Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Stocks and metals both extended on recent gains yesterday, while trade was choppy elsewhere. Today, eurozone inflation, and the US ISM services survey, highlight the calendar.
WHERE WE STAND – Suffice it to say, yesterday wasn’t exactly the most exhilarating trading day that any of us have ever experienced.
Focus, at large, remains primarily on geopolitical developments, given the ongoing uncertainty surrounding the situation in Venezuela, though there remain few signs of any escalation in tensions on that front for the time being. That, in fact, is probably the biggest takeaway from the whole thing for the time being, and in turn should allow market participants to move past geopolitics as an issue in relatively short order, re-focusing on what remains a very strong fundamental bull case for risk assets.
Macro developments were also relatively thin on the ground, with the data docket distinctly lacking anything interesting. Final December services PMIs from both the eurozone and UK saw modest downward revisions from the ‘flash’ estimates, though said revisions were frankly too modest to matter especially much.
Last month’s German inflation data was marginally more interesting, with headline CPI at 1.8% YoY printing substantially below consensus, even before the chunky disinflationary base effect from energy prices makes itself known in Q1 26. At the margin, this perhaps slightly increases the likelihood of another ECB cut at some stage this year, though my base case remains that the Governing Council are ‘done & dusted’, with the deposit rate now at a terminal level of 2.00%.
In any case, barring some notable outperformance in Bunds on the back of the German inflation stats, none of that impacted markets especially much during the day. Instead, what we saw was markets simply taking the ‘path of least resistance’ across the board.
Said path continues to lead firmly to the upside for equities, with gains seen on both sides of the pond yesterday, amid notable outperformance in the tech space. I remain firmly in the bullish camp here, with a resilient underlying economy, robust earnings growth, plus the looser monetary and fiscal backdrops continuity to represent a solid bull case.
Precious metals also continued to gain ground, with gold adding 1% or so, and silver testing $80/oz to the upside. Again, I favour further gains here for the time being, with bullion remaining underpinned by healthy reserve demand, and industrial demand propping up the rest of the complex, with a physical shortage also further aiding sliver in particular.
That’s, really, about it for yesterday, with the FX & FI complexes continuing to display relatively little by way of a concrete trend, with participants seemingly now waiting for Friday’s US labour market report to, potentially, spice things up a little.
LOOK AHEAD – A few bits and bobs of interest on the docket today.
This morning’s eurozone ‘flash’ inflation figures are the first item of note, with risks quite clearly skewed towards a cooler print than the 2.0% YoY consensus, given the soft regional data alluded to above. Core CPI, meanwhile, is seen having held steady at 2.4% YoY last month, though again risks point to a downside surprise on this front as well.
Meanwhile, a fairly busy stateside calendar also awaits, highlighted by the latest ISM services survey, with the headline PMI seen sliding modestly to 52.2 in December, from the 52.6 seen a month prior. We also get a couple of labour market updates this afternoon, including the December ADP employment report ahead of official jobs data on Friday, and November’s JOLTS job opening stats which, while somewhat stale, will still be watched closely.
Rounding things out, Jefferies (JEF) are set to report earnings after the close, likely acting as a bit of a barometer for the banking sector at large, whose reports kick-off with JPMorgan (JPM) next Tuesday.