Market Wrap 2025-12-21
Today's US Market Wrap — Key Points
- Stocks up, led by tech. Dollar gains on Yen weakness.
- BoJ rate hike impacts JGBs, T-Notes. Fed sees no urgency.
- Oil rises on Ukraine drone strike. Gold, silver extend gains.
- Focus shifts to upcoming central bank minutes, LPR data.
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MARKET SNAPSHOT
- Equities are up, Treasuries are down, Crude oil is up, the Dollar is up, and Gold is up.
REAR VIEW
- Federal Reserve's Williams sees no immediate need to alter policy, noting potential for a return to neutral; Federal Reserve's Waller reportedly had a "strong interview" for the Fed Chair position; the University of Michigan Sentiment Index was revised downward; the Bank of Japan raised rates as anticipated but refrained from detailing future policy; the Japanese Finance Minister issued a verbal intervention; Ukrainian drones struck a Russian oil rig in the Caspian Sea; Ukraine is set to receive a EUR 90 billion loan from the EU for military and budgetary needs; UK Retail Sales unexpectedly decreased; TikTok is reportedly selling its US entity, with investors including Oracle (ORCL).
COMING UP
- Data releases scheduled: Italian Producer Prices for November, Canadian Producer Prices for November. Events scheduled: People's Bank of China (PBoC) Loan Prime Rate (LPR) announcement. Supply: US.
WEEK AHEAD
- Key events include Christmas Day, the PBoC LPR announcement, Bank of Canada (BoC) Minutes, Reserve Bank of Australia (RBA) Minutes, and Tokyo CPI data; Federal Open Market Committee (FOMC) Minutes (December 30th).
CENTRAL BANK WEEKLY
- Previewing the PBoC LPR, RBA Minutes, BoC Minutes, and FOMC Minutes (December 30th); Reviewing decisions from the Bank of Japan (BoJ), Bank of England (BoE), European Central Bank (ECB), Norges Bank, Riksbank, and Banxico.
MARKET WRAP
US stocks experienced gains into the afternoon, led by the Technology sector, resulting in Nasdaq outperformance. This was supported by reports that TikTok is to sell its US entity, benefiting Oracle (ORCL). Defensive sectors such as Consumer Staples, Consumer Discretionary, and Utilities underperformed. Consumer Discretionary stocks were impacted by Nike (NKE) earnings, which led to a stock decline due to weak sales in China. T-Notes declined across the curve, influenced by overnight weakness in Japanese Government Bonds (JGBs) following the BoJ decision, as well as comments from Federal Reserve's Williams indicating no rush to change policy, although he acknowledged room for further easing. In foreign exchange markets, the Dollar strengthened, primarily driven by Yen weakness. There was a brief period of Yen strength following verbal intervention from Finance Minister Katayama, who described currency moves as clearly one-sided and rapid, a typical precursor to intervention by the Finance Ministry. However, this effect faded. Crude oil prices increased, supported by reports of a Ukrainian drone strike on a Russian oil rig in the Caspian Sea. Gold and silver extended their recent gains, with Gold surpassing USD 4,350 per ounce and silver reaching a new record high above USD 67 per ounce.
US
WILLIAMS : Regarding CPI, Williams stated that recent data was encouraging and indicated further disinflation, although some categories distorted the reading. He emphasized the need for more data to accurately assess inflation and noted steady private sector job gains in new jobs data. He suggested that the unemployment rate may have been affected by distortions but was not surprising, and that jobs data did not indicate a sharp deterioration in the hiring market. He said data is broadly consistent with recent trends and recent Fed cut. When asked about if recent data changes his rate outlook, said it is only a bit of data, there is a lot more due. The NY Fed President sees no urgency to change monetary policy, considering it well-positioned and mildly restrictive, with room to return to neutral. Looking ahead, Williams aims to observe the economy's performance as data emerges, believing the Fed is well-positioned to balance its objectives. He projects GDP growth for this year between 1.5-1.75%, and 2026 GDP c. 2.25%. He anticipates inflation to decrease next year and in 2027, citing a one-time tariff impact and higher productivity growth, and feels positive about the economic base case. On the balance sheet, Williams reiterated that the Fed is not engaged in QE and is purchasing T-Bills to provide reserves to the banking system, clarifying that current asset buying is not intended to influence long-term rates but is a technical move.
UOM FINAL : The final December University of Michigan Sentiment reading was unexpectedly revised down to 52.9 from 53.3 (expected 53.4). Other components were also revised lower. Conditions concluded at 50.4 from 50.7, and Expectations moved to 54.6 from 55.0. Regarding inflation expectations, the 1-year expectation increased to 4.2% from 4.1%, while the 5-year expectation remained unchanged at 3.2%.
EXISTING HOME SALES : Existing Home Sales increased by 0.5% in November to 4.13 million from 4.11 million, falling short of the expected 4.15 million. Regionally, sales rose in the Northeast and South, remained unchanged in the West, and declined in the Midwest. NAR Chief Economist Lawrence Yun noted that inventory growth is beginning to stall, and with distressed property sales at historic lows and housing wealth at an all-time high, homeowners are in no rush to list their properties during the winter months.
FIXED INCOME
T-Notes sold across curve, pressured by JGBs after BoJ. As of 13:00 EST, 2-year +2.6bps at 3.486%, 3-year +3.2bps at 3.529%, 5-year +3.1bps at 3.692%, 7-year +3.4bps at 3.903%, 10-year +2.9bps at 4.145%, 20-year +2.3bps at 4.779%, 30-year +2.2bps at 4.822%.
