Rising government bond yields put pressure on indices. The RBA kept the rate on hold but left a hawkish bias

This week, markets await JOLTS openings, ADP national employment, and US monthly payrolls reports to gauge the strength of the US labor market and whether additional monetary tightening is appropriate. US factory orders in October fell by 3.6% m/m, weaker than expectations of 3.0% m/m and the biggest decline in 3 years. This indicates weak demand for industrial metals, which put additional pressure on silver.

Nvidia (NVDA) shares fell more than 3% yesterday on signs of insider selling after Washington Service data showed that Nvidia executives sold $180 million worth of stock last month.

ECB Governing Council representative Centeno warned yesterday that the labor market implications of excessive monetary tightening could be swift when the economy turns around. His counterpart, ECB Vice President Guindos, indicated that the ECB cannot yet say that inflation is under control as the ECB sees large wage growth in some parts of the Eurozone, which could lead to additional price pressures. Eurozone Investor Confidence Index for December from Sentix rose by 1.8 to minus 16.8, which was weaker than expectations of minus 15.6. German trade balance data was weaker than expected, with October exports unexpectedly falling by 0.2% m/m, which was weaker than expectations of 1.1% m/m. Imports also fell by 1.2% m/m, weaker than expectations of 0.8% m/m.

Swaps tied to ECB meeting dates estimate a 73% probability that the ECB will cut the benchmark rate by 25 bps at the March 7 meeting and more than estimated (+150%) that rate cut by 25 bps at the April 11 ECB meeting.

The dollar index rally to 1-week highs on Monday was bearish for energy prices. Crude oil was also pressured by the negative impact of last Thursday’s events, when OPEC+ said it would cut oil production levels by 1.0 mln bpd, but did not provide details on how the cut would be implemented. Oil prices were supported by concerns that attacks on oil tankers in the Middle East could disrupt crude supplies. The US Central Command said there were four missile and drone attacks on three separate commercial vessels operating in international waters in the Red Sea on Sunday. Iranian-backed Houthis rebels claimed responsibility for the attacks.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.60%, China’s FTSE China A50 (CHA50) was down by 0.70% yesterday, Hong Kong’s Hang Seng (HK50) lost 1.09% on the day, and Australia’s ASX 200 (AU200) was positive 0.73% on Monday.

Australia’s Central Bank left interest rates unchanged at 4.35% on Tuesday as expected, giving itself more time to assess the economy and decide whether to tighten further next year. RBA chief Bullock maintained the same policy tightening bias, saying the need for further rate hikes will depend on data and a changing risk assessment. Markets expect an early rate cut by the US Federal Reserve and the European Central Bank in 2024, with a drop of more than 100 basis points, while the RBA may just cut the rate by 15 basis points late next year. That would stabilize the Australian currency against the dollar and euro next year.

Core inflation in Japan’s capital slowed in November, confirming the central bank’s view that cost pressures in the world’s third-largest economy will gradually ease. The core consumer price index (CPI), which excludes food prices but includes fuel costs, came in at 2.3% y/y in Tokyo, down from 2.7% y/y in October. Bank of Japan Governor Kazuo Ueda emphasized the need to maintain ultra-loose policy until inflation driven by recent cost increases is replaced by demand-driven price increases backed by strong wage increases. Revised real gross domestic product (GDP) data on Friday is expected to show that Asia’s second-largest economy contracted by 2.0% in the third quarter, which would be negative for the Japanese currency.