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US Conference Board Consumer Confidence rose from 101.0 to 110.7 in December, above expectation of 103.9. Present Situation Index rose from 136.5 to 148.5. Expectations Index rose from 77.4 to 85.6.

"December's increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months," said Dana Peterson, Chief Economist at The Conference Board.

"While December's renewed optimism was seen across all ages and household income levels, the gains were largest among householders aged 35-54 and households with income levels of $125,000 and above. December's write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns. Consumers' Perceived Likelihood of a US Recession over the Next 12 Months abated in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024."

Full US consumer confidence release here.

• Core PCE inflation to fall further on Friday 13:30 GMT, no big surprises expected
• Philly Fed manufacturing index, new home sales also on the agenda
• Investors see more than three rate cuts in 2024; US dollar could react moderately

The transition to monetary easing

The transition to monetary easing could be a hot theme in 2024. Global central banks excluding the Bank of Japan were more or less synchronized in their battle against high inflation following the pandemic price shock, delivering the most aggressive rate hiking cycle in decades. It’s still uncertain if this disinflation is mainly a result of normalizing supply chains or indeed because of tighter financial conditions (or both). In any case, inflation reacted in the right way, cooling substantially from its highs without causing a significant increase in the unemployment rate in 2023.

Although the possibility of another rate increase has not entirely evaporated as geopolitics and elevated wages keep threatening another upturn in inflation, Fed policymakers are now more confident to discuss a potential shift to rate cuts, probably because they are still concerned about the delayed effects of high borrowing costs in an important election year. The median projection of 19 Fed officials showed at least three reductions to 4.5% in 2024 during last week’s FOMC policy meeting, with futures markets currently awaiting the first 25 bps slash to come as soon as in March with a 65% probability. That said, market pricing should not be taken for granted as there are still three months ahead of data collection and sentiment could easily change.

US calendar to get busy, but little chance of festive cheer for the dollar

The Philadelphia Fed manufacturing index could come first into view on Thursday at 13:30 GMT. Forecasts are pointing to improving but still negative business conditions in the festive month of December, with the index expected to strengthen from -5.9 to -3.0.

Then on Friday at the same time, the focus will fall on the Fed’s favorite inflation measure, the core PCE price index for November. Analysts predict a slowdown to 3.3% y/y from 3.5% previously and a stable monthly increase of 0.2%. Other details of the report may reveal a moderate monthly pickup in personal income to 0.4% from 0.2% before and a steady expansion of 0.3% in personal consumption.

As regards the inflation trends, the CPI report has already updated investors on November’s price tendencies, whilst the S&P Global manufacturing PMI figures released last week have also informed investors about the latest changes in business sentiment. Hence, this week’s data may not trigger a notable pre-Christmas rally in the greenback, likely causing a balanced reaction in markets instead. Nevertheless, it would be interesting to see if the rise in medical care expenses, shelter & housing, and transportation persisted in the PCE report as the CPI data showed.

Meanwhile, traders could also pay attention to the Philly Fed employment and new orders sub-indices, which have been lacking strength since the start of the year. New home sales due on the same day at 15:00 GMT have been trending downwards as well over the past four months.

USD/JPY levels to watch

Following last week’s stronger-than-expected retail sales, another round of upbeat reports could somewhat ease investors' aggressive pricing of 150 bps of rate cuts by the end of 2024. Consequently, USDJPY could crawl higher to test the 145.00 level. If the bulls claim that barrier, closing above the 20-day simple moving average (SMA) too, the pair could next head for the 147.75-148.50 region.

In the event the data arrives worse than analysts anticipate, increasing the odds for a rate cut in March, the pair could slump to meet its 200-day SMA at 142.65. A continuation lower could initially challenge the almost five-month low of 140.94, while a steeper decline could meet the support trendline, which connects the lows from January and March, near 139.30.

Britain’s impressive slowdown in inflation has increased speculation around a rate cut next year. The headline consumer price index lost 0.2% in November, and the annual rate slowed from 4.6% to 3.9% – impressively below the expected 4.3%. Inflation excluding food and energy slowed from 5.7% to 5.1%, versus an expected 5.6%. This is the slowest rate of growth since September 2021 in the former and since January 2022 in the latter.

