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Market Wrap
In November, the personal consumption expenditure (PCE) index in the US increased by 5.7% from a year earlier, the highest increase in 39 years. Energy prices rose 34% while food prices rose 5.6%. The core PCE index rose 4.7% month-over-month. The PCE increased by 0.6% month over month, following an upwardly revised 0.7% increase in October.
The PCE index is the preferred inflation metric of the FOMC though in statements by Chair Powell they do consider a suite of inflation metrics when trying to formulate analysis on how and where inflation is being caused in the economy. This PCE reading will add fuel to the fire for those FOMC members looking for a faster tapering of asset purchases with the aim of raising rates sooner rather than later becoming more of a reality.
The US 10-year yield jumped back up to 1.50% on the inflation data and is trading above its 10-day moving average.
The jump in yields has translated to a stronger US dollar and the US dollar index has been falling since the US Open.
We may now be seeing the US consumers rein in their spending due to rising fuel and food prices, as well as the prospect of fewer child tax credits in January reducing household spending and disposable income. Personal spending down to 0.6% and income growth in November was only 0.4%, down from 0.5% in October. And according to the final report by the University of Michigan released on Thursday, the Consumer Sentiment Index increased 4.7% monthly in December to stand at 70.6. Compared to December 2020, it was down 12.5%. This data is being muddied by the reduced amount of data being able to be collected due to coronavirus disruptions, but the trend year-over-year is down. Despite the vaccination programs and 11 million job openings. The US jobless claims remained unchanged this week at 205,000.
Good news for equities and indexes came from United States Commerce Secretary Gina Raimondo who said on Thursday that she doesn’t think supply chains will suffer long-term due to the potential impact of the Omicron Coronavirus variant. This is building up good sentiment around the variant of concern with more data coming out today showing hospitalizations are down compared to the Delta variant.
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The rising benchmark yield and increasing inflation data has in the past knocked the US tech sector, but today the Nasdaq is forging ahead higher and just under 500 points away from the all-time highs.
The pound has been strong against its peers all day and the yen has been consistently weaker. The overall forex market is looking for more risk-on with the commodity pairs gaining strength as flows come out of the safe-havens.
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This morning’s London breakout strategy on the GBPJPY has almost found its target but fell just short into the London close. The trend is still developing higher and momentum to the upside since the breach of 152.50 is also building.
In what can only be an act of defiance in the face of compelling reasons to get long, most retail traders on the ActivTrader platform remain extremely bearish on the GBPJPY. The first swing high with their stops may be approaching as we head to 153.80 though the significant swing high is all the way up at 154.20.
