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Eurozone industrial production dropped -2.0% mom in October, worse than expectation of -1.4% mom. Production of energy fell by -3.9%, durable consumer goods by -1.9%, intermediate goods by -1.3% and capital goods by -0.6%, while production of non-durable consumer goods rose by 0.3%.

EU industrial production dropped -1.9% mom. Among Member States for which data are available, the largest monthly decreases were registered in Ireland (-10.7%), Luxembourg (-4.4%) and Czechia (-3.7%). Increases were observed in Slovakia (+1.3%), Lithuania (+1.1%), Greece (+0.5%) and Austria (+0.2%).

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Ifo said the German economy is "suffering from huge supply shocks". Price press is "not expected to ease until 2024, and then only slowly". Overall inflation is expected to fall from 7.8% in 2022 to 6.4% in 2023. However, core inflation is expected to rise from 4.8% to 5.8% next year.

Ifo also said Germany GDP is forecast to grow 1.8% in 2022, contract slightly by -0.1% in 2023, and back at 1.6% in 2024. Economy output to expected to fall by -0.3% qoq and -0.4% qoq in the two quarters of the 2022-23 winter half-year (i.e. Q4 and Q1). Thus, Germany will be technically in a recession. But starting in spring 2023, the economy is expected recovery and growth at stronger rates in the second half .

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Stocks were given a shot in the arm by yesterday’s cooler-than-expected US CPI data. However, greater appetite for risk assets would still need to be validated by a Federal Reserve that’s more open to easing up on its aggressive battle against inflation.

The FOMC is expected to downshift to a 50-basis point hike today amid signs that inflation is moderating, while noting the lag in monetary policy actions’ impact on the real economy. Surer signals about the Fed’s eventual pivot are likely to spur further gains in risk assets, potentially sending the S&P 500 on a ‘Santa rally’ and into a fresh bull market.

However, markets have been culpable of hearing only what they want to hear, fixating on the Fed’s eventual pivot rather than Chair Powell’s reluctance to prematurely end the central bank’s rate hike campaign. If markets are forced to reconcile with the Fed’s hawkish intentions, either by way of a higher median rate in the FOMC dot plot or a more aggressive tone adopted by Chair Powell, that may prompt the unwinding of stocks’ recent gains, while bolstering the US dollar.

USDJPY has been in a prolonged uptrend for almost two years, crossing above its historical resistance levels to post a 32-year high of 151.94 in October. However, the pair has declined moderately from its recent multi-year peak, with the 200-day simple moving average (SMA) currently acting as a strong floor.

The momentum indicators currently suggest that bearish forces are in control. Specifically, the RSI is hovering below its 50-neutral mark, while the stochastic oscillator is descending after posting a bearish cross.

If sellers eventually manage to push the price below the 200-day SMA, initial support could be found at the recent low of 133.62. Piercing through that wall, the bears might aim for the August low of 130.40. Failing to halt there, the May bottom of 126.40 could provide further downside protection.

To the upside, should buying forces intensify, the pair could challenge the recent resistance region of 137.96. Breaking above that zone, the price could then ascend to challenge 142.24 before the September peak of 145.89 comes under examination.  An upside violation of the latter may set the stage for the 32-year high of 151.94.

In brief, despite the persistent downside pressures, it seems that USDJPY is unable to breach the crucial 200-day SMA. Hence, if the pair extends its streak of consecutive failed attempts, there could be an upside correction on the cards.

A closer look at the 1H timeframe shows that the NZDUSD market has already completed the formation of a cycle actionary wave y.

Thus, in the last section of the chart, we can see the formation of a new bullish trend. Most likely, there is a construction of the primary wave Ⓐ, which may take the form of an impulse of the intermediate degree (1)-(2)-(3)-(4)-(5). An approximate scheme of possible future movement is shown on the chart.

It is assumed that the bulls will push the market to 0.662. At that level, intermediate wave (5) will be at 61.8% of intermediate impulse wave (3).

An alternative scenario suggests that the primary wave Ⓐ is fully completed. This is an intermediate impulse (1)-(2)-(3)-(4)-(5).

Thus, the beginning of a bearish correction Ⓑ is expected in the near future, which is the second part of the expected zigzag Ⓐ-Ⓑ-Ⓒ.

Most likely, the price in a potential correction Ⓑ will fall to 0.601. At that level, it will be at 50% of primary impulse Ⓐ.

Equities soared as cooling US inflation spurred hopes of a dovish Fed stance. On the daily chart, the FTSE 100 is holding onto its gains after a break above August’s high of 7560, while still remaining under pressure from this year’s highs around 7640. Support has been found at 7420, the junction between the base of a previous bullish breakout and the 30-day moving average. 7550 is the first resistance and a close above 7615 would resume the uptrend. A bearish breakout, however, would cause a correction to 7290.

WTI crude bounced after OPEC said it expected demand growth from relaxed COVID policies in China. The price took off at its 12-month low and the psychological level of 70.00. But the bulls will need strong and convincing momentum above this month’s high at 82.00 before they could turn the pessimistic mood around. Before that, the support-turned-resistance at 77.00 is the first hurdle where renewed selling could be expected while the RSI shows an overbought situation. 73.30 is a fresh support and 70.00 a critical floor.

Gold popped higher following a deceleration in US CPI last month. After a rally above the August high of 1805, a brief consolidation saw support at 1765 right over the 20-day moving average. As the trading range compressed, the pressure was building up ahead of a breakout. This came in the shape of a strong impetus above 1810 which could lead to a runaway rally above 1850. As the RSI shot into the overbought area a pullback could ensue and the base of the breakout at 1790 is a key level to maintain the upward bias.

