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Risk sentiment is relatively strong this Monday on news that China will add fiscal stimulus in early 2022 to boost growth, and investor mood in the equities space is bullish after Friday’s inflation data revealed that consumer prices in the US advanced to 6.8% in November, just a tick higher than the consensus of 6.7% (although relatively faster compared to the 6.2% printed a month earlier).

Activity on European futures hint at a positive start. The FTSE should continue benefiting from firm energy prices and cheaper sterling.

Fast inflation, hawkish Fed priced in

If the investors didn’t react too strongly to the slightly worse-than-expected US inflation data, it is certainly because they were happy to see the actual number just a bit higher than consensus. And the latest acceleration was mostly priced in.

In summary, the fact that the US CPI figure didn’t exceed the 7% mark has been good news. Less encouraging was the rise in rents and healthcare costs, which came as a confirmation that inflation is no longer seen as ‘transitory’ in the US. But that’s something Jerome Powell already told us, so it’s priced in.

As such, the expectation for this week’s FOMC meeting is the announcement of a faster QE tapering, and perhaps a hint that the first-rate hike in the US could come earlier than previously thought. Investors will have their eyes set on the famous dot plot. Activity on fed funds futures point that the first hike should arrive in May, but some hawkish guesses point at March. As such, the chances of a massive hawkish surprise are limited, and the actual expectation doesn’t interfere with equity investors’ craving for a Santa rally to close a record-breaking year with one last record.

The S&P500, the Dow and Nasdaq are already a stone’s throw below their all-time-high levels, and one last record isn’t asking too much.

However, we may see some categories of stocks fall from grace, such as meme stocks which were greatly benefiting from cheap liquidity, and which may not fly as high with their own wings in the coming months.

Cryptos?

The Fed tightening will be the first important test for cryptocurrencies. We have stronger evidence that cryptocurrencies are increasingly correlated positively to the risk assets. Therefore, we expect to see Bitcoin trading with a high beta, meaning with amplified gains and losses compared to major market indices. But this is just an assumption. We don’t rule out that the behaviour in cryptocurrencies could change fast as this is a new asset class. But the chances of Bitcoin acting like a hedge against inflation, or a hedge against a severe market rout are low.

Daily Pivots: (S1) 113.15; (P) 113.47; (R1) 113.71; More...

Intraday bias in USD/JPY remains neutral for the moment. On the downside, sustained break of 112.71 will argue that it's already correcting whole rise from 102.58. Deeper fall would be seen to 38.2% retracement of 102.58 to 115.51 at 110.57. On the upside, break of 113.94 minor resistance will turn bias back to the upside for retesting 115.51 high instead.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high) on resumption. However, firm break of 109.11 structural support will argue that the trend might have reversed and bring deeper fall to 107.47 support and possibly below.

Daily Pivots: (S1) 0.7142; (P) 0.7162; (R1) 0.7193; More...

Intraday bias in AUD/USD remains mildly on the upside for the moment. A short term bottom should be formed at 0.6992, just ahead of 0.6991 key structural support. Further rise would be seen to EMA (now at 0.7266). On the downside, however, break of 0.7116 minor support will turn bias back to the downside for 0.6991. Sustained break there will carry larger bearish implication.

In the bigger picture, sustained break of 0.6991 cluster support will argue that the who up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461). For now, medium term outlook will stay bearish as long as 0.7555 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.2691; (P) 1.2714; (R1) 1.2749; More...

Intraday bias in USD/CAD remains neutral for the moment as range trading continues. On the upside, break of 1.2742 minor resistance will retain near term bullishness and bring retest of 1.2852 first. Break there will resume whole rise from 1.2286 to retest 1.2894/2947 resistance zone. On the downside, however, firm break of 1.2604 will argue that rise from 1.2286 has completed. Deeper fall would be seen back to 1.2286 support.

In the bigger picture, medium term outlook remains neutral for now. The pair drew support from 1.2061 cluster and rebounded. Yet, upside was limited below 38.2% retracement of 1.4667 to 1.2005 at 1.3022. On the upside, firm break of 1.3022 should affirm the case of medium term bullish reversal. However, break of 1.2286 will turn focus back to 1.2005 low again.

General trend

• Japan’s Q4 Tankan large company indices generally missed ests; BOJ decision is due on Fri. (Dec 17th).
• USD Index has moved slightly higher after Friday’s decline.
• UST yields rise in Asia.
• BOJ acts amid rise in short-term rates by buying ¥2.0T in bonds.
• NZIER: Consensus forecasts for NZ show weaker near-term outlook [reminder: NZ Q3 GDP data is due on Dec 16th (Thurs.)].
• HKMA said it will continue to withdraw liquidity.
• US equity FUTs have remained modestly higher.
• Nikkei and S&P ASX 200 have remained modestly higher.
• Hang Seng pared gain after rising >1.5%.
• Shanghai Composite rose by 1% during morning trading.
• Various central banks are due to meet this week (including US Fed, ECB, BOE and BOJ).

