The USD slipped, oil prices fell, equity markets down, and US yields eased before the PCE report. The USD slips in early trading but is on track to end the week on a high, while JPY hits 5-month lows as investors remain cautious ahead of the US Core Personal Consumption Expenditures - price index report. US futures are down, while European equities fell following another weak session in Asia as investors come to terms with a hawkish Fed into 2025 and the threat of a US government shutdown. The Trump-backed bill to avert the government shutdown failed as dozens of Republicans voted NO. Without a deal to fund the federal government and legislation, a partial shutdown is set to begin late Friday night. Elsewhere, oil prices fall on demand growth concerns and a strong USD. Bitcoin continues under pressure, falling 2% to $94.4k, while gold prices firm and silver prices eased. In focus today, the US Core Personal Consumption Expenditures - Price Index, the Fed's preferred measure of underlying inflation, is expected to increase to 2.9% (y/y Nov) vs 2.8% previously. Also, in view today, the CAD Retail Sales, US Personal Income, EU Consumer Confidence, & US Michigan Consumer Sentiment will help drive direction to currency markets.
In other news. Russian central bank surprises markets by holding rates at 21% despite sky-high inflation. Trump tells the EU to buy US oil and gas or face tariffs. China's short-term bond yields fall below 1% for the first time since 2009. The US dispatches diplomats to meet the Syrian rebel leader in Damascus. Japan's Nippon makes last-ditch appeal to clinch $15 billion US Steel deal. British retail sales rebound falls short of expectations. PM Trudeau to shuffle his cabinet today as caucus critics call on him to quit. Novo Nordisk's shares dropped 27% after the next-gen obesity drug CagriSema achieved lower weight loss than expected.
In currency markets, The Fed's hawkish stance has led to emerging market central banks selling USD to stabilize local currencies. Brazil stands out, with the BRL losing over 20% of its value in 2024. China CNY heads for a weekly fall, GBP weakens on a dovish BoE, while the USD is set to end the week in positive territory. CNY is down 0.1%, while Asian currencies firm by 0.1% on average against the USD. Trading currencies are mixed, with AUD & SEK falling 0.2%, NZD & ZAR down 0.1%, MXN & NOK flat, and JPY & CHF strengthening 0.4% against the USD.
In commodity markets. Oil prices weakened by 1.1%. Natural Gas prices rallied by 2.7%. Gold & Wheat prices firmed by 0.3%. Silver prices eased by 0.6%. Copper prices are flat, and Soybean prices strengthened by 0.75%.
CAD recoups losses as the USD eases heading into the US inflation report. The political shock of Finance Minister Freeland's resignation eases, with ministers saying that PM Trudeau has their support. Investors have scaled back their USD positions heading into the Christmas holidays, and the prospect of a US government shutdown adds further pressure to the USD. Focus today will be on the CAD Retail Sales, which is expected to rise to 0.7%, up from 0.4% in September.
EURCAD bounces off weekly lows as markets consolidate ahead of the Christmas holidays.
EUR stalls below 1.0400 ahead of US inflation data and the EU Con the euro. The euro remains under pressure amid growing risk-averse sentiment and the prospect of a widening interest rate divergence between the ECB and Fed in 2025. Political uncertainty ahead of the German elections in February is also expected to negatively impact the euro in the new year. Today, the focus is on the US PCE report and the EU Consumer Confidence update to help provide direction to the currency markets.
GBPEUR weakened with the outflow of capital from the UK moving back to Europe after the BoE kept interest rates on hold and took a more dovish stance on rates into 2025.
GBP drops to fresh multi-month lows against the USD ahead of the US data. The pound briefly touched 1.2470 in early trading, its lowest level since May 2024, following more dovish comments from the Bank of England on Thursday. The BoE maintained its bank rate at 4.75% in December, but on a dovish twist, three members of the MPC voted for a 25 bps rate cut. In its policy statement, the BoE said it can't commit to when or how much it will cut rates in 2025. Intraday will focus on the prospect of a US government shutdown and the US PCE report to provide direction.
The daily commentary will stop during the Christmas holidays and will return on January 2nd. I wish you the very best for the holiday season.
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