Solid ECN - Fundamental Analysis

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BoJ's Steady Policy Boosts Tokyo Stocks

On Tuesday, the Nikkei 225 index rose by 1.4%, reaching 33,219, its highest point in two weeks. The broader TOPIX index also saw an increase, finishing 0.7% higher at 2,334. These gains followed the Bank of Japan's decision to maintain its ultra-easy monetary policy, with a commitment to keeping interest rates low. The bank, however, did not provide any clues about potential changes to this policy in the next year.

Most sectors ended the day lower, except for basic materials, which remained relatively unchanged. Real estate emerged as the standout sector, leading the gains, followed by technology and non-cyclical industries. Among individual companies, Tokyo Electron saw a significant increase of 3.7%, with Fast Retailing and Recruit Holdings both gaining 2.2%.​

 

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Rising Consumer Confidence in the Netherlands​

In the Netherlands, December 2023 marked a noticeable uptick in consumer confidence, reaching its peak since January 2022. The confidence indicator improved to -29, up from -33 the previous month. This positive change reflects an enhanced outlook on the overall economic situation.

Specifically, people felt more optimistic when considering the past year (-62 compared to -66) and the year ahead (-19 compared to -28). Moreover, there's a growing readiness among consumers to spend, evident from the rise in their willingness to buy (-21 compared to -24). Importantly, perceptions about financial prospects for the coming year turned positive, moving to 2 from -1. Finally, households viewed the current period as slightly more favorable for major purchases, with the sentiment improving to -40 from -42.​

 

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Gold's Rise and Resistance: Fibonacci Analysis

In the daily XAUUSD chart, gold recently rebounded from the 50% Fibonacci support level. Now, the metal is trading over the 38.2% Fibonacci support, approaching the resistance zone between $2,047 and $2,057.

Delving deeper with the 4-hour chart, we get a clearer picture of gold's market movements. Here, buyers are striving to keep the price over the 38.2% Fibonacci mark. This bullish trend is backed by various technical indicators. For instance, the RSI indicator is consistently above 50, a good sign for buyers. Moreover, the Awesome Oscillator shows green bars, signaling upward momentum. If this trend continues and the current level holds, we anticipate gold might reach the 61.8% Fibonacci resistance.

Conversely, if gold's price falls beneath its current support, this would challenge the current bullish perspective, potentially leading to a decline in its value.​

 

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UK Gilt Yield Hits 8-Month Low Amid Rate Cut Hopes​

Solid ECN – In the UK, the 10-year Gilt yield has dropped to 3.5%, marking an eight-month low, driven by expectations of interest rate cuts in 2024. UK inflation has also decreased to 3.8%, the lowest since September 2021, beating the expected 4.4%. The core inflation rate fell to 5.1%, a low not seen since January 2022, and significantly under the 5.6% forecast.

This has led traders to heavily speculate on the Bank of England reducing interest rates, with predictions of a total cut of 143 basis points. The initial rate cut is expected in March, followed by potentially five more quarter-point reductions, and a 70% likelihood of a sixth cut. In the meantime, the markets are also anticipating a 75 basis point rate cut from the Federal Reserve in 2024.​

 

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Rising Aussie Dollar: A Five-Month High​

The Australian dollar has maintained a strong position, staying around $0.675, which is its highest level in nearly five months. This strength is largely due to the dovish (less aggressive) monetary policies of the US Federal Reserve and the Bank of Japan. These policies have put pressure on the US dollar and the yen, in turn boosting other major currencies, including the Australian dollar, commonly referred to as the Aussie.

Furthermore, the Aussie has been positively influenced by an increase in commodity prices. This rise in prices can be attributed to supply disruptions caused by attacks in the Red Sea. Additionally, the possibility of lower interest rates has also played a role in enhancing the overall demand outlook, thus supporting the Australian dollar's value.

Domestically, the situation is also noteworthy. The latest meeting minutes from the Reserve Bank of Australia (RBA) revealed that the central bank had contemplated raising interest rates for a second consecutive month in December. However, the RBA opted to wait for more data before making such a decision, as there were promising signs regarding inflation.

The RBA has also observed that aggregate demand within Australia has slowed more rapidly than they had anticipated. This slowing of demand is coupled with an observation of an accelerating pace of disinflation (a slowing down in the rate of inflation) in other parts of the world. These factors together contribute to the complex economic landscape that the RBA and the Australian dollar are currently navigating.​

 

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Nikkei 225 and Topix Index Surge on BOJ's Policy​

Solid ECN – On Wednesday, Japan's Nikkei 225 Index saw a significant rise of 1.37%, closing at 33,676, while the broader Topix Index increased by 0.67% to 2,349. This growth continued from the previous session, spurred by the Bank of Japan's decision to maintain its ultra-loose monetary policy. The central bank also avoided any hints of potential changes in the coming year. Governor Kazuo Ueda, in his press conference, emphasized a dovish stance, stating the bank's readiness to implement further easing measures if needed.

