General Market Analysis – 23/12/24

US Stocks Rally After Inflation Slows – Dow Up 1.2%

US stock markets rallied on Friday after key inflation data confirmed that the US economy is continuing to slow. The Fed’s favored inflation indicator printed slightly lower than expected, serving as a catalyst for a relief rally in stocks that had taken a hit following the FOMC rate call on Wednesday. The Dow gained 1.18% on the day, closely followed by the S&P 500 and Nasdaq, which closed up 1.09% and 1.03%, respectively.

The dollar weakened, with the DXY dropping 0.79% to finish at 107.62, while Treasury yields also fell as traders began pricing in further rate cuts in 2025. The 2-year Treasury yield declined 1.1 basis points to 4.308%, and the 10-year yield dropped 5 basis points to 4.520%.

Oil prices remained steady, with Brent crude adding just 0.06% to $72.94 and WTI gaining 0.12% to move back to $69.46. Gold jumped in line with the falling dollar, adding 1.04% on the day to return to recent ranges, closing at $2,620.79.

Traders Brace for Holiday Market Conditions

Traders are preparing for holiday trading conditions in the days ahead, with the Christmas holiday falling midweek and contributing to reduced market liquidity. With the holiday disrupting the week, market participants expect tricky trading conditions, with many trading desks likely operating with skeleton staff.

Expectations are for mostly rangebound conditions, as there is little scheduled on macroeconomic calendars to drive markets. However, the threat of geopolitical developments will keep those still on desks closely monitoring newswires, as any updates could trigger sharp and excessive moves.

Some traders are paying particular attention to the yen markets, anticipating potential volatility, especially on Christmas Day when Japanese markets remain open. Bank of Japan (BOJ) Governor Kazuo Ueda is scheduled to speak, which could prompt significant moves.

Quiet Calendar Day to Kick Off Christmas Week

It’s a quiet calendar day to begin Christmas week, with traders expecting flow and liquidity to decrease as the holiday break approaches midweek. There is no scheduled economic data during the Asian session today, although investors anticipate markets will start positively after Friday’s strong performance on Wall Street.

The European session is also light on major events, although the Bank of England’s Quarterly Bulletin could influence UK markets upon release.

In the US session, a couple of key updates are expected. Canadian GDP data is set to be released, with market expectations for a 0.2% month-on-month increase. A weaker-than-expected result could place additional pressure on the already struggling Canadian dollar (loonie). Additionally, the US CB Consumer Confidence report is due later in the session, with markets expecting a print of 112.9.

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