Calm Day in Financial Markets, Fed Speaks Today

Yesterday was a quite calm day in financial markets which was a result of scant data in the macro calendar. Yields on US Treasury bonds lost one or two basis points across the curve, leaving the yield on 10-year notes just above 4 percent. The main currency pair ended the day around 1.0930, although daily lows were near the 1.0910 level. The SP500 Index and Nasdaq Composite moved side-by-side yesterday. The former lost 0.2 percent, the latter gained 0.1 percent. Mainly declines were seen on European trading floors. The DAX closed the day with a loss of 0.17 percent. Remarks from Bowman and Bostic from the Federal Reserve did not bring much to the table.

The silence in the financial markets on Tuesday might have been a reflection of the economic calendar, which lacked significant data. However, the main index of the US NFIB survey rose more than expected, which is consistent with expectations for a soft landing in the US. The US trade deficit in November was also slightly lower, amounting to $-63.2 billion. German industrial output fell 0.7 percent month-on-month, worse than estimates indicated, undermining hopes for the eurozone’s exit from recession. Michelle Bowman and Raphael Bostic’s words also did not become triggers for higher market volatility. Today also lacks key US releases. We only get to know the weekly fuel inventories change and mortgage loan applications. Investors are waiting for tomorrow’s CPI release.

Overnight, Australia released inflation data. Inflation growth dynamics significantly fell from 4.9 percent year-on-year to 4.3 percent year-on-year. However, it is largely an effect of base data. A significant rise in the prices of food and energy was recorded in November 2022. Month-on-month inflation was at 0.35 percent which is still a dynamic exceeding the RBA target. The AUD/USD rate rose today above 0.6700 from yesterday’s lows at 0.6680. The volatility is however very limited.

Today, the market will observe speeches by Fed’s John Williams and ECB’s Isabela Schnabel. The BoE Governor, Andrew Bailey, will also speak. The US institution’s representative will discuss the economic outlook for 2024. In the case of Schnabel, the market wonders if any words counteracting the recent dovish statements from other ECB policymakers will be said. Yesterday, French member of the Governing Council Francois Villeroy confirmed that rates will be lowered in 2024, after Mario Centeno stated that the first reduction may occur in the first half of the year. Schnabel often represents the hawkish consortium at ECB. If concerns about recent inflation uptick in Europe emerge and words reject possible rate cuts in the first half of the year, the euro may benefit from this.

Łukasz Zembik Oanda TMS Brokers