- US stocks mostly extended on their post-election advances which saw the major indices post fresh record highs with the tech-heavy Nasdaq 100 leading the advances amid gains across the mega-cap names and with outperformance in Communication Services, Technology and Consumer Discretionary. Outside of stocks, trade in general, was catalysed by an unwind of the recent extreme moves seen in the wake of the Trump victory, which resulted in a firm rebound for treasuries as yields softened and the dollar also weakened, while the FOMC's widely expected decision to cut rates and Powell's presser had little lasting impact across markets which mostly then continued with the earlier Trump fade.
- USD pared some of the large gains incurred in the post-Trump win and gave up ground against all of its major peers, while there were little catalysts at play heading into the FOMC decision in which the Fed cut the Fed Funds Target Rate by 25bps to 4.50%-4.75%, as expected, while choppy trade ensued for the Buck in the wake of Fed's Chair Powell's presser as he downplayed the recent rise in Treasury yields and suggested they will be looking at incoming data and how that affects the outlook for the December decision.
- Looking ahead, highlights include Japanese Household Spending & Leading Index, Comments from RBA Assistant Governor Jones, Supply from Australia.
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LOOKING AHEAD
- Highlights include Japanese Household Spending & Leading Index, Comments from RBA Assistant Governor Jones, Supply from Australia.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks mostly extended on their post-election advances which saw the major indices post fresh record highs with the tech-heavy Nasdaq 100 leading the advances amid gains across the mega-cap names and with outperformance in Communication Services, Technology and Consumer Discretionary. Outside of stocks, trade in general, was catalysed by an unwind of the recent extreme moves seen in the wake of the Trump victory, which resulted in a firm rebound for treasuries as yields softened and the dollar also weakened, while the FOMC's widely expected decision to cut rates and Powell's presser had little lasting impact across markets which mostly then continued with the earlier Trump fade.
- SPX +0.74% at 5,973, NDX +1.54% at 21,102, DJIA flat at 43,729, RUT -0.43% at 2,383.
- Click here for a detailed summary.
FOMC
- FOMC cut rates by 25bps to 4.50-4.75%, as expected, in a unanimous decision and removed language about having gained greater confidence in inflation moving sustainably towards the 2% target. FOMC said recent indicators suggest that economic activity has continued to expand at a solid pace and inflation has made progress towards the Committee's 2% objective but remains somewhat elevated.
- Fed Chair Powell said during the press conference that the economy is strong and the labour market remains solid, while inflation has eased substantially and they are committed to maintaining the economy's strength. Powell said the Fed took another step in reducing policy restraint and continues to be confident that with the recalibration of stance, inflation will move sustainably down to 2%. Furthermore, he said they can dial back policy more slowly if the economy remains strong and inflation is not moving to 2% or can move more quickly if the economy slows and inflation moves towards 2%.
- Fed Chair Powell said during the Q&A that the election will have no effect on policy decisions in the near term and since the September meeting, the main economic activity has been stronger and some of the downside risks to the economy have diminished. Powell also said they will want to see how long higher bond rates will be maintained and what they have seen so far, it is not a major factor and they are not at the stage where bond rates need to be taken into policy consideration, while they will make a decision on rates as they get to December and will be looking at incoming data and how that affects the outlook. Powell added they are in the process of recalibrating from a fairly restrictive level and asking themselves if that is where they need to be, as well as trying to steer between moving too quickly and moving too slowly. Furthermore, Powell said statement changes are not meant to be a signal with the change in statement 'omitting confidence' is not meant to convey anything about the stickiness of inflation and that they have gained confidence on inflation moving towards 2%, while he said he would not resign if asked to and noted risks are two-sided with the economy and policy both in a very good place.
NOTABLE HEADLINES
- US President Biden said he spoke with US President-elect Trump and assured him that the administration would work with Trump's team and ensure a peaceful transition.
- US President-elect Trump is likely to allow Fed chair Powell to serve the remainder of his term, according to CNN.
DATA RECAP
- US Productivity Prelim (Q3) 2.2% vs. Exp. 2.3% (Prev. 2.5%, Rev. 2.1%)
- US Unit Labor Costs Prelim (Q3) 1.9% vs. Exp. 1.0% (Prev. 0.4%, Rev. 2.4%)
- US Initial Jobless Claims 221k vs. Exp. 221k (Prev. 216k, Rev. 218k)
- US Continued Jobless Claims w/e 1.892M vs. Exp. 1.875M (Prev. 1.862M, Rev. 1.853M)
FX
- USD pared some of the large gains incurred in the post-Trump win and gave up ground against all of its major peers, while there were little catalysts at play heading into the FOMC decision in which the Fed cut the Fed Funds Target Rate by 25bps to 4.50%-4.75%, as expected, while choppy trade ensued for the Buck in the wake of Fed's Chair Powell's presser as he downplayed the recent rise in Treasury yields and suggested they will be looking at incoming data and how that affects the outlook for the December decision.
- EUR benefitted from the pullback in the dollar and reclaimed the 1.0800 status, while EU Retail Sales were also printed stronger than expected.
- GBP strengthened amid the dollar weakness and was also boosted in the aftermath of the BoE's widely expected 25bps rate cut as the central bank reiterated that a gradual approach to removing policy restraint remains appropriate and it will ensure the Bank Rate is restrictive for sufficiently long until the risks to inflation returning sustainably to 2% target have dissipated further.
- JPY was supported amid the dollar pressure and as US yields softened which dragged USD/JPY from the 154.00 territory to trade at a sub-153.00 level.
- Czech CNB cut its Repo Rate by 25bps to 4.00% (Prev. 4.25%), as expected, while Governor Michl said the board will be very cautious with additional rate cuts and can halt the rate cut in coming months.
