Headlines

* Bond traders pare odds of Fed rate cut in March

* UK inflation unexpectedly increased to 4% in December

* US stocks drop as US retail sales soar as shoppers appear more confident

* Gold retreats to over a one-month low after data dims rate cut hopes

FX: USD moved north for a fourth straight day but closed near its low after peaking at 103.69. The DXY advanced above the 200-day SMA at 103.44. But the index eventually closed marginally below at 103.38. US Treasury yields rose with the 10-year yield climbing above 4.10% and its 200-day SMA. It last closed above this over a month ago. Retail sales figures beat estimates adding to recent stronger NFP and CPI reports. March Fed rate cuts are now priced near a 50:50 bet from above 80% last week.

EUR dropped to a low of 1.0848, just above its 200-day SMA. If we lose this, next support is around 1.0765. But buyers stepped in late in the US session. There have been multiple ECB speakers this week in Davos. Officials have mostly pushed back against a spring rate cut. President Lagarde said it is likely the ECB will cut rates by the summer.

GBP outperformed as CPI data came in hotter than expected. Notably, services inflation beat estimates, slowing the disinflation trend, though it remains 0.5% below the BoE’s most recent projection. January CPI is predicted to pick up too, due to higher energy bills. Markets pared rate cut bets. Support was touched around 1.26 but prices bounced.

USD/JPY shot higher again as Treasury yields continued higher. The bullish momentum pushed above a Fib level at 147.45. Focus will turn to next week’s BoJ meeting. No changes are expected but the potential is there for downward revisions to growth and inflation.

AUD tanked again on weak risk appetite, sliding through the 200-day SMA at 0.6580. China data also disappointed which hurt high-beta currencies. The CAD lost ground on weak stocks, higher Vix and lower crude prices. The 50-day SMA sits at 1.3563.

Stocks: US equities sold off amid hawkish repricing of central bank rate paths. The benchmark S&P 500 lost 0.56% to settle at 4,739. The tech-heavy Nasdaq 100 dipped 0.56%to finish at 16,736. The Dow Jones outperformed, closing 0.25% lower at 37,267. Consumer staples was the leading sector, losing 0.12% while real estate was the biggest loser, off 1.87%. Tesla fell 1.98% as it cut Model Y car prices in Germany, following a similar move in China. But prices closed near the highs of the day in the S&P 500 and Nasdaq 100 and remain in the range that has been in place for around four weeks. A double top is in play if the benchmark, broader index drops below 4,682.

Asian futures are mixed. APAC stocks were pressured on higher yields and mixed China data. The ASX 200 declined on commodity-related losses. The Nikkei 225 pulled back from three-decade highs above 36,000. The risk-off mood trumped the weaker yen theme.

Gold fell another 1% to one-month lows, again on stronger yields and the dollar. The 50-day SMA now acts as resistance at $2017. Next support is the $2000 psychological level.

Day Ahead Data Focus – Australia Jobs, Japan CPI

Consensus sees 15,000 jobs added in December. This is a big reversal of the blockbuster 61,500 November print. The jobless rate is likely to remain steady at 3.9% which is slower than trend labour force growth. The RBA is currently seen to be the least dovish major central bank. Subdued risk sentiment has hit the aussie recently with the China growth outlook still gloomy.

Japan CPI is expected to slow further. This comes after the inline November headline print of 2.8%; prior 3.3%. The 2.5% core reading was its slowest pace since July 2022. The Tokyo CPI data, seen as a lead indicator for the national numbers, last week showed softer figures helped by a 19% fall in energy prices.

Chart of the Day – Dax sinks below support

The German Dax Index is a total return index of 40 selected German blue-chip stocks traded on the Frankfurt Stock Exchange. After hitting all-time highs just above 17,000, prices have started to roll over in the last couple of days. Markets are adjusting their rate cut expectations with the ECB pushing back to summer any idea of policy easing. A further headwind for stocks has been the grim China picture with a host of disappointing data. Notably, house prices recently marked the biggest drop since 2015.

The Dax looked to be supported by the July top at 16,528. Prices bounced off this level at the start of the year. But the index has dropped through here and a minor Fib level of the November rally at 16,443. The 50-day SMA sits at 16,301 as next support.