- US stocks finished lower and almost all sectors closed in the red aside from energy and tech with headwinds seen following the firmer-than-expected Y/Y PPI data and with further pressure seen after hawkish comments from Fed Chair Powell who stated that the economy is not sending signals that the Fed needs to be in a hurry to lower interest rates and that the economic strength gives the Fed the ability to approach its decisions carefully. This saw money markets price in around a 60% chance of a 25bps in December versus 80% pre-Powell, while treasures pared their initial gains and the dollar continued to strengthen on the day.
- USD extended into a 5-day streak of gains and briefly climbed above the 107.00 level with support seen following firmer-than-expected yearly core and headline PPI data and although the greenback faded some of the gains, there were late tailwinds following hawkish comments from Fed Chair Powell who noted the "economy is not sending signals that the Fed needs to be in a hurry to lower interest rates" and that the total PCE price index likely climbed 2.3% in October from a year earlier (prev. 2.1% in September), while core PCE likely climbed 2.8% (vs 2.7% in September).
- Looking ahead, highlights include Japanese GDP, Chinese House Prices, Industrial Production & Retail Sales, Malaysian GDP, Supply from Australia & Japan, Holiday Closure in India.
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LOOKING AHEAD
- Highlights include Japanese GDP, Chinese House Prices, Industrial Production & Retail Sales, Malaysian GDP, Supply from Australia & Japan, Holiday Closure in India.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks finished lower and almost all sectors closed in the red aside from energy and tech with headwinds seen following the firmer-than-expected Y/Y PPI data and with further pressure seen after hawkish comments from Fed Chair Powell who stated that the economy is not sending signals that the Fed needs to be in a hurry to lower interest rates and that the economic strength gives the Fed the ability to approach its decisions carefully. This saw money markets now price in around a 60% chance of a 25bps in December versus 80% pre-Powell, while treasures pared their initial gains and the dollar continued to strengthen on the day.
- SPX -0.60% at 5,949, NDX -0.66% at 20,897, DJIA -0.47% at 43,751, RUT -1.37% at 2,337.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed Chair Powell said the economy is not sending signals that the Fed needs to be in a hurry to lower interest rates and they are moving policy over time toward neutral with the policy path not preset. Powell said he expects inflation to continue to come down towards the 2% goal, on a 'sometimes-bumpy' path and the Fed is committed to finishing the job on inflation, while he added economic strength gives the Fed the ability to approach its decisions carefully and noted the total personal consumption expenditures price index likely climbed 2.3% in October from a year earlier (prev. 2.1% in Sept) and core PCE likely climbed 2.8% (vs 2.7% in September).
- Fed Chair Powell said during the Q&A that Fed independence means monetary policy decisions can't be reversed or reviewable and as they make decisions, they are not thinking about the wellbeing of any political party, as well as noted that political factors would be a distraction. Powell said that policy is restrictive and they started the process of cutting rates by moving to neutral, while they need to move patiently and carefully to find neutral. Powell also noted that as they are in the near plausible range of neutral, they may need to slow the pace of what they are doing and if the data lets them go slower, that's a smart thing to do. Furthermore, he said the latest PPI reading was slightly more of an upward bump but he still thinks they are on track for inflation, as well as noted it is not clear how restrictive policy is but added policy is in a good place, while they have space to cut rates if need, and can be careful about cutting rates.
- Fed's Barkin (2024 voter) said the Fed is making great progress but needs to keep it going and said there is still more demand for housing than supply. Barkin also commented the Fed is trying to normalise its balance sheet and not use it to tighten financial conditions, while he added that uncertainty is one of the reasons to be gradual and cautious about declaring victory over inflation. Furthermore, Barkin said the Fed will have to feel its way to neutral, depending on whether inflation seems to be settling or not.
- Fed’s Kugler (voter) said the Fed must be mindful of both sides of the mandate right now and if the disinflation process stalls, it could call for the Fed to pause on cuts. Kugler also said she welcomes the easing in inflation expectations and said the Fed needs to pay attention to both sides of their mandate.
- Fed reportedly refused to back the Basel climate plan, leaving talks in limbo, according to Bloomberg.
- US Treasury's semi-annual currency report found no major US trading partners manipulated currency to gain unfair trade advantage in four quarters through June 2024 as no major trading partners met all three criteria for enhanced analysis during the review period.
