Markets Report - 12 December 2022

A daily breakdown of the markets for the 12th December 2022, provided to you by Sterlex.

🇪🇺💶EUR/USD stays on the back foot early Monday but continues to fluctuate above 1.0500. European Central Bank (ECB) Governing Council member and French central bank governor Francois Villeroy de Galhau warned on Friday, “a temporary recession cannot be excluded.” It’s worth noting that the bloc’s tussle with Russia and the recent oil price cap on Moscow’s energy exports increase the odds of witnessing an economic slowdown in the region. Adding to the pessimism are the latest readings of the November month activity numbers for the Eurozone, which were downwardly revised in the last week. The pair failed to make a decisive move in either direction last week and closed virtually unchanged. Alternatively, a Reuters poll mentioned that the ECB will take its deposit rate up by 50 basis points next week to 2.00%, despite the eurozone economy almost certainly being in recession, as it battles inflation running at five times its target. It should be noted that the ECB policymakers appeared less hawkish than their Fed counterparts and hence the market bets on the 0.50% Fed rate hike have been on the rise of late.

🇬🇧💷GBP/USD picks up bids to rebound from the intraday low of 1.2207 after the UK data flashed upbeat statistics during early Monday. That said, the UK’s Gross Domestic Product (GDP) for October rose to 0.5% MoM versus -0.1% expected and -0.6% prior while the Manufacturing Production growth rallied by 0.7% compared to -0.1% market consensus and 0.0% previous readouts. Further, the Industrial Production also marked a positive surprise compared to -0.3% expected as it came in at 0.0% MoM for October versus 0.2% prior. Earlier in the day, Reuters quoted statements from a British trade body Make UK while saying, “UK manufacturers foresee output falling by 3.2% in 2023.” On the same line is the news stating that the UK lenders see 23% slide in mortgages for home-buyers in 2023. Despite the firmer UK data, the looming recession over the British economy joins the hawkish hopes from the Federal Reserve (Fed) to keep the GBP/USD rebound in check. In doing so, the Cable pair challenges the previous pessimism surrounding the British economy and likely challenges for the Bank of England (BOE).

🇺🇸 🏦A pivotal week for FX and global asset markets lies ahead of us. It should be noted that the US ISM Services PMI improved to 56.5 versus 54.4 expected. Meanwhile, the US dollar, as measured by the DXY index, has moved 0.28% higher against a basket of currencies to 105.23, although it is not too far away from the five-month trough of 104.1 a week ago. Moreover, the 1-year inflation expectations dropped to 4.6%, the lowest since September 2021 while compared to 4.9% expected whereas 5-10 year expectations were stable at 3.0%. Talking about the data, US Producer Price Index (PPI) matched the market forecasts of 7.4% YoY for November versus 8.1% prior. The two key event risks are tomorrow's US November CPI reading and Wednesday's FOMC meeting. Further, the Core PPI rose to 6.2% YoY versus 6.0% expected and 6.7% previous readings. The economic slowdown fears could be linked to the yield curve inversion as the US 10-year Treasury bond yields and the two-year bond coupons portray a negative difference, suggesting the market’s preference for the short-term US Treasury bonds that print the recession woes. Additionally, preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index rose to 59.1 for December versus 53.3 market forecasts and 56.8 final readings for November.