Short term Elliott Wave View in Silver (XAGUSD) suggests the rally from 9.28.2022 low is unfolding as a 5 waves impulse Elliott Wave structure. Up from 9.28.2022 low, wave 1 ended at 21.24 and pullback in wave 2 ended at 18.05. The metal then resumed higher in wave 3. Up from wave 2, wave ((i)) ended at 18.94 and dips in wave ((ii)) ended at 18.26. The metal resumes higher in wave ((iii)) towards 22.25 and pullback in wave ((iv)) ended at 20.56. Final leg higher wave ((v)) ended at 23.51 which completed wave 3. From there, the metal pullback in wave 4 which ended at 22.00.

Wave 5 higher is in progress with internal subdivision as an impulse in lesser degree. Up from wave 4 low, wave ((i)) ended at 23.68 and pullback in wave ((ii)) ended at 23.09. Bounce in wave ((iii)) ended at 24.13 and pullback as wave ((iv)) has dropped inside of wave 1’s area forming and ending diagonal structure. Near term. we expect to complete wave ((iv)) before see one more high above 24.13 and completed an impulse from 9.28.2022 low. After this, expect pullback in wave (2) to find support in 3, 7, 11 swing for more upside.

XAGUSD 60 Minutes Elliott Wave Chart

https://www.youtube.com/watch?v=hZ6ijQfVCpY

Markets

US CPI eased more than expected in November to 7.1% headline and 6% core inflation. The downside surprise was no more than 2 and 1 hundreds of a percent respectively but it mattered for markets. US short term yields dropped almost 25 bps intraday (2y), outperforming the long end (<20 bps in the 10y). Part of those losses were recouped later in the session. Yields eventually closed 15.8 bps lower at the short end with the 2y yield losing the 4.25% neckline support. The back of the curve shed 3.9 bps. The 30y underperformed after a 3 bps tailed $18bn auction. US Treasury action pulled German Bunds in its slipstream. But the damage in terms of yields was limited to a max of 5.1 bps at the front. Gilt yields parted ways by searing more than 10 bps (10y, 30y) in the wake of a strong labour market report. The dollar got dumped yesterday. The trade-weighted index fell to the lowest level since June (103.98). USD/JPY retreated from 137.67 to 134.66 with further losses prevented by the 200dMA. EUR/USD snapped higher, beyond the 38.2% recovery of the ‘21/’22 decline (1.0611). Sterling traded somewhat disappointing given the deviating Gilt performance. GBP/USD eked out a big figure to 1.2366 but EUR/GBP finished the day slightly higher just south of 0.86. Technical factors could have been at play. Another failed test of the 0.8567 support area triggered reverse action higher. Interesting moves on equity markets yesterday as well. The likes of the Nasdaq only retained about a percent of its almost 4% surge at the open.

There’s some news flow in Asian dealings in the form of new economic forecasts in New Zealand (see below) and Japan’s Q4 Tankan survey. UK CPI came in at 10.7% headline and 6.3% core early in the European morning. Both are a little less than expected but for the moment fail to trigger a reaction in sterling. If there even was one, it eases the case for another 75 bps rate hike by the BoE tomorrow. All eyes are now turned to the US for today’s main event, the Fed policy decision. The US central bank is poised to slow the tightening pace from (4x) 75 bps to 50 bps. That will bring the policy rate to 4.25/4.50%. The real market information lies in the new economic projections. These will probably entail another upward revision to the inflation forecasts. PCE inflation was seen in September at 5.4% this year, 2.8% next year and 2.3% in 2024 before returning the 2% target in 2025. Although economic indicators in most cases held up relatively well lately, we wouldn’t be surprised to see some downward adjustments to the growth forecasts. This is because we expect the Fed to have raised the terminal policy rate to 5% and perhaps even more, in line with recent guidance from chair Powell and others. Critically, both the median rate projections (dot plot) and Powell will emphasize that this higher policy rate is here to stay for longer. In a sense, markets have brought this upon themselves. Because of the recent sharp repositioning financial conditions have eased materially, undoing part of the Fed’s efforts. We anticipate a strong pushback against the 50 bps rate cuts being priced in for the second half of next year – which in our view is unjustified and have never been consistent with Fed talk.

News Headlines

The New Zealand government presented its Half-Year Economic and Fiscal update this morning. FM Robertson warns for a rough year ahead with the economy forecasted to shrink by 0.8% in the 2023 calendar year. Household incomes will feel the pain from rising mortgage interest rates, higher unemployment and falling house prices. Mortgages are linked to the RBNZ’s aggressive anti-inflation campaign with the policy rate currently at 4.25% and expected to peak at 5.5%. The unemployment rate is set to rise from 3.3% to 3.8% by mid-2023 and to 5.5% by mid-2024. The focus in the government’s 2023 budget will be to contain spending and achieve a contractionary fiscal policy. The 2022-23 budget deficit is forecast at NZD 3.6bn (vs NZD 6.6bn in May) and projected to return into surplus in 2024-25. Net debt is set to rise from 17.2% of GDP mid-2022 to 21.4% by mid-2024.

OPEC yesterday published its monthly oil market report. The cartel warns that the recent global economic growth slowdown will have far-reaching implications for next year which it labels as surrounded by many uncertainties mandating vigilance and caution. More specifically, OPEC sees a finely-balanced market in Q1 2023 instead of a deficit in the November Monitor. The cartel for now decided to keep its global oil demand and supply forecasts for next year broadly unchanged though. Oil prices dropped almost 20% over the past month with Brent crude setting a cycle low at $75/b, before rebounding to the $80/b area where it is trading now.