavily “bought the idea” of a rate cut on Wednesday and traders/investors continue to take a breath on lofty hopes of the incoming administration. However, the sharp slide in treasury prices over the last two weeks clearly signals the potential for a pause in rate cuts by the US Federal Reserve after this week’s cut and that sentiment could cause a temporary modest washout in equities. Adding into the apathy or temporary bullish exhaustion in the trade over the last five sessions are several concerning tech sector legal and regulatory developments involving Open AI, tick-tock, twitter and US/China tech sector/semiconductor conflicts.
INTEREST RATES
While treasury prices have managed to hold above last Friday’s spike down close in the early going today, the charts remain bearish with fundamental issues mostly bearish or simply not definitive enough to take control away from the bear camp. However, given expectations for a noted drop in the US Empire State manufacturing index, a modest dip in S&P global manufacturing PMI and expectations of a dip in US S&P global services PMI readings this morning we suspect March bonds will find support just above 116-00. Even though treasuries saw a wave of global central bank rate cuts last week and the ECB president this morning indicated there could be more European “cuts” that has not brought fresh buying interest into the treasury markets. Unfortunately for the bull camp, short-term technical signals in bonds and notes remain in sell mode with an extremely active US economic report day on Tuesday likely to present a major pivot/price junction event.
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