Toeing the line with their central bank peers, the BoJ held its negative rate and yield curve control policy unchanged via a unanimous decision. Furthermore, it also kept its forward unchanged despite some recent murmur of a January change, with Governor Ueda sounding positive about hitting the bank’s 2% inflation target, but caveating the comment “It’s difficult to say with certainty when that will happen”.

The governor also reiterated that the January decision will remain “data dependent”, though he also cheekily said that it will be “unlikely that the BoJ would ever tell people they are hiking rates the following month”, in an attempt to keep traders on their toes. The yen fell 1% and risk assets continued their march higher with the last central bank meeting out of the way for the year.

Treasury and equity volumes treaded water on 60–70% of normal volumes, with a stronger than expected Canadian CPI and a somewhat dovish speech from Bostic (US making “good progress” on inflation and policy is “nicely positioned”) did little to move markets. Similarly, markets ignored a strong US housing starts release, with single family starts surging to the highest levels in 1.5 years, but doing little to move markets one way or another. But what is clear is that the US housing and consumer situation remains robust despite the continued downturn in manufacturing.

On the equity side, we saw mixed micro guidance from different companies. On the positive side, Bank of America CEO Moynihan stated that the consumer is “in very good shape”, with spending up 4–5% YoY, implying households’ excess savings north of ~$900bln. Lower energy prices are also helping to boost travel and spending habits, as a number of consumers facing companies such as Estee Lauder, Ralph Lauren, and PVH are expected to give positive confirmations to that view. On the other hand, FedEx plunged -7% in the after-hours as the firm missed earnings expectations due to falling air freight volumes, with what the CFO saw to be an economic slowdown and falling demand “continuing to pressure the top-line”.

Regardless, the near-term risk sentiment should remain strictly positive, as we expect the breadth of the equity rally to continue to broaden out, as illustrated in the continued outperformance of the equal market SPX over the capped index. Furthermore, similar to what we saw during the pandemic, smaller retail investors appear to be outperforming hedge fund managers again as the biggest hedge fund longs have been significantly underperforming the “weaker” and most-shorted stocks. This is another representation of a slow broadening out of the equity leadership from the “Mag-7” to the smaller names. The market is likely to remain in “up-only” mode until further notice.

In crypto, prices remain in a holding pattern, with the day to day noise likely to be exaggerated as macro markets shut down for the holidays, and liquidity remains sparse across the board. In the meantime, despite all the negative sentiment lashed out by megacap banking CEOs even during the most recent Senate Banking Testimony, it’s interesting to reflect on all the tangible progress that financial institutions have taken on during a tumultuous 2023. A helpful list from Bloomberg below lists a number of blockchain initiatives that banks have taken on in the past year, with hopefully a much longer list to come in the year ahead.

And with that, we would like to wish our loyal readers and supporters a very happy holidays, with the daily commentary taking a breath hiatus until January 2nd of the new year. However, do keep an eye out for our 2024 outlook to be released over the next couple of weeks, and we wish everyone another profitable trading year ahead!

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