Digest
The day began like a mild tea afternoon—calm and featureless. But keep your eyes peeled: US CPI and the Bank of Canada’s budget promise a traffic jam of interestings to come.
Where We Stand
Nothing dramatic to shout about on Tuesday: markets drifted like a sleepy pet on autopilot, playing a patience game while investors await that November CPI flash. The data dossier didn’t throw any big bells; price movements were a random walk—the kind of trend that makes you wonder if you’re watching the sun rise or simply swiping through your social feed.
The Treasury angle carved a sweet little story. Long‑term bonds dropped, with 10‑ and 30‑year yields spiking over 3 basis points. The curve got steeper for a second day. A bit of pre‑CPI hedging likely nudged folks out of the long‑end, but the exact cause is a bit hazy—think of it as a ‘what‑if’ scenario in the back of someone’s head.
That Treasury dip proved contagious. The dollar seized the 106 mark, nudging the DXY up three straight days for the first time in 2½ weeks. Not bad for a “fun” start to the week. I keep a bullish stance on the greenback—thanks to solid U.S. growth and the fact that the U.S. economy still likes to lead the dance floor against its peer nations.
Other G10 currencies were on the roll, a bit shaky but not screaming for attention. The Australian dollar crashed to a new low—about –0.8%—losing its 0.64 support level after the RBA’s dovish flick of the switch. The Bank of Reminder of “lifted inflation risk” but “bullish confidence” that inflation heads back to target. The market is saying, “We’ll probably see a 25bp cut in February.”
Gold strutted its way up for the second consecutive day, crossing above its 50‑day moving average for the first time in a fortnight. $2,700 an ounce is the old guard of where bulls can get a chance to make a wager; the recent $2,720 a ounce highs looked like a sweet spot. I’d love to see more upside, but a cooler-than‑expected CPI figure could scare that dream away.
Stocks trundled, subtly losing ground on S&P 500 and Nasdaq 100. That doesn’t mean a bearish forecast—easily, if the combo of strong growth, decent earnings, seasonality, and the Fed’s put option holds, the “path of least resistance” will still head upwards.
Look Ahead
Later today, the daily calendar gets bustling. The headline CPI is slated to increase 2.7% YoY in November, 0.1 percentage point steeper than October, which may mark the highest headline inflation since July. Core CPI is projected to rise 3.3%, unchanged for the third month in a row, with a 0.3% MoM increase expected for both headline and core. The CPI fixings have been surprisingly on target, hinting at a 2.72% YoY headline rise.
The FOMC’s outlook isn’t likely to shift. A 25bp cut on Wednesday is almost a lock‑in, driven more by the 4.2% unemployment rate than by price pressures. It’s a calm market: S&P 500 options price a day‑by‑day roll of only ±0.7%, the smallest such move since early 2021. You’d need a scorching CPI print (unlikely) to move the Fed’s policy any other way.
Meanwhile, the Bank of Canada is expected to deliver a second straight 50bp cut, trimming rates to 3.25%. This is part of Macklem’s push toward neutral rates. The market is weighing an 80% chance for this cut, though a majority still prefers a smaller 25bp move. The Bank’s guidance will be pivotal for the loonie’s performance—if they hint at slowing cuts as they approach neutral terms, the CAD could rally. Even a “hawkish 50bp cut” might just sound key for the dollar. That’s my base case.
Stay tuned for real‑time updates on this category.
