Headlines

* Asia stocks extend advance after Wall Street gains as dollar weakens

* Biden says giving Ukraine advanced weapons risks alliances

* UK fell deeper into recession in fourth quarter, CBI Survey reports

* German Finance Ministry see subdued economic activity over winter

FX: USD trundled lower throughout the session. It breached 104 to the downside before matching and then dipping under yesterday’s 103.85 low.  US Treasury yields fell back but price action was contained. The 10-year yield popped up to 3.72% but is now trading just below a major fib level at 3.64%.

USD/JPY is consolidating recent losses trading around 132. This was more a function of the dollar as JPY crosses traded with shallower losses. EUR/USD found support around 1.06 trading in another narrow range. It remains just below the pandemic low at 1.0636. GBP/USD was an underperformer and dipped below the 200-day SMA at 1.2078 before finding buyers. Ongoing UK strikes and record public debt data drew attention. AUD found support at mid-July low at 0.6681. Base metals and tailwinds from China have helped the aussie outperform this morning.  USD/CAD has backed off 1.37 and is on its fourth day of losses.

Gold is slightly firmer today but below yesterday’s high at $1823. Last year and 2020 saw bullion end the year strongly before reversing in the January after.

Stocks: US equities rallied as risk sentiment bounced. The bulk of the gains came at the time of the NY open buoyed by a solid consumer confidence report. The S&P 500 added 1.49%. The Nasdaq gained 1.48% and the Dow jumped 1.6%. It was the best session in over a week for the S&P 500 bouncing off the month-to-date lows made on Tuesday.

Asian stocks traded with gains across the board following the positive handover from Wall Street.The Nikkei 225 eked out gains, but the upside was capped as the yen held on to most of its recent strength. US equity futures are mixed with price action contained. European equity futures are mildly higher. The cash market closed strongly yesterday with gains of 1.8%.

Market Thoughts –Santa rally

There is some speculation about the seasonal stock market rally kicking into gear. Market commentators tend to use the Santa rally term quite broadly to refer to either the entire month of December or a relatively longer time period. But if we are being picky, this term actually refers to the last week of December and the first two trading days of the new year. That is when markets increase in value.

Research shows that this single 7-day period has produced a positive return for the S&P 500 79% of the time. No other similar time period is more likely to be higher. We note amid the festive cheer that home sales saw a deeper tumble amid higher mortgage rates biting through the sector. This theme could grow in January and beyond.

Chart of the Day – Dow bounces off support

The risk mood rebounded midweek as US consumer confidence came in far stronger than expected. It jumped to an 8-month high. The survey also showed inflation expectations dropping more quickly than forecast. Better-than expected earnings from Nike and FedEx also helped stock markets.

The Dow sold off quite sharply last Tuesday after making a new cycle high at 34712. Prices pulled back to the midway point of this year’s decline at 32834. The 50-day SMA at 32808 also acted as support. Solid resistance remains at the August high at 34281.