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Research

Strong payroll data doesn’t deter equity bulls with Nasdaq up and Russell 2000 down

Today’s payroll data reiterated the run of strong labor market data with wages growing at 4% a key concern for the Fed. Futures markets reduced the probability of early rate cuts, but traders made few changes to their bullish stance on equities, bonds, gold or the dollar.

Research

Dow challenges peak, Bitcoin’s mainstream moment is expected

The Dow Jones has quickly shaken off yesterday’s late losses is challenging record highs despite the comedown of the Fed minutes yesterday. The market remains optimistic over the state of the US economy, supported by today’s various jobs sector data releases; the flip-side is that too much strength could slow the pace of interest rate cuts with the Fed “likely at or near its peak rates” according to December policy meeting minutes yesterday. The Bitcoin rally will be tested pretty soon, as the SEC is intended to approve (or not) Bitcoin ETFs.

Research

Oil prices rallies above $70 support, Russell 2000 dips on profit-taking

Oil prices appear to have found support at $70 per barrel, with news of US stock building, further OPEC+ production cuts and Middle East tensions spurring buying action. The Fed’s December meeting minutes were cagey on the outlook for interest rates in 2024. JOLTS labor market data pointed to further weakness, good news for inflation.

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Research

Nasdaq tumbles as bonds sell off, Gold holds historic highs

Equity, bond, and gold investors are pricing in large rate cuts in 2024, starting in March, but this week’s jobs data could spoil the fun. A bullish December for stocks might have pulled forward the typical January rally, spurred by the belief that the Fed is about to pivot. US Treasuries sold off in morning trade, with worries about the appetite to digest the major volume of new issues. There is some risk of disappointment in the interest rate outlook, notably with commodity prices indicating persistent inflation so there is less chance of a rate-cutting bonanza.

Research

Russell 2000 leads US stocks, Gold hits another all-time high

The Russell 2000 was again the strongest US index, continuing a trend evident for two months. Gold prices touched $2,082.5 per ounce this morning, buoyed by a mixture of risk aversion and the anticipation of lower interest rates. This morning’s economic data showed strong durable goods demand and a modest decline in a key inflation gauge, the ‘PCE deflator’, generally supporting rate cuts early next year.

Research

Russell 2000 continues recent run, Oil prices dip despite output cuts

US equity markets bounced back in morning trade, again led by the Russell 2000, after yesterday’s worries about the pace of rate cuts, as traders ignored anything but a rosy rate cutting in 2024. Oil prices slipped, down 1.3%, despite various indications that oil output will be cut next year by Saudi Arabia and Russia, the world’s top two producers.

Research

Consumer’s increasingly confident, but investors take a breath with major indexes and gold at all-time highs

Consumer confidence rose sharply in December, casting a shadow on early rate cuts and stalling the recent equity market rally aside from continued strength in the Russell 2000. Equity markets and gold still look set to end the year on all-time highs, Bitcoin has close to doubled, with interest rate optimism seemingly pulling forward the traditional January rally.

Research

Russell 2000 leads markets towards eighth winning week, but is the Fed saying too much?

The rate-sensitive Russell 2000 index led markets higher this morning, pointing to an eighth week of successive market gains as Fed officials continued to quell hope of rate cuts as soon as next March, arguing that policy is not fixed and will be data-driven. We consider the real impact of Fed jawboning on the economy and financial markets. The Bank of Japan held interest rates below zero yesterday, giving no clues as to when it might exit negative levels.

Brazil Flag

USBRL should reflect inflation for the US, statements from Fed officials, COPOM minutes, RTI, and economic agenda in Congress

Bullish factors Statements from Federal Reserve officials may want to realign expectations of an interest rate cut by the American central bank after Powell's comments this week triggered a sharp global rally for risky assets, strengthening the American currency. Minutes of the COPOM and Quarterly Inflation Report (RTI, an acronym in Portuguese) should show a more benign external scenario for the Central Bank, maintaining expectations of cuts to the basic interest rate (SELIC), which in turn reduces the attractiveness of Brazilian assets and weakens the real. Bearish factors PCE index should maintain a trend of gradual price moderation in the US and suggest that the Fed has room for monetary easing, increasing bets on interest rate cuts by investors and weakening the American currency. The possibility of advancing important economic agendas for the government in the National Congress can ratchet down the perception of fiscal jeopardy for Brazilian assets and contribute to strengthening the BRL. Due to Christmas and the New Year, the Weekly Exchange Overview will not be published on December 22 and 29, returning on January 5, 2024. Happy Holidays!!!

Research

Nasdaq reflects optimism for 2024 as Fed Governors play Scrooge on early rate cuts

Last week’s ‘pivot’ rally has inspired some lofty bull market forecasts for equity markets in 2024, but a handful of Fed Governors played Scrooge by downplaying how soon and how far rates could fall. Meanwhile the Bank of Japan could raise rates tomorrow. At home, US housebuilders are getting more optimistic against the backdrop of almost a point decline in mortgage rates.

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Gold is settling after its brief burst of life; Silver has a speculative overhang

Gold is consolidating, but it took as positive news the Fed's presumed pivot to no further interest rate increases and possible interest rate reductions. The Fed's interest rate projections, the so-called 'dot plot,' displaying the interest rate projections of individual Federal Open Market Committee (FOMC) members, are now much more closely grouped than they were in September. The technical position looks mixed, but that reflects the hefty drop from a fortnight ago. Any change in the Big Figure around two thousand is bound to attract attention and technical support for gold stands between $1,975 and $2,002 per ounce. Silver's speculative overhang position has been reduced.

