Market Update 12/09/2024

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Stock markets were mixed, the S&P 500 rose by 0.5% and the Nasdaq climbed 1.7%, but the Dow Jones edged up only 0.1%. In Europe, the Euro Stoxx 50 increased by 0.3%, while the FTSE 100 dipped 0.1%. Meanwhile, the yield on the U.S. 10-year rose 1 bps to 3.65%.
 
U.S. headline CPI inflation for August increased by 0.2% month-over-month (2.5% y/y), while core inflation rose by 0.3% m/m (3.2% y/y). Shelter and transportation services remained elevated, rising by 0.5% and 0.9% m/m, respectively. Notably, owner equivalent rents (+0.5%) and airfares (+3.9%) exceeded expectations. These increases are likely to be temporary. Overall, the data supports the view that inflation is on track to reach the 2% target sustainably.
 
The USD edged higher after core CPI data came in slightly stronger than expected. While the movements have been modest, US markets are now leaning towards a 25bps rate cut rather than 50bps in the upcoming week.
 
For those who watched the head-to-head debate between presidential candidates Harris and Trump, it seems Harris clearly emerged as the winner, according to public snap polls and betting markets. Both Polymarket and PredictIt showed a 5-7 point shift in favor of Harris. However, the debate did not have a noticeable effect on the market.

– AUDJPY dropped to 95.19 overnight before bouncing back to around 95.19. Yesterday, BoJ board member Nakagawa noted that real interest rates are currently very low, and the BoJ may adjust its monetary easing if their economic and inflation forecasts are met. These remarks strengthened the yen, pushing USDJPY down to 140.7, but it’s since rebounded to 142.25.

– AUDGBP is steady around 0.5121, with weak UK data having minimal impact on the pound. UK GDP showed no growth in June, indicating that the country’s recovery is slowing, which poses a challenge for Prime Minister Keir Starmer. Despite this, the pound remained largely unchanged following the report, up 0.1% with GBPUSD trading at 1.3094. It has gained 2.8% against the USD this year, outperforming other major currencies, as the BOE is expected to be slower in cutting interest rates. Markets are now pricing in six to seven rate cuts by the end of 2025.
 
– AUDEUR might drift back towards the 0.6064 level. After last month’s rally near 0.6064, I was anticipating a move towards 0.6100, especially with the negative data and remarks from Europe. However, New Zealand seems to be in a stronger position than many others for the medium to long term. 



Chart of the day



Mid-market rates.

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