Additionally, Japanese stocks were buoyed by positive developments on Wall Street, where optimism grew around the expectation that the US Federal Reserve might begin reducing interest rates next year. This optimism was reflected across almost all sectors in the Japanese market, with notable increases in shares of major companies. Kawasaki Kisen saw a rise of 5.6%, Nippon Yusen surged by 32%, Fast Retailing increased by 3.9%, Shin-Etsu Chemical went up by 4.1%, and Nippon Steel grew by 1.6%.

 

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FTSE 100 Hits 7-Month High on Low Inflation​

Solid ECN – On Tuesday, the FTSE 100 experienced a notable increase, rising over 1.5% and reaching a seven-month peak near the 7750 mark. This jump came after the release of inflation data that was lower than expected. The data led to widespread conjecture that the Bank of England might start reducing interest rates as early as March 2023, possibly cutting them by a total of 143 basis points.

The sectors most responsive to interest rate changes were the biggest gainers. Homebuilders saw a 3.6% increase, real estate climbed by 1.4%, and real estate investment trusts (REITs) went up by 1.6%. Additionally, there were significant gains in other areas, with energy stocks growing by 2.5% and banks by 2.1%.​

 

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Canadian Dollar Peaks Amid Inflation Concerns​

Solid ECN – In December, the Canadian dollar reached its highest level since early August, surpassing 1.335 against the USD. This strengthening is a result of persistent inflation within the Canadian economy, which has reignited expectations for a more aggressive monetary policy from the Bank of Canada. Contrary to market anticipations of a slowdown to 2.9%, headline inflation remained steady at 3.1% in November. Moreover, the trimmed-mean core rate, a key measure of inflation, exceeded forecasts by reaching 3.5%.

These figures support the central bank’s earlier predictions that inflation in Canada is likely to stay high for some time. This situation calls for an extended period of tight monetary policy, possibly including additional interest rate increases. In contrast, the Federal Reserve in the United States has signaled a more cautious approach, with policymakers indicating expected rate cuts totaling 75 basis points for the next year. This difference in policy stances has further amplified the Canadian dollar's rise in value compared to the US dollar.

 

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Fed's Rate Cut Speculation Keeps Gold Near $2,040

On Wednesday, gold's price remained steady at about $2,040 per ounce. This stability is close to the highest it's been in more than two weeks. Despite comments from US Federal Reserve officials, expectations for interest rate reductions next year haven't changed much. Atlanta Fed President Raphael Bostic, echoing other US policymakers, mentioned on Tuesday that there's no immediate need to lower US interest rates, considering the economy's current robustness.

However, the market still anticipates a high likelihood, roughly 75%, of an interest rate cut by March. Looking forward, investors are waiting for the Fed's preferred core PCE price index, set to be released later this week, for more direction. In other news, the Bank of Japan has decided to maintain its very accommodative monetary policy and hasn't hinted at any changes for the coming year. Similarly, the People’s Bank of China kept its key lending rates steady, resisting the push to relax monetary policy further despite a struggling economic recovery.

 

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ASX 200 Dips Slightly, Reflecting Wall Street Sell-Off

Solid ECN – The S&P/ASX 200 Index experienced a slight drop of 0.45%, ending the day at 7,504 on Thursday. This downturn came after the index reached its highest point in over ten months, mirroring a sudden decline in Wall Street due to profit-taking after a significant surge that took US markets to new highs. Caution prevailed among investors as they awaited important economic reports from the US, including GDP and inflation figures, which might affect the Federal Reserve's financial strategy.

In Australia, the Reserve Bank's recent meeting notes revealed a debate over raising interest rates for another month in December. However, the decision was to wait for more information, as there were some positive signs regarding inflation. The drop in the index was mainly due to the downward movement in sectors like mining, finance, and consumer goods. Significant losses were seen in companies like Allkem (down 5.6%), Pilbara Minerals (down 3.4%), Commonwealth Bank (down 0.4%), Macquarie Group (down 0.9%), Aristocrat Leisure (down 2.3%), and Woolworths Group (down 0.4%).​

 

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France's Manufacturing Sector: A Mixed Outlook for 2024

Solid ECN – In December 2023, France's manufacturing sector showed signs of positive change. The manufacturing climate indicator, a measure of the health of the industry, reached 100, the highest level since July. This increase, up from 99 in November, surpassed expectations of 98. Key factors behind this rise included a more positive view from industrialists about recent production, moving from a negative perception (-9) in the past to a neutral stance (0). Additionally, there was a slight improvement in the inventory of finished goods, with the index moving from 13 to 14.

