Let's Just Get Through This Week

Looking Ahead

The older order changeth, yielding place to new. God fulfils himself in many ways. And soon, I suppose, I shall be swept away by some vulgar little tumour. Oh, my boys, my boys, we're at the end of an age. We live in a land of weather forecasts and breakfasts that set in. Shat on by Tories, shovelled up by Labour. And here we are, we three, perhaps the last island of beauty in the world. – Uncle Monty

If you fancy a gander at a year-ahead outlook(with the usual caveats that these things are ALWAYS outdated swiftly…/instrument/fra40/https://www.finalto.com/uk/white-papers/the-watchlist-2024/)

The end of the year Approacheth

We’re into the final furlong and unless there’s a big surprise then we’re looking at some very healthy gains for the most part in 2023. The Nasdaq 100, Dow, CAC and DAX all hit record highs last week so we could see some profit-taking implied into the year-end. The S&P 500 is also up more than 20% this year. What could go wrong? If you’re saying don’t fight the Fed, then the market has tailwinds now with a seventh straight winning week for Wall Street.

Rate Cuts a Ways Off?

Early losses on Monday morning for European equities come after quite a bump up this month. US markets were flat on Friday as the Fed pushed back against the market’s dovish reading of the policy decision on Wednesday. NY Fed boss John Williams said “we aren’t really talking about rate cuts right now”. The dollar rallied Friday off its lowest level since late July but is giving back a little today; oil firmed up, Treasury yields remain anchored at multi-month lows with the 10yr at 3.90%.

All Quiet on the Western Front

It’s a very quiet session this week. What the markets will mainly be looking to is the Bank of Japan and UK inflation data and then the US PCE inflation report ahead of the Christmas break. With people starting to leave for the holidays I think it’s safe to say we can expect some degree of winding down before picking up for Q1.

Bank of Japan Meeting

Who’s up for a Christmas surprise again this year as we had in 2022? I think it’s unlikely. The BoJ is not expected to lift negative rates this week amid economic weakness and questions over wage growth, though it may set out plans for 2024. Last week we noted sources indicated the BoJ sees little need to end negative rates in December, citing a lack of proof of sustainable inflation – a decision on when to pull the trigger on ending negative rates based on data up to the last minute. With economic data so-so and the Fed teeing up rate cuts next year the inclination is to assume that the BoJ is prepared to wait a little longer before normalising policy, particularly with wage negotiations still to take place – but it has form in surprising markets with unexpected moves. At the moment, markets are fully pricing in a rate hike by the end of April.

USDJPY – 200-day line holding, RSI looking oversold