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.2%.
• SXY.AU Confirms to be acquired by Posco at A$4.60/share in cash via a scheme of arrangement.
• BKW.AU Guides H1 property EBIT A$290-310M (record levels); acquires 121 hectares in South West Sydney, no terms disclosed.
• (NZ) New Zealand NZIER Quarterly Survey of Economists see 2021/22 GDP at 4.3% (prior 4.5%); 2022/23 GDP 4.6% (prior 4.5%).

Japan

• Nikkei 225 opened +0.9%.
• (JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 18 V 19E; OUTLOOK SURVEY: 13 V 19E, Large All-industry Capex: 9.3% v 9.8%e.
• (JP) JAPAN NOV CORE MACHINE ORDERS M/M: 3.8% V +1.8%E; Y/Y: 2.9% V 4.2%E.
• (JP) Japan PM Kishida: Will secure budget to revive economy during emergency.
• (JP) Bank of Japan (BOJ) to buy ¥2.0T in bonds with repurchase agreements [first operation since 2006, follows rise in Japanese repo rates].

Korea

• Kospi opened +0.3%.
• 005490.KR Confirms spinoff of steel business (to keep unlisted), to transition to holding company, targeting to triple enterprise value by 2030; changes to go into effect March 1st.
• (KR) South Korea Dec 1-10th Exports Y/Y: 20.4% v 29.3% prior; Imports Y/Y: 42.3% v 59.0% prior.
• (KR) South Korea and Australia sign critical mineral supply, and defense industry MOU and clean energy partnership.
• (KR) South Korea Fin Min Hong: To begin discussions on process to join CPTPP.
• (KR) South Korea sells KRW1.0T in 10-year bonds; Avg Yield: 2.175% v 2.305% prior; bid-to-cover 2.97x.
• (KR) Bank of Korea report: Need to "steadily adjust" high levels of leverage maintained to prop up the pandemic impacted economy as excessive indebtedness could result in financial instability and reduce future policy room.

China/Hong Kong

• Hang Seng opened +1.0%; Shanghai Composite opened +0.6%.
• (CN) Shanghai Sec News: Multiple banks mention they will not allow investors to purchase funds suggested by algorithms after Govt updates to rules.
• (CN) China PBOC sets Yuan reference rate: 6.3669 v 6.3702 prior.
• 388.HK Expected that Hong Kong Exchange will announce relaxed SPAC rules during Dec, Rules would change investor qualifications, dilution ceilings and shareholder voting on de-SPAC transactions.
• (CN) Certain China property developers are seeking to sell assets to buyers in Hong Kong, cites the Chairman of Far East Consortium - HK press.
• 3333.HK Bondholders settle in for a lengthy restructuring process – FT.
• (CN) Economists expect that China will add fiscal stimulus starting early 2022 – press.
• (HK) Hong Kong Monetary Authority: Will increase issuance of Exchange fund bills by HK$40B over 8 tenders.
• (CN) China Merchants Bank, China Guangfa Bank and China CITIC Bank have halted purchase of mutual fund products on their robo-advisory platforms due to a change in regulation - Shanghai Securities News.
• (CN) At the China Central Economic Work Conference, indicated will implement a new system for Stock Issuance Registration in 2022 (moves pilot program into full effect).
• (CN) China allocates 2022 early batch bond quota.
• (CN) China PBOC Open Market Operation (OMO): Sells CNY10B in 7-day reverse repos v CNY10B prior; Net CNY0B v Net CNY0B prior.

Other

• (TH) Bank of Thailand (BOT) Gov Sethaput: May be upside to 0.7% GDP growth during 2021; Decisions less dictated by US Fed response, not worried about CPI.

North America

• MA VIsa and Mastercard said to be pressured from large retailers over their transaction fees - UK press.
• Amazon: Statement on Kentucky Tornados: Assisting emergency responders as needed; Company worked quickly to ensure as many employees and partners could arrive at designated place update.
• FedEx: Spokesperson said severe weather across the Central US last night impacted Express operations at co's Memphis (Tenn.) Hub; co's crew are safe; Company has implemented contingency plan, diverted several flights to other cities.

Europe

• (UK) UK raised COVID alert level to 4 from 3, cited omicron variant - press.
• (UK) Dec Rightmove House Prices M/M: -0.7% v -0.6% prior; Y/Y: 6.3% v 6.3% prior.
• (FR) France drops threat of trade war with UK, after Channel Islands and UK Govt agree to more fishing licenses - press.
• (GR) Greece central bank said to be planning an appeal for its bonds to remain eligible for new European Central Bank purchases after March when the bond buying scheme is expected to end - press.