However, not all aspects were upbeat. The overall order books didn't show any change, remaining at a low level (-17), though foreign orders saw a marginal improvement. Concerns emerged regarding the future, as manufacturers' expectations for their own production dropped slightly, and their outlook on selling prices also deteriorated.

An encouraging sign was the decrease in perceived economic uncertainty, which fell to 25 in December from 28 in November. This suggests that manufacturers are becoming slightly more confident about the economic environment.

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France Manufacturing Sector: Economic Implication

Looking ahead, these mixed signals in France's manufacturing sector offer a nuanced view of the economic future. The improvement in the manufacturing climate indicator and the reduction in uncertainty are positive signs, indicating potential growth and stability in the industry. However, the stagnant order books and cautious outlook on production and pricing point to ongoing challenges. The sector might experience moderate growth but will likely continue facing hurdles, such as fluctuating demand and pricing pressures.

Overall, while the immediate future seems cautiously optimistic, the long-term outlook remains uncertain, dependent on both domestic and global economic conditions.​

 

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EURUSD Trades Below $1.1

Solid ECN – The EURUSD currency pair is currently trading at less than $1.1. The participants are forecasting a potential dip in the Euro zone interest rates. Francois Villeroy de Galhau from France hinted on Tuesday that a rate cut might be on the horizon next year. The goal would be stabilizing inflation at 2% no later than 2025.

However, Yannis Stournaras of Greece has a more conservative approach, insisting that inflation should be kept under 3% by the middle of the following year before considering a reduction in borrowing costs. Despite inflation falling to 2.4% in November, economic analysts are predicting a possible surge in the latter part of the year.​

 

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Offshore Yuan Slips to 7.15

Solid ECN – The offshore yuan dropped to around 7.15 per dollar, moving down from its six-month high. This happened because China's central bank did not change its main lending rates, even though there was pressure to loosen monetary policy due to a weak economic recovery.

The People’s Bank of China kept its one-year rate at 3.45% and its five-year rate at 4.2%, as many had expected. Now, markets are looking forward to possible rate cuts next year and maybe a lower reserve requirement ratio to keep enough money in circulation. Experts believe that China’s low inflation and slow economic growth justify this expectation. However, the yuan is still strong because the US Federal Reserve might start to cut interest rates next year. Also, the Bank of Japan has not said anything about changing its policies in 2024.

 

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Gold Nears $2,040 Amid Rate Cut Hopes​

Solid ECN – Gold climbed to near $2,040 per ounce on Thursday. It recovered from earlier losses, driven by strong beliefs that the US Federal Reserve will reduce interest rates next year. Also, a big drop in stocks created a demand for safe investments like gold.

Even though Federal Reserve officials opposed the idea of many rate cuts next year, the market still thinks there's a 70% chance of a rate cut in March. Investors are now waiting for US economic growth data on Thursday and the core personal consumption expenditures (PCE) index on Friday for more clues. In the UK, inflation in November fell to its lowest in over two years, suggesting a possible worldwide trend of rate cuts. In other news, the Bank of Japan kept its very relaxed monetary policy, and the People’s Bank of China did not change its main lending rates.

 

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Ibovespa Hits Record High​

Solid ECN – On Thursday, the Ibovespa index climbed 0.8%. It reached over 131,800, a new high. This rise followed a loss in the previous session. The upbeat mood in Wall Street influenced this. Investors think the Federal Reserve will soon lower interest rates. This hope caused a drop in future interest rate expectations in Brazil. It also supports a positive view of Brazil's central bank. This mood is good for stocks in emerging markets.

Vale, a big company, saw its shares rise almost 3%. This was due to higher iron ore prices. In other news, Braskem, despite a police probe into its mining in Maceio, saw its shares go up.​

 

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Yen Holds Firm as Japan Sees Inflation Ease​

In a recent update, the value of the Japanese yen remained stable at approximately 142.2 against the US dollar. This steadiness occurred despite new data indicating a decrease in Japan's inflation rates. November saw both the main and core inflation rates drop to the lowest they've been in 16 months, recording figures of 2.8% and 2.5%, respectively. Notably, the core inflation rate has been over the Bank of Japan's target of 2% for twenty consecutive months.

