Dow now hits all-time highs as end-of year rally continues
* USD falls against the yen, gains on euro in choppy trading
* Gold eases after hitting three-week high, US yields rise
* Dow Jones scores another all-time top as S&P 500 remains just shy of record
* Crude oil falls for second session with Brent sliding towards $78
FX: USD found some buyers as Treasury yields picked up. March rate cut odds remain around 85-90%. There are around 155bps of rate cuts priced in still for next year. One market watcher said the money markets were “like a spoiled child” regarding getting a few rate cuts but wanting more. The DXY index is on course for a 2.20% drop this year, snapping two straight years of strong gains.
EUR made fresh highs at 1.1139 before closing near its lows of the day at 1.1062. The single currency has risen sharply from the bottom just three weeks ago at 1.0723. Initial support is around 1.1017.
GBP was near the bottom of the pile in major currencies after printing a cycle top at 1.2828. Cable fell back to a major Fib level (61.8) of the summer sell-off at 1.2720. Seasonal and pre-exiting trends have dominated in muted holiday trading. A BoE rate cut is fully priced in by May.
USD/JPY slid to a low of 140.24 before paring losses. That level was last seen in late July. Investors were said to be closing short positions in funding currencies like the yen.
AUD got to 0.6871, a 23-week high, and just below the summer peaks around 0.69. USD/CAD found support around 1.32 for a third day.
Stocks: US equities inched higher. The S&P 500 added 0.04% to settle at 4,783. The tech-laden Nasdaq 100 finished 0.05% lower at 16,898. The Dow rose 0.14% to close at 37,710.All three indices are on pace for a ninth straight weekly gain. For the S&P 500, that would mark the longest streak since January 2004. The index is now within 0.3% of its record high, set in January 2022. The year-to-date gain is now 25%. Trading volumes are low which can exacerbate market moves.
Asian futures trade in the red. Asian stocks scaled five-month peaks on Thursday as market wagers cemented Fed rate cuts. Japanese shares slipped into the red amid profit taking and the yen rally. The Nikkei 225 snapped a four-day win run.
Chart of the Day – Dow’s turn to make record highs
Stocks have had a cracking few months. The benchmark S&P 500 is up 14% and on track for its longest winning streak in 20 years. The last time it did a 10-week run was in 1985. The Dow is up 13 of the last 15 days and made a record high clsoe. Did Santa come early?
Historically, the Santa rally takes place between Christmas Day and the first two days of the new year. Further out, the three month between November 1st and the end of January tend to be seasonally strong. So the recent moves are certainly strong and have stretched valuations. Of course, it’s all about Fed rate cuts starting in March. But do we need downside surprises in the next inflation and emplyoment data to cement the historic start of the policy easing cycle?