The latest data has convinced us that the UK has climbed out of the territory of the highest rate of price growth since the early 1990s. Current rates were also seen in 2008 and 2011.

A separate report published a little later noted a 1.2% y/y fall in house prices in October, although the average forecast was for a 0.0% fall. The current decline is the deepest since 2011.

Producer prices maintained their pace of contraction, as Input PPI lost 2.6% y/y while Output was down 0.2%. The negative pace has persisted here for half a year, lowering the degree of concern around rising final prices. However, PPIs fell less than expected, suggesting a slightly stickier inflation. At the same time, retailers and manufacturers may further pass on costs to end consumers due to 7.2% y/y wage increases, keeping fears of a classic wage-price spiral alive.

The Pound reacted with a 0.75% drop on the inflation reports, temporarily back to $1.2630 – the area of this week’s lows. At the same time, it’s worth bearing in mind that the Bank of England displayed a hawkish attitude last week in spite of the Fed’s dovish reversal. It seems that the UK Central Bank is in no hurry to change its rhetoric just because of the pace of wages.

Market picture

Crypto market capitalisation has changed little over the past 24 hours, standing at $1.61 trillion with fluctuations between $1.57 trillion and $1.62 trillion. The cryptocurrency market remains cautious, which can easily be explained by the perception that cryptocurrencies have grown far more than expected in the past year. But the correction is no longer prevalent.

Bitcoin is losing 0.6% in 24 hours, trading at $42.8K. The resistance of the ascending channel from late October has recently got support, marking the persistence of the buy-the-dip pattern. This behaviour is setting up for a quick retest of the December highs near $45K.

Solana is already testing the December highs near $78. The coin’s price has almost tripled from the start of the rally on 13 October, but it’s 70% below the peak. By comparison, Bitcoin is 37% lower, and the entire crypto market is 42% lower. The fact that Solana is recovering more steadily than most major competitors shows more interest in it in the community, which promises to keep its performance above the market in the coming months.

News background

Google searches on Solana have soared 250% in the past two months. User interest has coincided with the explosive growth of the asset and rising prices of related meme coins. The Solana blockchain continues to grow strongly with the background of new protocols and related airdrops.

MicroStrategy founder Michael Saylor described Bitcoin as an asset that has the potential to change investment strategies around the world. He said, “If Bitcoin doesn’t aim for zero, it will reach $1 million. If it’s a legitimate asset for institutional investors, it’s not getting enough attention.”

BlackRock conceded to the SEC and updated its application for a spot bitcoin ETF. The company’s proposal now includes a mechanism to redeem units for fiat money. This is a redemption model that the SEC considers safer for investors compared to redemption in BTC.

The U.S. District Court for the Northern District of Illinois approved a settlement in the Binance case – the exchange will pay the CFTC $2.7 billion, and Changpeng Zhao will pay $150 million. Zhao is still under investigation for his involvement in money laundering, and so far, the former Binance CEO has been unable to leave the U.S. He faces up to 18 months in prison.

Circle, the issuer of USDC, the second largest stablecoin by market capitalisation, has announced plans to launch a stablecoin cryptocurrency, EURC, pegged to the euro, on the Solana blockchain.

Daily Pivots: (S1) 142.41; (P) 143.68; (R1) 145.12; More...

Outlook in USD/JPY is unchanged and intraday bias stays neutral at this point. Upside of current recovery should be limited below 156.48 resistance to bring another decline. Firm break of 140.94 will resume the whole fall from 151.89. Next target will be next fibonacci level at 136.63.

In the bigger picture, fall from 151.89 is seen as the third leg of the corrective pattern from 151.93 (2022 high). Deeper decline would be seen to 61.8% retracement of 127.20 to 151.89 at 136.63, sustained break there will pave the way to 127.20 support (2022 low). This will now remain the favored as long as 146.58 resistance holds.

Daily Pivots: (S1) 0.8573; (P) 0.8630; (R1) 0.8667; More....

Intraday bias in USD/CHF stays on the downside and outlook is unchanged. Current fall from 0.9243 is in progress for retesting 0.8551 key support next. On the upside, above 0.8710 minor resistance will turn intraday bias neutral again first. But outlook will remain bearish as long as 0.8819 resistance holds.

