Headlines

* Asia equities fall led by China tech stocks after Wall Steet tumbles

* Japan inflation speeds up, supports BoJ shift expectations

* Two more ECB policymakers back steady diet of rate hikes

* USD/JPY creeps back to 50% midpoint of 2022 trading range

FX: USD saw modest strength as it again traded in a narrow range. The DXY remained below the mid-August low at 104.63. US Treasury yields consolidated recent gains. The 10-year treasury yield held below 3.70%.

USD/JPY was the modest underperformer and is holding below the 50% level of this year’s move at 132.70. EUR/USD traded either side of 1.06. GBP/USD moved below the 200-day SMA now at 1.2072. The UK economy contracted by a larger than expected 0.3% in Q3 from the previous 3-month period. This suggested the projected downturn could arrive sooner than forecast. AUD whipsawed to a high of 0.6767 before pulling back. The 100-day SMA at 0.6655 looks to be holding as support. The NZD has bounced off the 200-day SMA at 0.6251.

Gold is mildly positive this morning after yesterday’s dollar-induced selloff. The 200-day SMA sits at $1783. The cycle high resides at $1824.

Stocks: US equities slid as a round of upbeat economic data and weak earnings weighed. The S&P 500 closed 1.4% lower having fallen nearly 3% earlier. The tech-laden Nasdaq tumbled 2.49% and the Dow was lower, down 1.05%. The S&P 500 is down by a fifth this year. That leaves it on track for its worst year since the GFC in 2008.

Asian traded mostly lower but drifted off their worst levels.The Nikkei 225 was dragged lower by industrials. Japanese CPI in November rose at the fastest annual pace since 1981. US equity futures trade with very modest gains. European equity futures are firmer. The Euro Stoxx 50 future is pointing up +0.4%. The cash market closed down 1.3%.

Day Ahead –Holiday period means thin liquidity

As always at this time of year, it’s the holiday season so this means year-end trading conditions. Markets can move a lot on very little news as volumes are reduced. US stocks were sold hard after strong upwards revisions to Q3 GDP and low initial jobless claims ignited a hawkish reaction. That is one where the Fed will continue to aggressively lift borrowing costs to fight inflation. The gloom was deepened further by dismal earnings news.

The idea of investors’ optimism of a goldilocks scenario of a moderation in inflation and a potential soft landing could be key in the new year. This view taken by markets currently is not what the Fed believes. Attention today will be on the November PCE report. This has the most potential to shape expectations for the Fed’s policy path. Inflation is cooling so peak inflation is in. How low prices will go and how quickly they get there is the focus. Expectations are for a November reading of 5.5% y/y vs the prior 6.0%. The core is expected to print at 4.6% y/y from 5.0% in October

Chart of the Day – Tesla sinks below long-term support

US tech stocks took a battering yesterday. Investors’ fears of persistent strength in the labour market were bolstered by the weekly jobs data. News that chipmaker Micron will axe 10% of its workforce amid weaker demand didn’t help the mood. But Tesla grabbed all the headlines. It fell 8.9% and was the top loser in the Nasdaq 100. Markets are increasingly nervous about Elon Musk’s Twitter distraction, lower EV demand due to high electricity prices and persistently high battery prices.

The stock has plunged nearly 70% this year and over 60% from the high in September. The company is still valued two times more than Toyota, the second most valued global carmaker. But the Tesla decline has intensified. Prices crashed through the 200-wekk SMA at $164.35 yesterday. The next Fib support level is $107.07.