Research

Dollar rallies, Russell 2000 sees profit-taking

‘Buy on the rumor, sell on the news’ appears to be the operative phrase on Wall Street today, with the Russell 2000 off 1.2% and Gold off 0.5% after rallies leading up to and on the announcement of the Fed’s interest rate outlook this week. A statement by the New York Fed President brought a bit of reality to the markets with skeptical comments on any near-term rate cuts.

Research

Gold hits another all-time high on lower interest rates

Gold continues to glitter thanks to sharply declining bond yields, notably a major downward move in the real rate on 10-year TIPS. Other than for a 2% rally in the Russell 2,000, US equities were unchanged. The dollar lost another 1% today, making a 10% decline from its late 2022 high point.

Research

Christmas comes early for US bond and equity markets

The Fed’s offer of greater than expected rate cuts next year (if inflation behaves) spurred over one percent rallies in the S&P500, NASDAQ and Russell 2000, after being down 0.5% before the news. Bonds rallied strongly, being up over 4% along the curve. Gold jumped close to 2% and hit a new all-time high. The dollar sold off versus all major cross rates.

Research

Oil prices continue to slide, benefits inflation report

Oil prices continued to slide, down 4% on fears of weaker economic growth. Today’s inflation data, combined with last week’s employment data, suggests that inflation remains sticky – despite the benefit of lower energy prices. The “group think” on Wall Street is that the Fed must start pivoting early in 2024, but this has been wrong for the past 20 months. Let’s see if the Fed Chair will convincingly reassert his ‘higher for longer’ message tomorrow.

Brazil Flag

USDBRL should react to monetary policy decisions in the US, Brazil, the UK and the eurozone, inflation in Brazil and the US and votes in Congress

Bullish factors FOMC's monetary policy decision should curb more optimistic bets on a Fed interest rate cut in the short term and contribute to a momentary dollar strengthening. COPOM is expected to cut the basic interest rate (SELIC) by 0.50 p.p. and indicate that it will maintain the pace of reductions in the next meetings, which should harm the attractiveness of Brazilian bonds and falter the real. November CPI in the US is expected to show a slight hike compared to October and signal that the path to price stability recovery may be a bit longer and more tortuous than anticipated, increasing risk aversion and weakening currencies of emerging countries. Monetary policy decisions in the eurozone and England should reinforce the economic weakness in Europe and contribute to weakening their currencies versus the USD, favoring the American currency by contrast. Bearish factors The possibility of advancing important economic agendas for the government in the National Congress could reduce the perception of fiscal risks for Brazilian assets and strengthen the real.

Research

S&P 500 ahead on flat markets, waiting for Fed decision

Equity markets marked time ahead of the Fed’s FOMC meeting on Wednesday, with bond yields edging up, the dollar unchanged, oil bouncing off an important support and gold seeing profit-taking.

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Gold is settling after its brief burst of life; silver has a speculative overhang.

Gold recently hit an intra-day high in nominal terms but is now unwinding overbought conditions and has slipped below $2,000. The net gain since the start of November is just 1.1%, after a range of 10.5%. Silver’s profits have been wiped out after a range of 17.8%. Now is the time for gold to pause for a breath, with technical factors deteriorating. Silver is still vulnerable to a speculative overhang.

Research

Strong labor data fails to crimp equity markets, dollar rallies

Stocks rallied from early losses this morning as traders weighed this morning's jobs report and positive consumer sentiment data all of which pointed to which pointed to a soft landing. Futures markets pushed out the much hoped-for first rate cut to next summer echoing some Fed official’s mantra of ‘higher rates for longer.’ Predictably, bond yields and the dollar rose, while gold fell back from its peak.

Research

Yen rises on expectations for Japanese rate hikes

The Yen was very strong versus the dollar, hitting a 3-month high of 151.35 after traders anticipated a rate hike from a comment by Bank of Japan’s Governor Kazuo Ueda. The oil price dipped below $70 per barrel for the first time since June. The Dow Jones barely held on to recent gains in morning trade, with the NASDAQ up 1.4% and the S&P 500 up 0.8%. Fundamental direction has been thin with jobs data mixed thus far, and the official employment report still on tap tomorrow morning.

Research

Oil slides on fears for global demand, despite production cuts

The oil price slid 4% to $69.4 per barrel on fears that promised OPEC+ production cuts wouldn’t be enough in the face of weaker demand. Gold continues to flirt with all-time highs. Bond yields are moving down to levels seen over the summer, helping to lower mortgage rates and boost activity in the property market. Equity markets marked time ahead of key labor market data.

Research

Does Bitcoin’s rally mean the crypto bull market is back?

We consider factors which are boosting crypto prices, not just the Bitcoin rally. Optimistic scenarios that drove the equity market to new highs are giving way to more realistic view that the Fed will not be able to swing quickly to rate cuts in early 2024. The CME’s FedWatch shows traders expecting a 50 bps rate cut by June and at least 125 bp for 2024, in contrast with the latest Fed dot plot that shows a wide range of expectations from Fed participants, anticipating a 50 bp more modest reduction.

Brazil Flag

USDBRL should reflect Brazil's GDP, employment and services in the US, and data for China

Bullish factors The contraction of the Brazilian GDP in Q3 is expected to reduce the attractiveness of Brazilian assets and reinforce the need to cut the basic interest rate (SELIC), which could decrease foreign investments in the country and weaken the BRL. Bearish factors Slightly positive data for the American economy can reinforce the perception that the Federal Reserve will not raise interest rates further and contribute to the global weakening of the USD. Disclosure of data for the Chinese economy can reinforce the perception of a faster rebound, favoring currencies' performance from commodity-exporting countries like Brazil.