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New High for the Move in the Dow Futures


Global equity markets overnight were mixed with a slight edge given to the bear camp. While global equity markets have seen significant bullish mileage from the hope of rate cuts next year, signs of plummeting global inflation clearly adds credibility to the prospects of US and ECB rate cuts. Unfortunately for the bull camp, FedEx (usually a good indicator of cyclical activity) missed its profit target and reduced its full year revenue forecast yesterday. In the end, the prospect of soft US existing home sales and the vastly improving global inflation environment leaves the edge with the bull camp.

E-Mini S&P 500: Unlike the treasury markets, the equity markets have not lost upside momentum and gains are likely to extend as investors remain very confident with what is thought to be a Fed backstop. However, negative company specific fundamental headlines continue to flow, leaving the S&P cemented in a macroeconomic focus.

OTHER US INDEXES: With another new high for the move in the Dow futures overnight, the bull camp enters another trading session confident of their case. As indicated already, investors are not focused on classic internal fundamental developments and instead are macro focused. Certainly, optimism ahead of the holiday could carry prices even higher, especially if this morning’s US existing home sales reading is soft as expected.

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DOLLAR: While the dollar has managed to consolidate following last week’s plummet, without a bounce following the Chicago Fed speech today, the bear camp could become confident again. It should be noted that Chinese holdings of US treasuries continue to decline with the latest holdings the lowest levels since mid-2009 which is a minimal addition to the bear case in the dollar.

OTHER CURRENCIES: While significant declines in German producer prices has undermined the euro this morning, upcoming dialogue from US Fed speeches and US claims tomorrow could result in the recent sideways chop ending and the euro establishing a trend for the rest of 2023. However, with global and US inflation falling, euro declines should be limited by a race to the bottom with the dollar.

The Pound joins the race to the bottom with the euro and dollar. While the Pound bulls could be bailed out by Fed comments throwing water on an early 2024 rate cut, the trade has significantly increased its expectations of a Bank of England rate cut “early” next year and that increases the prospects of a failure at key support of 1.2636.

The Canadian Dollar appears to have the best chance of “winning by default.” However, the Canadian bulls saw ammunition for their case with “steady” instead of “softening” inflation readings which has reduced expectations of a Canadian rate cut in the trade.


Even though treasury prices have lost upside momentum early this week, an avalanche of global inflation readings overnight posted very clear signs of falling inflation, which should comfort the Fed as imported inflation is likely to wane. It should be noted that some global inflation readings overnight showed significant contraction which could prompt some over reactionary economists to mention deflation! In a negative overnight development, Chinese holdings of US treasuries declined again and reached the lowest level since the middle of 2009.

Other minimal limiting developments from yesterday included a 1 ½ year high in US single family housing starts which coincided with a significant jump in overall US housing starts readings for November. However, housing starts can be a lagging indicator heavily dependent on weather conditions while housing permits are usually considered a leading indicator. Therefore, seeing US building permits coming in below last month and below estimates should be supportive of Treasuries.

In the US existing home sales report today, it should be noted ahead of the release that mortgage rates remained high through midmonth (November) which could produce a weaker than expected existing home sales report. In short, the bias is up with the market’s short-term overbought, but the bull case is likely benefiting from this week’s consolidation which could be slowly balancing the overdone technical condition.


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