In the bigger picture, price actions from 0.8551 are currently seen as a corrective pattern to the decline from 1.0146 (2022 high). Fall from 0.9243 is seen as the second leg for now. Strong support should be seen 0.8551 to bring rebound. Meanwhile, break of 0.9111 resistance will argue that the third leg has started already, and target 0.9243.

Daily Pivots: (S1) 1.0935; (P) 1.0961; (R1) 1.1007; More...

EUR/USD is staying in consolidation from 1.1108 and intraday bias remains neutral. Further rally is expected as long as 1.0722 support holds. On the upside, break of 1.1016 will resume the whole rise from 1.0447 to retest 1.1274 high.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Rise from 1.0447 is seen as the second leg. While further rally could cannot be ruled out, upside should be limited by 1.1274 to bring the third leg of the pattern. Meanwhile, sustained break of 1.0722 support will argue that the third leg has already started for 1.0447 and below.

Daily Pivots: (S1) 1.2661; (P) 1.2711; (R1) 1.2782; More...

GBP/USD dips notably today but stays well above 1.2499 support. Intraday bias remains neutral first. While more consolidations could be seen, further rally is still expected. On the upside, firm break of 1.2793 will resume the rally from 1.2036. Next target is 61.8% projection of 1.2068 to 1.2731 from 1.2499 at 1.2909.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to rise from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg that's in progress. Upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2499 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Sterling faced a broad decline today following release of UK CPI data, which indicated that inflation slowed more significantly than anticipated. This unexpected deceleration in inflation has led markets and economists to quickly adjust their expectations for BoE rate cut. The markets are now fully pricing the first 25bps reduction as early as May, with projections suggesting interest rates could drop to 4% or lower by the end of 2024. Notably, Goldman Sachs has also moved forward its forecast for BoE's interest-rate cut from June to May.

In the broader currency market, Swiss Franc and Euro are trailing behind Sterling as the next weakest currencies. Euro's decline is partly attributed to a deeper than expected drop in Germany's PPI in November, signaling potential economic softness in the Eurozone's largest economy. Conversely, Japanese Yen is making a comeback, recovering from its post-BoJ selloff and currently emerging as the strongest performer of the day. New Zealand Dollar and Australian Dollar are also showing firmer positions. Meanwhile, US Dollar's recovery appears to be limited to its performance against European currencies for the time being.

Technically, with today's downside acceleration, GBP/CHF's fall from 1.1153 is more likely resuming the larger down trend from 1.1574. Risk will stay on the downside as long as 55 D EMA (now at 1.1046) holds even in case of recovery. Deeper fall is in expected through 1.0779 support to 61.8% projection of 1.1502 to 1.0779 from 1.1153 at 1.0706 next.

In Europe, at the time of writing, FTSE is up 0.62%. DAX is down -0.03%. CAC is up 0.08%. Germany 10-year yield is down -0.55 at 1.968, back below 2% handle. UK 10-year yield is down -0.118 at 3.540. Earlier in Asia, Nikkei rose 1.37%. Hong Kong HSI rose 0.66%. China Shanghai SSE fell -1.03%. Singapore Strait Times fell -0.28%. Japan 10-year JGB yield fell -0.0708 to 0.563.

Bundesbank's Nagel cautions against premature ECB rate cut expectations

Bundesbank President Joachim Nagel has issued a warning to investors and analysts anticipating an early interest rate cut by ECB.

In an interview, Nagel emphasized the importance of maintaining the current interest rate levels to ensure the effective management of inflation. "We must initially remain at the current interest rate plateau so that monetary policy can fully develop its inflation-dampening effect," he stated.

Nagel's cautionary words to those speculating on an imminent rate cut were stark: "Be careful, some people have already miscalculated that." However, Nagel did acknowledge that interest rates have likely reached their peak, suggesting that while an immediate rate reduction may not be on the horizon, the period of aggressive rate hikes should have come to an end.

UK CPI slows to 3.9% yoy in Nov, core CPI down to 5.1% yoy

UK CPI slowed from 4.6% yoy to 3.9% yoy in November, below expectation of 4.3% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 5.7% yoy to 5.1% yoy, below expectation of 5.5% yoy. CPI goods fell from 2.9% yoy to 2.0% yoy. CPI services also fell from 6.6% yoy to 6.2% yoy.

