By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Stocks rolled over yesterday while the dollar and Treasuries both advanced, as sentiment softened ahead of today’s US CPI figures, and five G10 policy decisions in the next 24 hours.
WHERE WE STAND – Right then, the penultimate ‘proper’ trading day of the year is upon us; not that I’m counting, of course!
As for the antepenultimate ‘proper’ trading day of the year, yesterday, it’s safe to say that it’ll go down as a distinctly risk-averse one, even if there was little by way of notable catalyst to drive such a desertion of risk assets, and a bid into safe havens.
I suppose, perhaps, we can pin the lurch lower in stocks yesterday on further jitters around the broader AI theme, though frankly that does feel like a tenuous attempt to pin a narrative on the price action. More likely, in my view, is that participants simply continue to lack conviction for the most part, which isn’t especially surprising when one considers that there are, for all intents and purposes, just two trading days of the year left to go.
In any case, on account of yesterday’s declines, both spoos and the NQ now trade fairly comfortably below their 50-day moving averages, a level that the bulls will need to reclaim rather quickly, if indeed a ‘Santa Rally’ is to be on the cards this year. My view remains, however, that dips in the equity space continue to present themselves as buying opportunities, with the fundamental bull case remaining a very robust one, and with favourable seasonal trends likely to provide a further tailwind too.
Elsewhere, yesterday, the precious metals space very much brought ‘more of the same’, with gains across the complex. Silver continues to stand out, having printed fresh all time highs yesterday north of $66/oz, though platinum and palladium have rallied strongly too. In fact, on a YTD basis, gold is actually the laggard of the bunch, having ‘only’ gained 65% since the start of 2025. The upwards trend here is one that I have absolutely no desire to fight, nor one that I see coming to an end any time soon, with the yellow metal likely to join the party and print a fresh ATH of its own before too long.
The biggest mover in the FX space, meanwhile, was the quid, with cable sliding back beneath the 1.34 figure after yesterday’s much cooler than expected UK CPI figures not only nailed on a BoE cut today (more below), but also raised the prospect of another cut as soon as the February meeting. That move was helped along by relatively broad-based USD demand, perhaps a result of month/quarter/year-end flows making themselves known, though frankly conditions remain very choppy indeed, and ultimately rather rangebound, which shouldn’t be especially surprising given the time of year.
LOOK AHEAD – Five central bank decisions in the next 24 hours, what a Christmas treat for us all.
In brief, this morning should see both the Riksbank and Norges Bank stand pat, holding their policy rates steady at 1.75% and 4.00% respectively, with the former’s easing cycle at an end, and the latter not pencilling in any further cuts until the middle of next year.
Later on, at lunchtime, the Bank of England are set to deliver a 25bp cut, lowering Bank Rate to 3.75%, in light of a continued weakening in labour market conditions, and amid faster than expected disinflationary progress. Such a decision, though, shan’t be a unanimous one, with the MPC instead likely to vote 6-3 in favour of such a cut, with those three dissenters preferring to hold Bank Rate steady.
Following that, the ECB will likely stand pat, maintaining the deposit rate at 2.00%, with President Lagarde again likely to reiterate that policymakers are in a ‘good place’, with the easing cycle almost certainly at an end. Focus, though, will fall largely on the latest round of economic forecasts, with an upgrade to the near-term growth trajectory likely, but with the 2028 inflation projection of most interest, chiefly as to whether HICP is seen as undershooting the 2% target for a third straight year.
Rounding out this central bank bonanza will be the Bank of Japan, overnight. The BoJ are set to deliver a 25bp hike, raising the policy rate to 0.75% which, remarkably, would mark a 30-year high, evidencing just how long the BoJ have maintained an uber-easy policy stance. Accompanying that hike will likely be relatively unchanged forward guidance, with policymakers repeating that further hikes are on the cards, if the economic outlook is realised.
Besides all that, we also have the small matter of the latest US CPI and jobless claims prints on the docket. CPI, frankly, doesn’t matter too much, with the Fed’s reaction function tilting entirely towards supporting a stalling labour market at this stage, while jobless claims probably won’t especially move the needle either, even if the initial print does coincide with the December nonfarm payrolls survey week. Lastly, earnings from both Nike and FedEx are due after the close, with both of those being pretty decent bellwethers for the economy at large.