FOREX: US GDP Prompts Limited Dollar Rebound
Dec-23 16:50
- After steadily weakening from the open this week, a much firmer-than-expected US GDP print has stalled the greenback’s downside momentum. Following the USD index printing a fresh pullback low at 97.85 in early trade, the data has sparked only a moderate rebound (owing to some question marks over the release), with the DXY operating around 98.05 as we approach the APAC crossover. Dollar dynamics did produce a notable pullback for spot gold, which had a near $70 pullback to $4,430/oz.
- Across the G10, it was JPY volatility that stole the show once again. Both the finance minister comments on potential intervention and a responsible tone from PM Takaichi provided a supportive backdrop early Tuesday. USDJPY extended its pull lower this week to erase the entirety of the post BOJ rally from Friday. This resulted in session lows of 155.65, before recovering around 85 pips following the US growth figures. Short-term technical parameters are well defined at 154.40 (50-day EMA) and 157.89 (key resistance and bull trigger).
- Continued positive sentiment for equity markets has underpinned solid gains for both AUD and NZD, which top the G10 leaderboard. AUDUSD has traded to within 7 pips of the key 0.6707 level, the Sep 17 high.
- Elsewhere, USDCAD also gathered downside momentum this morning. A break of multiple daily lows at 1.3727 is noteworthy, placing USDCAD at the lowest level since late July with prints below 1.3700. Overall, USDCAD has now extended its one-month selloff to around 3%, with the breach of the bull channel in early December exacerbating declines.
- Both EURUSD and GBPUSD had attempts at breaking the 1.18 and 1.35 levels respectively, although topside momentum certainly dissipated across the US session.
- US jobless claims are scheduled tomorrow, although market liquidity is likely to be heavily impacted by the upcoming holiday period.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
Nov-21 21:46
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
Nov-21 21:03
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
Nov-21 21:01
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