Earlier in the week, the yen faced some downward pressure. This was largely due to the Bank of Japan's decision to continue its very accommodative monetary policy. The bank did not hint at any potential shifts towards more standard policies in the upcoming year. The Bank's Governor, Kazuo Ueda, emphasized in a press conference that the bank is prepared to implement further easing measures if they become necessary.

In contrast, recent economic data from the United States has led to speculation that the Federal Reserve might begin to reduce interest rates next year. This expectation has lent some support to the yen.
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Economic Implication​

From an analytical perspective, the economic future appears to hinge on several factors. Japan's persistent core inflation above the target suggests an underlying economic resilience, possibly influencing the Bank of Japan's monetary policy decisions in the future. However, the bank's readiness to introduce further easing measures could signal a cautious approach towards economic uncertainties. Internationally, the US Federal Reserve's potential interest rate adjustments could impact the yen, either stabilizing or fluctuating its value against the dollar.

Overall, careful monitoring of these domestic and international economic indicators will be crucial in forecasting the yen's trajectory and Japan's economic health.

 

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UK Pound Rises Amid Economic Shifts​

Solid ECN – The UK pound recently surged past $1.27, driven by investor reactions to fresh economic data and predictions about future monetary policies. Recent reports have painted a mixed picture of the UK's economic health. The third quarter showed a shrinkage in the economy, a downturn further emphasized by revised figures from the second quarter, signaling a looming recession risk. On a brighter note, retail sales in November surpassed expectations.

Inflation trends are also shifting. The latest Consumer Price Index (CPI) report indicates a drop in UK inflation to 3.8%, significantly lower than the anticipated 4.4%. Additionally, core inflation has fallen to 5.1%, which is below the forecasted 5.6%. These changes have led traders to strongly anticipate interest rate cuts by the Bank of England (BOE) in the coming year. Market expectations suggest a total decrease of 143 basis points, translating to five quarter-point reductions and a 70% likelihood of a sixth cut. However, this contrasts with BOE Governor Andrew Bailey's insistence on keeping rates higher for a longer duration.

Despite the recent slowdown, inflation in the UK remains nearly double the BOE’s 2% target and is the highest among the Group of Seven nations. This situation poses a delicate balance for policymakers, who must navigate between supporting growth and controlling inflation.​

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Economic Implication​

In a fundamental analysis, the future of the UK economy hinges on several factors. The anticipated interest rate cuts could stimulate spending and investments, potentially aiding in recession recovery. However, persistent high inflation remains a challenge. If inflation continues to outpace targets, the BOE may need to reconsider its stance on rate cuts to prevent further devaluation of the pound and manage cost-of-living increases. The economic outlook will largely depend on the BOE’s ability to balance these competing priorities and the government's measures to support economic growth.​

 

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AUDUSD: Buy or Wait?​

The AUDUSD's rise is still going strong, moving near the top of its bullish trend. Yet, in today's market, the pair approached the 78.6% Fibonacci level, with the RSI near 70. This means the pair isn't overvalued despite the ongoing uptrend.

For those with smaller budgets, buying now may not be the best move. It's better to wait for a slight price drop. If the price dips below 78.6%, it could fall to the support zone between 0.6681 and 0.6676, a better buy-in point for those bullish on AUDUSD.

However, buying the Australian dollar now isn't advisable, strong trend or not. The market looks overbought, and AUDUSD is likely to lose some value. A smarter strategy is to wait for a drop before joining the upward trend.

With its upward momentum, the pair might reach its June 2023 high.​

 

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USDJPY's Sharp Decline​

The USDJPY pair saw a sharp drop after hitting the Ichimoku cloud. It's now trading below a resistance level formed by the cloud. A closer look at the USDJPY 4-hour chart shows the price falling within a channel. The pair is currently at the 78.6% Fibonacci support level.

Given the technical indicators, it seems this support might break, continuing the bearish trend.

 

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Canadian Index Weekly Report​

The S&P/TSX Composite index rose by 0.5% to 20,881 on Friday. This is the highest it’s been since May 2022. The rise was due to relaxed financial conditions. Early data shows that Canada’s GDP grew in November compared to October. The October data was updated to show no growth. This is in line with the Bank of Canada’s economic forecast. The bank remains optimistic.

Canadian government bonds are doing well. This is due to increased demand for US Treasuries and better lending conditions for Canadian banks. TD Bank and BMO saw increases of 0.4% and 0.7% respectively. This followed the government’s approval of the bank’s purchase of HSBC’s local unit. Gold miners and oil producers also saw gains, following the trends of their respective commodities. Over the week, the Canadian index rose by 1%. The Toronto Stock Exchange will be closed until December 27.​