Headlines

* World Bank warns global economy could tip into recession in 2023

* Australia rate bets firm after stronger inflation, retail sales

* Dollar treads water near 7-month lows ahead of data

* Asia markets mostly rise as weak yen boosts Japan’s Nikkei

FX: USD eked out a very small gain but printed an inside day. This came after two strong down days totalling close to 2%. Treasury yields actually rose higher on the back of more Fedspeak about monetary policy plans. The 10-year yield, seen as a proxy for borrowing costs around the world, trades at 3.59% this morning. Bond yields move inversely to prices.

EUR consolidated within a very tight range of 1.0710-1.0785. It also printed an inside day. This is a consolidation signal as all the day’s range comes “inside” the previous day’s range. GBP lacked firm direction and posted an inside day too. It dipped by 0.25% towards 1.2150. USD/JPY closed higher by 0.28% at 132.25. AUD slipped to 0.6860 but is finding buyers this morning. USD/CAD found a bid yesterday as it looks at support at 1.3352.

Stocks: US equities made gains as investors await US CPI and corporate earnings to be released later in the week. The blue-chip S&P 500 closed 0.7% higher. The tech-heavy Nasdaq gained 0.9% and the Dow finished up 0.56%.

Asian stocks are flirting with six-month highs. Risk-on sentiment and hopes for a rebound in Chinese growth are boosting the mood.  The HSI made a fresh high before pulling back. Hopes have been lifted by the reopening measures and discounted values of stocks. Support by the authorities including for the property sector is also helping liquidity ahead of next week’s Lunar New Year celebrations.

US futures are mixed. Futures in Europe are pointing to a positive open +0.5%.  The cash market closed lower, down 0.3% yesterday.

Gold is trading in the green for a fourth consecutive day this morning. It posted new highs at $1884 as traders await the US CPI data tomorrow.

Day Ahead– The waiting game…

Two of the fundamental qualities for successful trading are patience and discipline. We sit at our desks for many hours a day watching screens for flickers of movement and price action to confirm our entry and exit points. Sometimes risk events shock and surprise. Other times scheduled calendar events flatter to deceive.

Chair Powell’s speech was a case in point yesterday. Markets appeared to be somewhat wary of this, hoping to hear any new clues about monetary policy. In the end, he refrained from any major policy rhetoric which seemed a relief to many. Indeed, there was a small unwinding of hawkish positioning in equities which boosted stock indices. Inside days for many FX major summed up the day. But consolidation means breakout soon, especially on major events…like tomorrow’s US CPI.  

Chart of the Day – AUD hits two-month highs above 200-day SMA

Optimism over the China reopening is seeing buying in commodity currencies. Policy measures by the authorities are also being focused squarely on growth. Australia is front and centre here as we also had positive data overnight. November retails sales jumped while CPI data picked up to its highest since 2018. This resilience in consumption and inflation points to the RBA having to hike rates further.

With the dollar soft, AUD/USD has pushed up above its 200-day SMA. This has not been seen since early last year. It is viewed as a bullish sign by many. That indicator now acts as support at 0.6834. Two-month highs were posted at 0.6949 at the start of the week. The 50% level of last year’s drop is at 0.6916. Upside targets come in at the August highs and next Fib level around 0.71.