Global Markets in Sea of Red as the Fed Dims Hopes of Santa Rally

Silver price (XAG/USD) trades in a tight range around $29.00 in Friday’s European trading session. The white metal consolidates as investors await the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for November, which will be published at 13:30 GMT.

Economists expect the US annual core PCE inflation data to have accelerated to 2.9% from 2.8% in October. On month, the underlying inflation data is estimated to have grown steadily by 0.2%. Signs of mild slowdown in price pressures are unlikely to impact market expectations that the Federal Reserve (Fed) will pause the policy-easing spell in the policy meeting in January 2025. However, a sharp deceleration could weigh on them. On the contrary, a mild or sharp acceleration in price pressures would strengthen them.

In the policy meeting on Wednesday, the Fed reduced its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% but signaled fewer interest rate cuts for 2025. The Fed dot plot showed that officials collectively see Federal Fund rates heading to 3.9% by 2025 against 3.4% projected in September.

Ahead of the US PCE inflation data, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower after posting a fresh two-year high at 108.50. 10-year US Treasury yields tick lower to 4.56% from a fresh six-month high of 4.60%. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.

Silver technical analysis

Silver price slides below the 200-day Exponential Moving Average (EMA), which trades around $29.35. The white metal weakens after a breakdown of the upward-sloping trendline around $30.20, which is plotted from the February 29 low of $22.30.

The 14-day Relative Strength Index (RSI) drops inside the bearish range of 20.00-40.00 range, guiding a downside momentum ahead.

Looking down, the September low of $27.75 would as key support for the Silver price. On the upside, the 50-day EMA around $30.90 would be the barrier.

Silver daily chart

Silver FAQs

Why do people invest in Silver?

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Which factors influence Silver prices?

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

How does industrial demand affect Silver prices?

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

How do Silver prices react to Gold’s moves?

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

Source: FXSTREET

The Nasdaq 100 has reversed its bullish momentum where at the start of this week, it was the sole major US benchmark stock index to print a fresh all-time high of 22,133 on Monday, 16 December.

The ex-post release of the US Federal Reserve monetary policy’s latest “dot plot” and Fed Chair Powell’s press conference on Wednesday, 18 December, have spooked the US stock market. The Fed has indicated the prospect of lesser interest rate cuts in 2025 due to the risk of inflationary pressure resurgence (some Fed officials have taken into account the effects of the incoming Trump administration’s “America First” policy).

The heightened prospect of a transition from a Fed “dovish pivot” to a “normalization” pivot in 2025 is likely the narrative at this juncture that may dim the hopes of the seasonal “Santa Rally” for this year-end.

The higher beta Nasdaq 100 recorded a loss of 4% from 18 December to 19 December (open to close) ex-post FOMC, the second worst performer among the four major US stock indices; Russell 2000 (-5.3%), S&P 500 (-3%), Dow Jones Industrial Average (-2.6%).

Several technical elements have now flashed out an increasing odd of a medium-term (multi-week) correction on the Nasdaq 100

Weak market breadth

Fig 1: Percentage of Nasdaq 100 and S&P 500 component stocks above 20-day & 50-day moving averages as of 19 Dec 2024 (Source: TradingView, click to enlarge chart)

Since the start of December 2024, the percentage of Nasdaq 100 component stocks trading above their respective 20-day and 50-day moving averages has fallen. In contrast, the price actions of the Nasdaq 100 have kept rocketing upwards to print record highs in the recent two weeks.

Right now, the percentage of Nasdaq 100 component stocks trading above their respective 20-day moving averages have plummeted to 9.9% as of 19 December. Also, the Nasdaq 100 component stocks above their respective 50-day moving averages have declined to 33.7% (see Fig 1).

20,790 is the last line of defense for the Nasdaq 100

Fig 2: Nasdaq 100 CFD major & medium-term trends as of 20 Dec 2024 (Source: TradingView, click to enlarge chart)

The recent past three days of price actions of the Nasdaq 100 CFD Index (a proxy of Nasdaq 100 E-mini futures have reintegrated below the upper boundary of its long-term secular ascending channel from the March 2020 low. This observation suggests the bullish breakout seen on 4 December is a failure acceleration move.

Since its all-time high on 16 December, it has declined by 5.5%. It is now hovering right above its 50-day moving average, which is acting as key intermediate support at 20,790.