INFLATION BREAKEVENS (as of 13:00EST): 1-year BEI +3.5bps at 2.447%, 3-year BEI +1.5bps at 2.308%, 5-year BEI -0.8bps at 2.171%, 10-year BEI -0.8bps at 2.216%, 30-year BEI -0.6bps at 2.216%.
THE DAY : T-Notes experienced selling pressure across the curve on Friday, influenced by overnight movements and tracking JGBs lower following the BoJ rate decision. The BoJ's expected 25bps rate hike led to a decline in JGBs, impacting global fixed income markets. Governor Ueda's press conference provided little clarity on the timing of the next BoJ rate hike, stating that the decision would be made after assessing the economic impact. This was interpreted as dovish, causing the Yen to weaken while JGBs and T-Notes remained under pressure. Further pressure arose from comments by Fed's Williams, who indicated no immediate need to change policy but acknowledged room for further easing. T-Notes attempted to recover some losses following the downward revisions to the University of Michigan Consumer Sentiment Index, with the headline figure falling to 52.9 from 53.3. T-Notes moved from 112-15 to 112-21 - a level it hit twice overnight - before paring gradually thereafter.
SUPPLY :
Bills
- The US will sell USD 86 billion of 13-week bills and USD 77 billion of 26-week bills on December 22nd.
- The US will sell USD 75 billion of 6-week bills and USD 50 billion of 52-week bills on December 23rd.
STIRS/OPERATIONS
- Market Implied Fed Rate Cut Pricing: January 5.5bps (previous 6.6bps), March 13.9bps (previous 16.2bps), April 22.0bps (previous 21.8bps), December 59.6bps (previous 62.0bps).
- Effective Federal Funds Rate (EFFR) at 3.64% (previous 3.64%), volumes at USD 88 billion (previous 94 billion) on December 18th.
- Secured Overnight Financing Rate (SOFR) at 3.66% (previous 3.69%), volumes at USD 3.273 trillion (previous 3.289 trillion) on December 18th.
CRUDE
Crude oil prices were firmer on Friday but are still on track to close the week with losses. The focus this week has been on Russia/Ukraine developments as the US seeks a resolution to end the war. Benchmarks saw upside as US players got to their desk amid reports Ukrainian drones hit Russian oil rig in Caspian Sea, and prior to this Putin said Ukraine's attacks on tankers won't hurt oil supplies and Russia will always retaliate when asked about Ukraine's strikes on Russian vessels and civilian targets. Furthermore, the EU agreed EUR 90bln loan for Ukraine, while Putin said they do not see Ukraine being ready for talks, ready and want to end the conflict via peaceful means. Elsewhere, via NBC, Trump said "I do not rule out a war with Venezuela” and said there will be additional seizures of oil tankers near Venezuela. WTI traded between USD 55.61-56.56/bbl and Brent between USD 59.40-60.37/bbl, ahead of Christmas next week, where trade and volume is likely to be thinner.
EQUITIES
EUROPEAN CLOSES : Euro Stoxx 50 +0.29% at 5,758, Dax 40 +0.40% at 24,296, FTSE 100 +0.58% at 9,895, CAC 40 +0.01% at 8,151, FTSE MIB +0.61% at 44,734, IBEX 35 +0.22% at 17,170, PSI +1.03% at 8,212, SMI +0.20% at 13,159, AEX +0.48% at 945
STOCK SPECIFICS:
- Oracle (ORCL): TikTok has reportedly signed an agreement to sell its US entity to a joint venture controlled by American investors, including Oracle.
- Nike (NKE): China/Converse metrics missed; rev. outlook disappointed.
- WhiteFiber (WYFI): Signed a 10yr 40MW colocation agreement for NC-1 data centre campus.
- CoreWeave (CRWV): Joined the DoE's Genesis Mission; Citi resumed CRWV coverage with a 'Buy' rating and a USD 135 PT.
- Palo Alto Networks (PANW): Announced a significant expansion of its strategic partnership with Google Cloud; reportedly valued near USD 10bln.
- Paychex (PAYX): Earnings beat; raised FY26 profit outlook.
- KB Home (KBH): FY26 housing revenue outlook missed.
- Lamb Weston (LW): FY26 revenue view fell short.
- Lyft (LYFT): Downgraded at Wedbush to 'Underperform' from 'Neutral'.
- Elevance Health (ELV): Downgraded at Deutsche Bank to 'Hold' from 'Buy'.
FX
The Dollar Index strengthened, primarily due to Yen weakness following the BoJ's decision. US updates for USD were limited, with NY Fed President Williams' comments being the highlight. Williams stated that he does not feel an urgency to change policy, describing it as well-positioned and mildly restrictive, and believes there is room to return to neutral. Aside from the above, the main focus was on the Yen/BoJ, where the central bank hiked by 25bps as expected to 0.75%. Heading into the meeting, reports noted the BoJ is said to see a hiking cycle likely extending beyond 0.75%; however, such language was absent in the statement and Governor Ueda's press conference. Ueda said, "Will make a decision on a rate hike after checking the impact on the economy," but did add that delaying a rate hike could force a significant hike later. Thereafter, a blip of JPY strength was seen in response to jawboning from the Finance Minister Katayama; however, the move swiftly pared. USD/JPY now trades ~157.50 from earlier 155.51 lows.
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