ONS noted, "The easing in the annual inflation rates reflected downward contributions from eight divisions, most notably transport, recreation and culture, and food and non-alcoholic beverages. There were no divisions with large offsetting upward effects."

On a monthly basis, CPI was down -0.2% mom, below expectation of 0.2% mom rise.

Germany's Gfk consumer climate rises to -25.1, consumers still have major worries

Germany's Gfk Consumer Climate for January rose from -27.6 to -25.1. In December, income expectations rose from -16.7 to -6.9. Willingness to buy rose from -15.0 to -8.8. Willingness to save rose from 5.3 to 7.3.

"It remains to be seen whether the current increase represents the start of a sustained recovery in consumer sentiment," explains Rolf Bürkl, consumer expert at NIM.

"Consumers still have major worries. Geopolitical crises and wars, sharply rising food prices and discussions around national budget for 2024 continue to cause uncertainty. As a result, the level of consumer sentiment is currently still very low."

Japan's divergent export trend: 26 months of US growth, 12 months of China decline

Japan's trade statistics for November were marked by a slight decline in exports and a more significant drop in imports. Exports fell marginally by -0.2% yoy, totaling JPY 8829B, marking the first drop in three months.

A closer look at export destinations shows contrasting trends. Exports to US continued to grow, marking a 5.3% increase and extending the expansion streak to 26 months. In contrast, exports to China fell by -2.2%, continuing a downward trend for the 12th consecutive month. One of the most notable declines was in food shipments, which plummeted by -60.3%, significantly impacted by China's ban on Japanese seafood imports.

On the import side, Japan saw a more pronounced decline of -11.9% yoy, with total imports amounting to JPY 9597B. This reduction in imports contributed to a trade deficit of JPY -777B for the month.

When adjusted for seasonal variations, exports dropped by -1.8% mom to JPY 8567B, and imports decreased by -2.7% mom to JPY 8976B. Consequently, trade deficit narrowed from JPY -501B to JPY -409B.

Australia's Westpac leading index climbs to 0.3%, signaling stabilization, not an upturn

Westpac Leading Index in Australia showed an encouraging rise from -0.39% to 0.30% in November, marking the first positive, above-trend reading since mid-2022. However, Westpac cautioned that this uptick might be influenced by temporary factors. Also, the shift in underlying momentum, as RBA's tightening begins to slow, is seen more as a stabilization rather than the start of an upturn.

Further, Westpac highlighted weaker conditions in the domestic sphere, particularly impacting the household sector. This weakness is expected to continue into the first half of next year. Hence, Westpac anticipates that barring a "truly disastrous" December quarter CPI update, RBA is likely to maintain its current policy in the upcoming February meeting.

RBNZ's Orr highlights struggle with core inflation and migration impact

RBNZ Governor Adrian Orr, in his address to a parliament select committee today, emphasized there is "still a long way to go" to curb inflation. He added, "it's core inflation that's going to be our challenge ahead".

Orr also noted the complexity of this challenge, pointing out that much of the core inflation factors are entrenched within central and local government influences, including rates and taxes. He cautioned that tackling these elements in the "last five yards on the inflation battle is going to be tough."

Adding to the economic challenges, Orr highlighted the current record-high levels of net inward migration in New Zealand. This surge in migration has surpassed RBNZ's expectations and presents additional complexities for monetary policy, housing demand, asset prices, and the general inflation outlook.

Regarding the country's economic growth, Orr mentioned that GDP was "surprisingly subdued," with a contraction of -0.3% in Q3. He indicated that RBNZ is internalizing this complex situation and will provide more detailed insights in their monetary policy statement due in February.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2661; (P) 1.2711; (R1) 1.2782; More...

GBP/USD dips notably today but stays well above 1.2499 support. Intraday bias remains neutral first. While more consolidations could be seen, further rally is still expected. On the upside, firm break of 1.2793 will resume the rally from 1.2036. Next target is 61.8% projection of 1.2068 to 1.2731 from 1.2499 at 1.2909.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to rise from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg that's in progress. Upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2499 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Economic Indicators Update