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ECB cuts rates as expected, euro nears 1.0448
Updated Updated Thu, 2024 December 12 09:54
* Wall Street closes lower as investors assess data after recent gains
* Gold drops for the first time in five days as PPI climbs
* Handful of ECB officials wanted 50bp cut instead of 25bps
* SNB cuts rates 50bps, biggest reduction in nearly a decade
FX: USD carried on north through the prior y-t-d top at 106.51. The next upside target is 107.34. US PPI rose more than expected. That pushed Treasury yields up, with the 10-year above 4.3%. But weekly initial jobless claims rose to an eight-week high.
EUR sold-off for a fifth straight day and will be testing the long-term level at 1.0448 soon. The ECB cut rates as expected by 25bps, for a fourth time this year to 3%. The statement dropped the reference to “keeping interest rates sufficiently restrictive for as long as needed”. That means there are now more rates cut incoming, though not yet a consensus over the correct pace.
GBP turned lower after recent bearish consolidation around 1.2729.
USD/JPY saw initial yen strength fade following a Reuters story that the BoJ is leaning towards keeping rates steady next week. That said, there is no consensus within the bank on the final decision. Rising US 10-year Treasury yields also underpinned support for the major.
AUD gave up virtually all of its intraday gains after the Aussie jobs report. That saw the employment change top forecasts, while the jobless rate surprisingly fell to 3.9% despite forecasts of an uptick to 4.2% from 4.1%. This data pushed back the date of the first rate cut next year. USD/CAD made fresh multi-year highs moving above the previous resistance at 1.4177. There are now around 50bps of BoC cuts priced in for the first half of next year.
US stocks: The S&P500 closed down 0.54% at 6,051. The tech-dominated Nasdaq settled 0.68% lower at 21,615. The Dow finished at 43,914, off 0.53%. We are getting close to the Fed meeting next week. A 25bps rate cut is baked in but we get to see the new dot plots and summary of economic projections. Of course, this won’t be able to account for any of Trump’s policies.
Asian stocks: Futures are in the red. Asian equities traded higher after a rather subdued start. The ASX 200 saw gains reined in after the strong jobs data. The Nikkei 225 reclaimed the 40,000 level for the first time since October. China indices were muted initially with little reaction to reports US President elect Trump invited President Xi to attend his inauguration next month.
Gold found resistance at $2720. The dollar and yields surge hit bugs who were hoping to advance closer towards record highs at $2790.
Day Ahead – UK GDP
October’s UK GDP is expected at +0.2% m/m versus the 0.1% contraction seen in September. The prior release saw a negative print for GDP which saw the Q3 figure come in at a lacklustre 0.1%. The slowdown in growth was triggered by volatility within manufacturing. This time around, uncertainty and gloom that led up to the budget poses a downside risk to forecasts.
Chart of the Day – GBP rolling over?
Sterling has been the strongest major currency after USD this month and the third strongest over the last 30 days. The BoE policy path is closer to the Fed than the ECB. A more cautious stance is currently warranted as services inflation is still sticky. But many analysts believe softer services data in a few months will mean more BoE rate cuts than currently priced in.
After threatening to break above trendline resistance, prices turned lower yesterday. The Fib level (61.8) of the April to September move also sat near here at 1.2729. Next major support sits around 1.25. Cable needs to get above 1.2811 to slow the downtrend.