- Norges Bank left its key policy rate at 4.50%, as expected, while it stated the policy rate will most likely be kept at 4.5% through to end-2024.
- Riksbank cut its rate by 50bps as expected to 2.75% (prev. 3.25%) and the policy rate may also be lowered in December and H1 2025 (in line with what was communicated in September), while it added that to further support economic activity, the policy rate needs to be cut somewhat faster than was assessed in September.
FIXED INCOME
- T-notes rallied heading into and after the FOMC announcement as bonds pared from Trump victory extremes.
COMMODITIES
- Oil prices were choppy amid light oil-specific catalysts but ultimately settled with gains amid the backdrop of the ongoing geopolitical uncertainty.
- Chile's Codelco said October was the best month for production.
GEOPOLITICAL
MIDDLE EAST
- Israeli sources cited by OSINTdefender said a squadron of F-15 US Air Force fighters were deployed from the UK to the Middle East after preparations for a possible imminent attack against Israel were seen in Iran. Kann News also wrote "The preparation for an Iranian attack: the US moved a squadron of F15s to the Middle East - after dozens of fighter jets and 6 B-52 strategic bombers were moved to the region last week" in reference to recent flight radar data.
- Israeli PM Netanyahu reportedly sent a message to the White House after he fired Gallant and noted he did not intend to fire the IDF chief, according to Walla News. However, senior officials in the Biden administration admitted it is not certain that they believe the promise but as a result, the administration is expected to extend the deadline for Israel to improve the situation in Gaza.
- US State Department said the US has had conversations with Israel on holding its first meeting of a new channel to discuss civilian harm in Gaza.
OTHER
- Ukrainian President Zelenskiy said if no action is taken in response from allies, more troops from North Korea will be deployed, while he's not aware of any details of plans to end the war fast and did not discuss it with Trump.
- Russian President Putin in his speech congratulated Trump on winning the US elections and said the desire to restore relations with Russia and facilitate the end of the Ukrainian crisis deserves attention. Putin said he doesn’t think it is wrong to hold a call with Trump, while he is not against it if some world leaders seek to restore contact and said they are ready to speak to Trump. It was separately reported that Putin said they are ready to restore relations with the US but the ball is on the US' side.
ASIA-PAC
NOTABLE HEADLINES
- US federal agency issued a directive to employees to reduce the use of their phones for work matters due to China's recent hack of telecommunications infrastructure.
EU/UK
NOTABLE HEADLINES
- Bank of England cut the Bank Rate by 25bps as expected to 4.75% in an 8-1 vote split (exp. 7-2) as Mann voted to keep rates unchanged. BoE reiterated that a gradual approach to removing policy restraint remains appropriate and it will ensure the Bank Rate is restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target have dissipated further. BoE said the Budget is provisionally expected to boost inflation by just under 0.5ppts at peak between mid-2026 and early 2027, while Governor Bailey said it is likely that rates will continue to fall gradually if the economy evolves as expected and needs to make sure inflation stays close to target, while he added that they cannot cut rates too quickly or by too much.
- BoE lowered its 2024 inflation forecast to 2.25% (prev. 2.75%) but hiked its 2025 and 2026 inflation forecasts to 2.75% (prev. 2.25%) and 2.25% (prev. 1.5%), respectively. Furthermore, it lowered its 2024 GDP growth forecast to 1% (prev. 1.25%) but raised the 2025 view to 1.5% (prev. 1.0%) and kept its 2026 growth estimate at 1.25% (prev. 1.25%).
- BoE Governor Bailey said the Budget does have an upward impact on inflation, but it does return to the target and allowed the BoE to cut today, while he added they will need to see more on how the Budget affects inflation and he does not think it is correct to conclude that the path for interest rates will be very different because of the budget. BoE Governor Bailey said during the Q&A that they do not have a specific equilibrium interest rate level in mind and do not expect rates to return to the very-low levels from before the recent tightening cycle unless there is a very big shock. Furthermore, Bailey said he will not specify what "gradual" means with regards to rate cuts but noted they have made more progress on disinflation than expected which allowed them to cut rates and if that progress continues, the BoE will respond to it.
- ECB's Knot said he is optimistic about the outlook for EZ growth and confidence is growing that the ECB will meet 2% inflation, while he added that increasing trade barriers will create more economic risks.
- ECB's Schnabel said the balance sheet reduction has not left any significant footprint in many areas so far but added that in other areas, especially in the euro area money market, the ongoing decline of excess liquidity is starting to leave some traces on activity and prices.
- ECB's Stournaras said if US President-elect Trump does what he says he will on tariffs, it will negatively impact the European economy.
- ECB Survey on the Access to Finance of Enterprises stated that firms reporting a moderate tightening of financing conditions shows cost pressures remain widespread across businesses of all sizes.
- German Economy Minister commented regarding the German government collapse that the next government will have similar difficulties and there is no blockade of the budget.
DATA RECAP
- EU Retail Sales MM (Sep) 0.5% vs. Exp. 0.4% (Prev. 0.2%, Rev. 1.1%)
- EU Retail Sales YY (Sep) 2.9% vs. Exp. 1.3% (Prev. 0.8%, Rev. 2.4%)
- EU HCOB Construction PMI (Oct) 43.0 (Prev. 42.1)
- German HCOB Construction PMI (Oct) 40.2 (Prev. 41.7)
- German Industrial Output MM (Sep) -2.5% vs. Exp. -1.0% (Prev. 2.9%)
- German Trade Balance (EUR)(Sep) 17.0B vs. Exp. 20.9B (Prev. 22.5B)
- German Exports MM SA (Sep) -1.7% vs. Exp. -1.4% (Prev. 1.3%)
- German Imports MM SA (Sep) 2.1% vs. Exp. 0.5% (Prev. -3.4%)