Levels as of 00:15ET

• Hang Seng +0.8%; Shanghai Composite +0.8%; Kospi +0.4%; Nikkei225 +0.8%; ASX 200 +0.4%.
• Equity Futures: S&P500 +0.4%; Nasdaq100 +0.4%, Dax +0.3%; FTSE100 +0.2%.
• EUR 1.1320-1.1292; JPY 113.58-113.31; AUD 0.7177-0.7159; NZD 0.6804-0.6787.
• Commodity Futures: Gold +0.1% at $1,787/oz; Crude Oil +1.2% at $72.53/brl; Copper +0.6% at $4.31/lb.

Daily Pivots: (S1) 0.8521; (P) 0.8537; (R1) 0.8548; More...

Intraday bias in EUR/GBP remains neutral for consolidation below 0.8598. On the upside, On the upside, firm break of 0.8593 resistance will be the first sign of larger bullish reversal and target 0.8656 resistance next. On the downside, break of 0.8487 support is needed to indicate completion of the rebound. Otherwise, near term outlook will stay cautiously bullish in case of retreat.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8593 resistance holds, towards long term support at 0.8276. We'd look for bottoming signal around there to bring reversal. Meanwhile, firm break of 0.8593 will now be an early sign of medium term bottoming. Further break of 0.8656 will pave the way to 38.2% retracement of 0.9499 to 0.8379 at 0.8807.

Daily Pivots: (S1) 1.5724; (P) 1.5775; (R1) 1.5832; More...

Intraday bias in EUR/AUD is mildly on the downside at this point. Rebound from 1.5354 could have completed three waves up to 1.6168. Deeper fall would be seen back to retest 1.5354 low. On the upside, though, above 1.5851 minor resistance will turn bias back to the upside for 1.6168 instead.

In the bigger picture, medium term outlook is neutral for the moment. Rise from 1.5354 is seen as the third leg of the corrective pattern from 1.5250 low. Further rise cannot be ruled out, but even in that case, strong resistance should be seen at 38.2% retracement of 1.9799 to 1.5250 at 1.6988. Larger down trend from 1.9799 is in favor to extend through 1.5250 at a later stage.

Daily Pivots: (S1) 1.0404; (P) 1.0426; (R1) 1.0442; More....

Intraday bias in EUR/CHF remains neutral as consolidation from 1.0365 is in progress. Further decline is expected as long as 1.0511 resistance holds. On the downside, break of 1.0365 will resume larger down trend from 1.1149 to 161.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0200 next.

In the bigger picture, long term down trend from 1.2004 (2018 high) is now extending. Next target is 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223. On the upside, break of 1.0694 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish even in case of rebound.

Daily Pivots: (S1) 149.89; (P) 150.20; (R1) 150.72; More...

Sideway trading continues in GBP/JPY and intraday bias remains neutral first. On the downside, firm break of 148.93 key structural support will carry larger bearish implications. Next target is 161.8% projection of 158.19 to 152.35 from 154.70 at 145.25. On the upside, however, break of 152.35 support turned resistance will argue that the pull back from 158.19 is complete. Intraday bias will be turned back to the upside for retesting 158.19 high.

In the bigger picture, the break of medium term channel support, and bearish divergence condition in week MACD are raising the chance of medium term topping at 158.19. Firm break of 148.93 support will argue that GBP/JPY is at least correcting the whole rise from 123.94 (2020 low). In this case, deeper fall would be seen to 38.2% retracement of 123.94 to 158.19 at 145.10. Nevertheless, strong rebound from 148.93 will retain medium term bullishness for another rise through 158.19 at a later stage.

Daily Pivots: (S1) 127.97; (P) 128.18; (R1) 128.55; More....

Intraday bias in EUR/JPY remains neutral at this point, as consolidation from 127.36 is extending. On the downside, break of 127.36 will resume larger pattern from 134.11 to 126.58 medium term fibonacci level. We'd look for some support from there to bring rebound. But sustained break of 126.58 will carry larger bearish implications. On the upside, break of 129.09 will bring stronger rebound to 55 day EMA (now at 129.66) and above.

In the bigger picture, as long as 38.2% retracement of 114.42 (2020 low) to 134.11 at 126.58 holds, up trend from 114.42 is still in favor to continue. Break of 134.11 will target long term resistance at 137.49 (2018 high). However, sustained break of 126.58 will raise the chance of medium term bearish reversal. In this case, deeper decline would be seen to 61.8% retracement at 121.94, and possibly below.