Stocks choppy, USD higher amid holiday-thin trade

* Equities close higher investors weigh macro data

* Bonds, bullion and Bitcoin drops, with the crypto down below $94,000

* Dollar rebounds from inflation data drop as T-Note yields move higher

* US launches probe into Chinese semiconductor industry

FX: USD traded firmer in a narrow range amid light news flow. Durable goods data was soft, weighed down by aircraft orders. Consumer confidence was also softer. Last Friday’s cycle high was 108.54. A bearish outside day also printed.

EUR kept below the long-term resistance level at 1.0448. The November bottom is 1.0331. ECB President Lagarde told the FT that the bank was close to achieving its 2% inflation goal but had to remain alert to inflation risks.

GBP printed an inside day and sold off mildly. Last week’s BoE meeting was marginally dovish due to the vote split of 6-3, versus 8-2 expected. A February rate cut is around a coin flip from 44% before the BoE. A total of 53bps of easing is seen by year end.

USD/JPY moved higher as it consolidated bullishly just below Friday’s top at 157.92. We are approaching previous intervention levels around the 158/160 zone. The 10-year Us Treasury yield hit fresh highs as markets focus on Fed/BoJ rate divergence.

AUD tracked sideways near the Fed breakdown lows at around 0.62. The long-term trough from October 2022 sits at 0.6169. USD/CAD held steady printing an inside day below 1.44. January is the worst month for the loonie versus USD. Domestic politics is a mess and US tariffs are potentially coming soon. The BoC is expected to cut rates soon, in contrast to the FOMC.

US stocks: The S&P500 closed up 0.73% at 5,974. The tech-laden Nasdaq settled 1.01% higher at 21,503. The Dow finished at 42,907, up 0.16%. Communication Services, Tech and Healthcare led the gains.  Consumer Staples, Materials and Industrials were the only sectors in the red. Nvidia was the biggest winner on the Dow as chip stocks drove indices higher. Reports suggested Nvidia has resolved production issues with its Blackwell chip. There was little fresh news or themes with holiday liquidity thin.

Asian stocks: Futures are mixed. Asian equities opened firmer across the board after a decent bounce back Stateside. The ASX 200 was helped by tech and gold miners. The Nikkei 225 followed the generally positive mood. China traded firmer amid quiet news flow.

Gold finished lower after bouncing off $2600 last week. The November low at $2536 is a key bottom.

Day Ahead – RBA Meeting Minutes

The minutes to the RBA’s December meeting will be watched. Any dialogue around getting closer to rate cuts will be seized upon. We note the next meeting isn’t until February 18. The reason these minutes may garner attention is that the statement sounded less hawkish if not more dovish. The Board said some of the upside risks to inflation appear to have eased and that it is gaining some confidence that inflation is moving sustainably toward target.

Officials also finally appeared to be ruling out the risk of further tightening by deleting the phrase about not ruling anything in or out. Because of these changes, markets are roughly price in around a 60% chance of a 25bps cut at the February meeting. Any additional insights about the dovish tone will impact AUD.

Chart of the Day – Santa rally?

According to the Stock Trader’s Almanac, November is the start of the best six-month period for US stocks. It has been the best month for the S&P 500 and second best for the Dow Jones Industrial Average since 1950. It has been the second best month for the tech-heavy Nasdaq Composite Index since 1971.

Regarding the Santa Rally, markets increase in value specifically during the last week of December and into the first two trading days of the new year. Research shows that since 1950, this single seven-day period has produced a positive return for the S&P 500 78.9% of the time. No other similar duration of trading sessions is more likely to be higher. After the tumult from last week’s Fed meeting, prices have bounced off a Fib level (38.2) of the September low to the record high, at 5833. There’s a minor retracement level at 5935 ahead of the 21-day SMA at 6019.