We may be deep into holiday season markets, but it has been anything but quiet! The Federal Reserve cut 25bps as expected, but they raised their inflation projections and lowered their rate cut expectations. It was a distinctly hawkish cut, and this spooked markets at first. However, as we closed the week, we gradually recovered as panic subsided and markets rallied again.

The US Dollar continued its strong bull run, remaining the strongest of the major currencies. The hawkish Fed certainly helped the greenback move higher, as did a higher-than-expected US GDP print. Last week, the DXY index rose 0.8% to close at 107.815. 

The Euro and Sterling fell against the Dollar as PMI data was disappointing. Furthermore, the Eurozone CPI disappointed with a 2.2% YoY print, which put extra pressure on the single currency.

Commodity currencies fell again and seem unable to stop their decline—rising yields and a strong Dollar are a bad combination for them. Last week, the CAD fell 1%, while the AUD, NZD, and NOK fell over 1.5% against the Dollar. Elsewhere in FX, the JPY sold off 1.8%; the CHF was flat.

Crude oil still shows elevated volatility, and trades are within the broad range, as support has not been broken. Last week, WTI fell 2.1% to close at $69.51. 

Precious metals were again under immense pressure as yields and the USD rallied. However, this is likely a healthy retracement before the next leg higher. Last week, Gold fell 1% to close at $2,623, and Silver crashed over 3% lower at $29.51.

Bonds naturally reacted negatively to the hawkish Fed. Last week, the 10-year UST yield rose 13bps to 4.53%, and the 10-year Bund fell 0.3% to 134.031 points. 

The hawkish Fed initially spooked equities, but they managed to claw back some of the losses on Friday. Technically, we remain in a bullish trend with higher highs and higher lows, and there is still no evidence to suggest otherwise. Last week, the S&P500 index fell 1.9% to close at 5932, and the DAX lost 2.5% to close at 19885 points. 

Finally, crypto-currencies are having a bad week following a big squeeze higher. Is this just short-term profit-taking, or perhaps the start of a significant leg lower? At the time of writing, Bitcoin was over 5% lower at $96,100, and Ethereum was nearly 15% lower at $3,330—and in a technical bear market.

The Week Ahead:

Due to the holidays, it’s a short week ahead, with many markets closed for several days. However, this shouldn’t make us complacent, as markets can still be volatile. Will we get the traditional “Santa Claus Rally”, or will the hawkish Fed cause markets to edge lower? Data-wise, it’s a lighter week, with GDP readings from Canada and the UK and housing data from the US. Happy Holidays!

Market Commentary: This communication is for informational purposes only. It is not intended as an offer or solicitation to purchase or sell any financial instrument. All market prices, data, and other information are not warranted as complete or accurate and are subject to change without notice. Any comments or statements made herein do not necessarily reflect those of Coeus Capital. Coeus Capital does not assume any liability whatsoever for the content of this newsletter or make any representations or warranties as to the accuracy and completeness of any information contained in this newsletter.