Upside Extension in Equities


Global equity markets overnight were higher except for the markets in Shanghai and Hong Kong which posted declines above 1%. The upside extension in equities is justified by the CPI results yesterday and will likely be further confirmed by this morning’s PPI report before an overbought market condition encounters the Fed policy statement and press conference.

E-Mini S&P 500: With four straight higher high trades, confirmation inflation is moderating and hope for Goldilocks economic data in in place and therefore the bias is up in stocks. However, the midday Fed statement and press conference will be a key pivot point today for the S&P with market expectations from polls not calling for a rate cut probability above 50% until May and the Fed likely to move the goalpost backward  relative to market expectations. On the other hand, the feds “dot plot” release will provide a signal unlikely to be floated by today’s “fed dialogue”.

up arrow with bar graph


DOLLAR: All things considered, the dollar action over the last six trading sessions clearly confirms signs of slowing in the US and a slow pivot by the Fed to support the economy becoming more likely in the face of what appears to be softening inflation. However, the trade is anticipating some dovish news from the Fed today, but it is suspicious to think the lack of dovish news will provide a significant dollar rally.

Other Currencies: While trends are currently lacking in the currency markets, the euro remains within a downtrend from the late November high and the bear camp was assisted overnight by soft euro zone industrial production readings from October. In fact, industrial production in the euro zone has declined in three of the last four reports with two readings significantly soft. However, the direction of the euro will as usual be heavily influenced by action in the dollar which should see some pressure which should dissipate quickly.

Obviously, the Pound was undermined by nearly a clean sweep of negative GDP readings overnight. In addition to a 0.3% decline in headline GDP, industrial and manufacturing production both fell sharply with the only reading managing to post a positive result (only 0.1%) an Index of services reading for October.

While the Canadian has found some value around 73.50, the trade continues to press the Bank of Canada to migrate toward a rate cut posture and a lack of interest in Canadian financial instruments is signaled by the Canadian stocks underperforming relative to world equity markets.


The path of least resistance remains up in treasuries with the US CPI report yesterday generally supportive of the bull case with many readings showing soft inflation while the year over year excluding food and energy reading was disappointing as it held at an annualized 4% clip.

While not a direct lift to US treasury prices overnight foreign economic data showed disappointing economic news from much softer than expected Chinese new loans, a contraction in GBP GDP, and a significant decline in euro zone industrial production all of which add to the global slowing theme.

The markets will be presented with US producer price index readings today with expectations for the headline reading showing inflation under control with a gain of only 0.1%. However, the markets will likely focus more intently on the core PPI and the year-over-year comparisons.

The November US core producer price index (which excludes food and energy) is forecast to have a moderate downtick from October’s 2.4% year-over-year rate. The highlight for global markets will come during early afternoon US trading hours with the results of the December FOMC meeting.

The Fed is not expected to have any changes in rates, but post-meeting comments by Fed Chair Powell will be scrutinized for clues on upcoming policy moves. The Fed will also release their quarterly economic projections (the “dot plot”) which may show when Fed members expect to cut rates in the future. Earnings announcements will include Adobe after the close of Wall Street.


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