Asian Open: Equities lose steam, gold edges lower ahead of US CPI

Asian Futures:

• Australia's ASX 200 futures are up 22 points (0.3%), the cash market is currently estimated to open at 7,451.30
• Japan's Nikkei 225 futures are up 360 points (1.26%), the cash market is currently estimated to open at 28,815.60
• Hong Kong's Hang Seng futures are down -62 points (-0.26%), the cash market is currently estimated to open at 23,892.91
• China's A50 Index futures are up 184 points (1.16%), the cash market is currently estimated to open at 16,153.88

Thursday US Close:

• The Dow Jones Industrial fell -0.06 points (0%) to close at 35,754.69
• The S&P 500 index rose 95.08 points (2.08%) to close at 4,686.75
• The Nasdaq 100 index rose 479.503 points (3.03%) to close at 16,325.66

US jobless claims fell to a 52-year low and the US Senate cleared another hurdle towards lifting the debt ceiling (which currently sits at $28.9 trillion) by passing one of the two required bills. Former Fed Chair turned Treasury Secretary Janet Yellen wants the second bills passed by 15^th December to get it over the line. Yet equity markets closed mostly lower as these are not new themes, and traders likely booked some profits following strong rebounds over the prior three days, ahead of today’s all-important inflation data from the US. Sentiment was also dented as governments reintroduced restrictions to slow the spread of the Omicron variant.

BOC to conduct review of inflationary forces in January

The Bank of Canada warned that inflation could remain above target longer than originally thought, with Assistant Governor Toni Gravelle saying the central bank will conduct a thorough review of inflationary forces in January. Dare we say this could prompt them to raise rates in Q1 if they don’t like what they find?

The Japanese yen, US dollar and British pound were the strongest majors. GBP pairs recouped some of their ‘plan B’ losses after 3-days of heavy selling. EUR/USD is back below 1.13 yet holding above Wednesday’s low, and we expect a tight trading range ahead of US inflation.

AUD/JPY’s risk-on rally has stalled at trend resistance. But we likely need to see a break above 82 or below 80.67 before becoming too excited about any break of that trendline. Still, the bearish inside day shows it is hesitant to break above it immediately.

Government restrictions weights on oil demand expectations

Oil was also lower as covid restrictions weighed on the outlook for demand. WTI topped out just above $73 and at its 20-day eMA before falling around -2.6% to form a bearish outside day, which itself is part of a 3-bar reversal called an evening star formation. As RSI (2) was also overbought the odds favour a retracement in line with yesterday’s trade.

Gold teases bears with a bearish wedge ahead of US inflation

Gold has been trading in a tight range ahead key inflation data from the US. A hot-print is essentially a proxy for Fed tightening, via a faster pace of tapering which could bring forward the potential for a rate hike. The best bet for gold bugs is a soft inflation print today. This scenario is not being widely discussed, therefore it should be considered as the anti-consensus moves can spark the more volatile reaction. However, if it does come in nice and strong to pave the way for earlier Fed action, we’d expect gold prices to head for the November low at 1758, which itself is a key level which could trigger large stops (and more selling) if broken.

Gold may have broken out of a small wedge formation overnight, after a bearish pinbar met resistance just below the 20-day eMA and 61.8% Fibonacci ration on Wednesday. The target projects a profit objects at the base of the pattern around 1762, and the likely success of the pattern likely depends on today’s inflation report.

ASX 200 Market Internals:

ASX 200: 738435 (-0.28%), 09 December 2021

• Materials (-0.51%) was the strongest sector and Utilities (0.4%) was the weakest
• 8 out of the 11 sectors closed lower
• 5 out of the 11 sectors outperformed the index
• 76 (38.00%) stocks advanced, 108 (54.00%) stocks declined
• 60% of stocks closed above their 200-day average
• 56% of stocks closed above their 50-day average
• 49.5% of stocks closed above their 20-day average

Outperformers:

• + 4.66% - AGL Energy Ltd (AGL.AX)
• + 3.18% - Appen Ltd (APX.AX)
• + 2.87% - Sydney Airport (SYD.AX)

Underperformers:

• -9.31% - Redbubble Ltd (RBL.AX)
• -4.88% - Magellan Financial Group Ltd (MFG.AX)
• -4.16% - Zip Co Ltd (Z1P.AX)

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