Headlines

* IMF raises global growth outlook for the first time in a year

* Australia December retail sales post first fall of 2022, AUD slides

* Dollar set for fourth monthly drop as Fed meeting looms

* Asian stocks slip as investors eye multiple central bank rate decisions

FX: USD is rising for a fourth day. Risk aversion and dollar shorts squaring positions ahead of the FOMC rate decision tomorrow appear evident. The DXY is still stuck below a resistance zone around 103 and above. Treasury yields have also moved higher as investors position for a possible “higher for longer” Fed decision. The 10-year yield is up above 3.50% again at 3.54%.

EUR closed lower for a third straight day. Mixed data came in the form of an unexpected contraction in Germany’s GDP in the last quarter of 2022. Hot Spanish HICP figures beat expectations and confounded the falling inflation theme. USD/JPY tracked higher US Treasury yields to close above 130. AUD underperformed as risk sentiment turned. Softer retail sales overnight have also acted as a headwind. USD/CAD jumped above trendline support and a Fib level at 1.3352. The net short position in CAD has tripled since November. It is now close to where bearish CAD sentiment has peaked on several occasions since 2020.

Stocks: US equities declined on cautious trade ahead of the Fed’s rate decision and a slew of big-tech earnings later this week. The benchmark S&P 500 fell 1.3%. The Dow finished 0.77% lower. The tech-heavy Nasdaq declined the most (-2.09%) in over a month. Meta report tomorrow after the US close. Apple, Amazon, and Alphabet release their Q4 results after Thursday’s closing bell.

Asian stocks dropped following the weak close in the US. A rebound in Chinese PMI data failed to inspire a rally. The Hang Seng was pressured by reports President Biden is weighing fully cutting off Huawei from US suppliers. This was despite strong Chinese PMI which beat estimates and returned to expansion territory above 50.

US equity futures are mixed. Futures in Europe are indicating a weaker open too (-0.6%). The cash market closed lower 0.5% yesterday.

Gold is falling for a fourth day in a row today. The mood across commodities is relatively lacklustre. The dollar bid and rising yields are not helping.

Day Ahead – Eurozone in focus

The euro region is the centre of a lot of interest currently as the outlook for growth brightens. Numerous bank analysts have had to revise their targets for the single currency and GDP forecasts higher. Does this mean a lot of the good news is now priced in and any bad news will change the picture rapidly? The ECB is expected to be hawkish this week. In fact, it might be the most hawkish G20 central bank if it signals more 50bps rate hikes to come.

Spanish inflation figures are not usually known to move markets. But yesterday’s data was a nasty surprise. Figures actually rose moving against a marked downward trend. Stickier inflation will definitely grab the attention of the hawks at the ECB. We get French numbers out today along with the flash euro area GDP data for Q4. Falling natural gas prices have also helped the overall picture. But the energy shock remains ongoing and substantial. We also note that Europe’s natural gas imports remain far lower than before Russia invaded.

Chart of the Day – EUR/USD pauses for breath

The world’s most popular currency pair is down for a fourth day in a row this morning. We’ve seen solid support on dips recently down to the low 1.08s. Initial support is 1.0825, with 1.0766 a key marker. Overbought signals have now eased back.

Resistance is 1.0926/30 and then a long-term Fib level at 1.0942. With so many risk events in the next few sessions, expect volatility and whippy price action.