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Markets quiet amid thin trade awaiting fresh catalysts

Vantage Updated Updated Mon, 2024 February 19 07:36


* European markets mixed as US closed for Presidents’ Day

* Dollar steady as sticky inflation dents rate cut expectations

* China holds key rates steady as yuan limits room for PBoC moves

* Gold bounces for a third straight day and above $2000

FX: USD edged higher after a fifth consecutive week of gains. But prices have come off their highs from last week which were last seen in mid-November. Friday’s strong PPI data warns that the next major inflation release the Fed’s favoured core PCE figures could tick higher. US markets were closed so trading volumes were thin throughout the day.  

EUR moved in a narrow range in quiet trade. Prices held below 1.0793, the 50% level of the Q4 rally. It’s relatively light start to the week in the eurozone. Tomorrow sees the ECB survey of negotiated wage rates, while Thursday’s release of PMI data will inform on the recovery in the economy. The former could further erase early rate cut bets. There’s now only around a 35% chance of an April rate cut

GBP moved up to 1.2629 before closing below 1.26. The 200-day SMA in cable sits at 1.2563. The first major Fib level (38.2%) of the October rally is at 1.2525. There’s little on the data front in the UK until Thursday’s PMIs.

USD/JPY continued to consolidate its recent upside move trading above 150. Weekly data from the CFTC showed that speculators again increased their net short position taking it to a more than two-month high. We had jawboning from Finance Minister Suzuki last week. He warned that “rapid moves are undesirable for the economy”.

AUD found a small bid as China returned from the Lunar New Year holiday. Prices dipped to three-month lows at 0.6442 last Tuesday. The RBA Minutes are released this morning. USD/CAD is trading back around its 200-day SMA at 1.3478. Canadian CPI is published later today.

Stocks: US equities were closed for the holiday. This came after the benchmark S&P 500 stayed above 5,000 but closed lower last week for the first time in five. Prices are overbought on several timeframes. Nasdaq 100 similarly closed off its recent highs with prices trading above 18,000 intraday last Monday. The Dow Jones closed marginally lower last week, having also made fresh record highs, at 38,927, All eyes this week will be on Nvidia earnings released after the Us closing bell on Wednesday. The stock commands a 4% and 5% weighting in the broad -based S&P 500 and tech-dominated Nasdaq 100.

Asian futures are mixed. APAC stocks were also mixed to kick off the week. China’s re-opening after its Lunar New Year holiday was muted. Despite the regional Asian equity benchmark rising 2.5% while China was on holiday, the CSI 300 could only manage a 0.6% gain, while the Hang Seng was lower. Local reports suggest NY holiday travel and spending have been strong. This has led some economists to suggest that Chinese consumption could re-accelerate.

Gold rose for a third straight day. It has managed to build a base despite US economic data strength leaving a more challenged rate cut path ahead. Strong physical demand is offsetting ‘paper’ selling of futures and ETFs. The metal sector will be watching earnings this week from several mining giants, including BHP and Rio.

Day Ahead – RBA Minutes, Canada CPI

The RBA will release the minutes from the February 6th meeting where it unsurprisingly kept rates unchanged at 4.35% and maintained its hawkish rhetoric. Governor Bullock also stuck to the hawkish script during the press conference as she noted that the bank is focused on inflation and there is still more work to do. However, she provided a more balanced tone during an appearance a few days later. She stated that inflation doesn’t need to be in the 2%-3% band for the RBA to think about rate cuts. And if consumption slows more quickly than expected, it will be an opportunity to cut rates.

Canada gets fresh CPI data with consensus expecting the headline to tick one-tenth lower to 3.3% y/y and 0.4% m/m. Traditional core is estimated at 0.5% m/m. The Bank of Canada is concerned about persistent inflation and sees a mixed picture on underlying price pressures. That means it is in no rush to change rates in either direction. But another cooldown in inflation could raise the likelihood of a rate cut in the spring, keeping the Canadian dollar under pressure. 

Chart of the Day – AUD/USD still in a bear trend

Softer job numbers and inflation data have challenged the RBA’s recent relatively hawkish bias. But the first rate cut isn’t priced in until August with a higher for longer stance expected to be kept by the central bank. That could potentially mean a lot less policy easing than the Fed and RBNZ too. Regarding China, we may have to wait until the early March for the Two Sessions meeting to see whether policymakers announce any new growth measures which could lift AUD. Further out, positioning could get more defensive ahead of the US election in November. Anti-China sentiment and rhetoric could see AUD struggle.

The major looked like it had broken down again last week below 0.65. But we’ve had four days of buying in a row which has pushed prices nearer to the 200-day SMA at 0.6563.  Bulls need to beat this to stop the bearish trend which kicked off in late December. Support sits around 0.65 with the recent low at 0.6442.