The latest reading seen from the daily RSI momentum indicator suggests that the 20,790 key intermediate support is likely to be a “weak support” as the RSI has broken below a parallel ascending trendline support and breached below the 50 level that indicates a revival of medium-term bearish momentum (see Fig 2).

In addition, fewer Nasdaq 100 component stocks managed to record new 52-week highs since 14 November 2024 as the 10-day moving average of the difference between new 52-week highs minus 52-week lows has shaped a lower high.

Hence, a break with a daily close below the 20,790 key intermediate support may trigger a multi-week corrective decline sequence to expose the medium-term supports of 19,840 and 18,310 in the first step.

On the other hand, clearance above the 22,470/980 medium-term pivotal resistance zone invalidates the bearish scenario for the continuation of its impulsive upmove sequence for the next medium-term resistances to come in at 23,980/24,440 and 25,080/570.

Source: ACTIONFOREX

TOKYO (Dec 20): Japan's minority ruling coalition on Friday failed to secure support from a key opposition party for its tax reform plans, jeopardising Prime Minister Shigeru Ishiba's budget agenda for next year.

Without opposition support for the plans, which form the basis of next year's state budget, the ruling camp may struggle to get its budget and tax reform bills through parliament.

Japan's ruling Liberal Democratic Party and its small coalition ally Komeito said they agreed to lift the tax-free income threshold from ¥1.03 million (US$6,556 or RM29,574) to ¥1.23 million, the first change since 1995 to reflect rising living costs.

But the new threshold, included in the tax reform framework for the next fiscal year from April, is far short of the ¥1.78 million demanded by the opposition Democratic Party for the People (DPP).

"With the planned ¥1.23 million threshold, there is no way for us to support the state budget," DPP lawmaker Yuichiro Tamaki said on social media platform X on Friday.

Yoichi Miyazawa, chair of the LDP's tax system panel, told a news conference the ruling camp would continue discussions with the DPP.

Ishiba's ruling coalition lost its majority in a snap election he called for October, and it now needs the support of the DPP or other opposition parties to pass legislation through parliament.

The finance ministry calculated that hiking the threshold to ¥1.78 million would reduce tax revenue by up to ¥8 trillion, likely thereby adding to Japan's already huge public debt.

The LDP's Miyazawa said the coalition's proposed threshold hike would cut revenue by just ¥700 billion.

The tax reform plans will be approved by the cabinet as early as next week. Based on the tax plans, the government is set to draft a state budget by the end of this year.

The ruling coalition plans also include raising the country's corporate and tobacco taxes from April 2026 to fund more defence spending.

The step follows through on former Prime Minister Fumio Kishida's commitment to raise taxes to double defence spending to 2% of gross domestic product by 2027.

Source: Theedgemarkets

Energy – WTI settles below $70/bbl

Crude oil prices edged lower with NYMEX WTI closing below $70/bbl while ICE Brent settled below $73/bbl yesterday. The oil market witnessed a second straight session of decline as the strengthening dollar weighs on the complex.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by just 16kt over the week to 6.3mt. The additions in gasoil and gasoline stocks were balanced by the declines reported in other oil products stocks. Gasoil stocks in the ARA region increased by 57kt week-on-week to 2.2mt for the week ending 19 December. Similarly, gasoline inventories rose by 12kt to 1.4mt over the reporting week.

In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 9.7m barrels for a seventh straight week to 54.4m barrels as of 18 December, the highest since August 2020. Residue stocks increased by 11.05m barrels whilst light and middle distillate stocks decreased by 556k barrels and 813k barrels, respectively. It is reported that inventories of heavy fuels rose by the most ever in a week, with levels at the highest since June 2016.

Meanwhile, US natural gas prices moved higher for a fourth consecutive session as weekly inventory numbers reported outflows, whilst expectations of a cold start to January raised hopes for increased consumption of the heating fuel. The weekly data shows that US gas storage decreased by 125Bcf last week, slightly lower than the 127Bcf increase the market was expecting. However, this was well above the five-year average decline of 92Bcf. Total gas stockpiles totalled 3.62Tcf as of 13 December, which is just 0.6% above last year and 3.8% above the five-year average.

