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Market Wrap
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The unrest in Kazakhstan ahead of the Russian talks with NATO and the West this week, alongside the Libyan oil field disruptions, may have been the cause of the rising Brent oil prices. With the North African oil coming back on stream and the disruptions in central Asia not being too severe the market may have to price in the incoming 4000k bpd extra that will arrive in February from OPEC+. The price has created a swing high so the next logical test would be the previous broken resistance at $80 or the rising 20-period EMA.
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The US dollar index is trading within a range between the highs of $96.50 to the lows of $95.50. Making $96 look like a magnet for the Market Makers to trade back to as they build their long inventory. The US dollar hasn’t followed the benchmark yield higher but if it is released after the CPI on Wednesday or the euro breaks lower for some reason we could see a quick pop in the US dollar.
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The EURUSD tested the base of the wedge today as buyers once again defended the 1.1300 level. As there is little news to support buying of the euro today, we could see this move reverse on Hawkish comments from Fed Chair Powell tomorrow and further declines on a high CPI print from the US on Wednesday.
US 10-year yields are rising fast as expectations of inflation and rate hikes increases. This is all pointing towards a more Hawkish Fed in January and setting up the markets for a disappointment if the Fed don’t meet these new extra Hawkish expectations.
US Wholesale Inventories are increasing while Wholesale Sales are lower. This may be pointing to companies using credit to stock their storerooms with the goods purchased with increased loans and leases enabled by US banks, but if they cannot shift the stock, they will have to start dropping prices which will become deflationary.
Both short and medium-term inflation expectations remain unchanged in the New York Fed’s December Survey of Consumer Expectations. Expectations are at record highs, especially for rent and health care. Both short- and medium-term horizons saw a decrease in uncertainty regarding future inflation. Though expectations for home price growth rose in December, they remained below their peak in May 2021. Households reported rising employment expectations, increased earnings growth, and reduced job losses. Income expectations are on the rise, so the next test will be whether households are going to be able to save or will have that earnings increase absorbed by higher costs of living.
