US equities continue to slide with the Nasdaq down 2.2% and the S&P 500 off by 1.8%. It's part of a broad re-think of the recent round of optimism about the economy and financial markets. With it comes a fresh focus on risks around stubborn inflation or a hard economic landing.
Weather forecasts continue to show a cold December in Europe and that's going to be a big challenge in the energy market. There's some additional storage for European gas in ships offshore but we'll quickly find out how the pricing and power mechanism functions.
Despite broad USD strength today, the euro is outperforming the pound and Canadian dollar. All eyes are on the ECB and the December 15 meeting. The market is pricing in a 90% chance of a 50 bps hike with a tail rise of a 75 bps hike. Commentary today and yesterday has been less hawkish and firmed up views around 50 bps.
On net, this pair is going to be driven by the USD-side of the equation and broad market sentiment. I expect the sour turn in markets to continue; soon the market will focus on US CPI and the Fed next week and that will lead to caution. In addition, there will likely be some tax-loss selling.