Metals – Indonesia mulls mining cuts

Indonesia is considering implementing deep cuts to the nickel mining quota primarily to support the falling prices of the battery metal. The Energy and Mineral Resources Ministry is said to be planning to restrict the amount of nickel ore allowed to be mined to 150mt in 2025, sharply down from 272mt this year. However, the discussions about the size of the potential reduction are still ongoing with the government. Rising supply from Indonesia and slower-than-expected demand growth have been weighing on nickel prices. However, the announcement failed to offer any immediate support to LME nickel with prices falling to their lowest since November 2020 yesterday, as market participants continue to focus on the broader weakness in risk assets.

In zinc, market reports suggest that Toho Zinc Co. located in Japan will shut down its unprofitable zinc smelting business by the year-end, as ore-processing fees continue to hover near multi-year lows. The Japanese company is also withdrawing from mining investments following a “significant loss” in the mineral resources division.

Agriculture – EU lowers corn and wheat output estimates

In its latest cereals market situation report, the European Commission estimated that the bloc’s grain production could fall to 255.8mt for the 2024/25 season, compared to its previous projections of 256.9mt. This is largely driven by a decrease in soft wheat production estimates, which fell from 112.3mt from November projections to 111.9mt for the period mentioned above. This is due to a reduction in the harvest area to 20.2m hectares from 20.3m hectares. Similarly, corn production estimates were revised down slightly to 59.5mt from its previous projections of 59.6mt.

Meanwhile, in its weekly report, the Buenos Aires Grain Exchange raised Argentina’s corn planting estimates to 65.8% complete for the 2024/25 season, up from 55.6% estimated earlier. Sufficient rain has been helpful for the planting season so far. Meanwhile, the exchange reported that the corn planting area remained unchanged at 6.3m ha for the above-mentioned period. Similarly, soybean planting estimates were raised to 76.6% for the 2024/25 season from its previous estimates of 64.7%. The exchange further added that the forecast for more showers could continue to improve the country’s wheat crop condition as well.

US weekly net export sales for the week ending 12 December show strong demand for US grains over the week. US corn shipments surged to 1,177kt, higher than the 946.9kt a week ago and 1,014kt for the same period last year. This was also higher than the average market expectations of 1,013kt. Similarly, wheat shipments rose to 458kt, higher than the 290.2kt reported in the previous week and 326kt a year ago. The market was expecting a number closer to 329kt. Meanwhile, soybean shipments stood at 1,424.2kt, higher than the 1,173.8kt reported a week ago but lower than the 2,133.4kt reported a year ago. The average market expectations stood at 1,256kt.

(Dec 20): Britain ran a smaller-than-expected budget deficit last month as a past lull in inflation pushed down interest paid on government bonds, giving a small boost to finance minister Rachel Reeves who has been under pressure following her budget announcement.

Public sector net borrowing in November was £11.249 billion (US$14.06 billion or RM63.4 billion), the Office for National Statistics said on Friday. Economists polled by Reuters had a median forecast of £13 billion for headline public sector net borrowing.

The data showed the challenge Reeves faces to meet her new fiscal rules with the economy losing momentum — the Bank of England on Thursday forecast zero growth in the last three months of 2024 — and inflation rising again.

"What will worry government is that recent economic indicators such as weak GDP growth and rising inflation are flashing amber," said Alison Ring, director of public sector and taxation at the ICAEW trade body for accountants.

"Money remains extremely tight and that is unlikely to change any time soon."

Government borrowing has been higher than expected by economists polled by Reuters in eight of 11 months so far in 2024 and the reading for October was revised up by more than £800 million.

The lower-than-expected deficit in November reflected a £1.8-billion reduction in the compensation applied to the government's inflation-linked debt as the retail price index fell 0.3% during September.

That drop in prices fully unwound in October and November.

Reeves on Oct 30 announced the biggest tax increases in three decades — most of them from higher social security contributions paid by employers — as she promised to balance day-to-day spending with tax revenues by the end of the decade.

But she also plans to increase borrowing sharply in the coming years as the new Labour government seeks to improve public services and invest more in infrastructure than had been planned by the previous Conservative administration.

The government borrowed £113.2 billion over the first eight months of the 2024/25 financial year, roughly unchanged compared with the same point in 2023/24.

Reeves has described her budget as set of one-off measures to stabilise the public finances.

Source: Theedgemarkets