Generally Modest Gains For Global Equities

OVERNIGHT

Global equity markets overnight traded higher with gains generally modest around 0.3%. Critical economic developments overnight were a significant 3.8% year-over-year drop in Japanese November imports, coincidentally a very sharp 3.8% year-over-year increase in Japanese November exports, as expected soft CPI readings from Great Britain of +0.1%, a slightly hot GBP producer price index output reading of 0.3%, a minimal +0.1% month over month increase in UK retail price index readings for November, a much hotter than expected GBP DCLG House price index reading for October (+3.4% versus 2.8% previously), better-than-expected euro zone construction output for October, and significant contraction in euro zone core and harmonized indexes of consumer prices.

CURRENCIES

Reasons for the dollar to rally and for the euro to decline continue to mount without definitive market reactions. In fact, overnight a European central bank policy maker suggested a weaker euro would help counter Trump tariffs and expectations for a US rate cut today have been near certainty levels at 95.4% for many sessions. On the other hand, a US rate cut is so widely anticipated it could be a nonevent unless the Fed definitively hints at a pause. While euro zone data overnight was scarce, UK Consumer Price Index readings posted a weak number of 0.1% leaving six months moving average inflation just a notch above what could be considered neutral for policy. In addition to market chatter suggesting Japanese rates could go higher-than-expected (probably not this week), a massive surge in Japanese exports and recent strong October Japanese machinery orders should give the yen fundamental lift.

STOCK INDEX FUTURES

As indicated yesterday the most likely track in equities is a continuation of a tight sideways consolidation pattern with a minimal downward bias. Obviously, another upside breakout in US treasury yields later today could knock the legs out from under the market which currently lacks a bullish fundamental focal point. Fortunately for the bull camp the net spec and fund long position in the S&P could approach flat levels with minimal downside work ahead which could limit the magnitude of a breakout below key support at 6107.00 today. Furthermore, it should be noted that volume and open interest on the December quadruple witching rollover are nearing the highest levels of the last five witching expirations which would seem to suggest some long accumulation is taking place on the drift lower. While the overnight corporate headline flow is positive with Boeing announcing a resumption of 767 and 777 production, an Eli Lilly Alzheimer’s treatment approved in China, and the AI sector given a fresh lift from startup company “Databricks” posting a record venture capital funding round of $62 billion.

INTEREST RATES

While there could be a spike in volatility through the Fed rate decision this afternoon, the markets appear to be nearing fundamental and technical equilibrium pricing through recent consolidation action. In retrospect, yesterday’s retail sales jump on its face looked strong, but could have been puffed up by several temporary influences. Nonetheless, retail sales over the last five weeks have been very strong which in part deflates the argument that seasonal activity has juiced the readings. However, heavy industry readings from US capacity utilization and industrial production have weakened four out of the last five months, suggesting the broader economy has soft spots. While inflation has not continued to “come down” both CPI and PPI have settled into a zone tolerable by the US Federal Reserve which is somewhat confirmed by the Fed’s ability to cut rates one more time today.

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