- US President-elect Trump expected to select RFK Jr. to lead HHS, according to Politico.
- Trump transition plans to kill USD 7.5k consumer tax credit for EVs, according to Reuters sources.
DATA RECAP
- US PPI exFood/Energy MM (Oct) 0.3% vs. Exp. 0.3% (Prev. 0.2%)
- US PPI Final Demand MM (Oct) 0.2% vs. Exp. 0.2% (Rev. 0.1%)
- US PPI exFood/Energy YY (Oct) 3.1% vs. Exp. 3.0% (Prev. 2.8%, Rev. 2.9%)
- US PPI Final Demand YY (Oct) 2.4% vs. Exp. 2.3% (Prev. 1.8%, Rev. 1.9%)
- US Initial Jobless Claims w/e 217.0k vs. Exp. 223.0k (Prev. 221.0k)
- US Continued Jobless Claims w/e 1.873M vs. Exp. 1.88M (Prev. 1.892M, Rev. 1.884M)
FX
- USD extended into a 5-day streak of gains and briefly climbed above the 107.00 level with support seen following firmer-than-expected yearly core and headline PPI data and although the greenback faded some of the gains, there were late tailwinds following hawkish comments from Fed Chair Powell who noted the "economy is not sending signals that the Fed needs to be in a hurry to lower interest rates" and that the total PCE price index likely climbed 2.3% in October from a year earlier (prev. 2.1% in September), while core PCE likely climbed 2.8% (vs 2.7% in September).
- EUR was pressured by the dollar strength and briefly dipped beneath the 1.0500 handle in early trade despite stronger-than-expected employment data and inline flash GDP data for Q3, while Econostream's latest ECB Insight article reported that insiders are said to be convinced of a 25bps cut in December and then tilting towards another in January, as well as noted that it is possible that back-to-back cuts will occur after December.
- GBP swung between both sides of the 1.2700 level with the latest BoE rhetoric providing very little to shift the dial ahead of a slew of UK data including GDP.
- JPY remained pressured against the dollar which kept USD/JPY around the 156.00 level before extending higher on hawkish Powell comments.
- Mexican Interest Rate (Sep) 10.25% vs. Exp. 10.25% (Prev. 10.50%) with the voting unanimous. Banxico said the balance of risks to the growth of economic activity remained biased to the downside, while actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory ended to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period.
FIXED INCOME
- T-notes settled marginally higher, albeit well off peaks and with pressure seen in the settlement in the wake of Chair Powell's hawkish text release.
COMMODITIES
- Oil prices settled with marginal gains on what was a choppy session amid the downbeat risk appetite and larger-than-expected build in headline EIA crude inventories, while the latest IEA OMR raised its world oil demand growth forecast for 2024 but slightly reduced its view for 2025.
- US EIA Weekly Crude Stocks 2.089M vs. Exp. 1.847M (Prev. 2.149M).
- Iraq has agreed to extend a deal to supply Lebanon fuel oil until the end of Jan 2025, via Reuters citing oil officials.
- IEA OMR raised 2024 world oil demand growth forecast to 920k BPD (prev. 860k BPD) but lowered the 2025 forecast to 990k BPD (prev. 1mln BPD), while it said China is the main drag on global oil demand growth and that Chinese demand contracted for a sixth straight month in October.
- China's zinc producers reportedly intend to deliver surplus metal on the Shanghai exchange ahead of the November contract expiry, according to Reuters citing sources.
GEOPOLITICAL
MIDDLE EAST
- US ambassador submitted draft proposal for Lebanon ceasefire to Lebanon's parliament speaker, according to Reuters citing sources.
- Israeli Cabinet Minister said Israel is closer to reaching an arrangement on Lebanon fighting than at any point since the start of the war.
- Senior US officials said that Israel PM advisor Dermer's talks at the White House were good and closed most of the remaining gaps between the US and Israel on the ceasefire agreements wording, according to Axios' Ravid. However, a US official said it is not a done deal yet, but it's very close to it and the question regarding Lebanon, is how willing both sides are to compromise to come to an agreement, while an Israeli official said they now need the US to come to understandings with Lebanon.
- Israel-Hezbollah clashes have reportedly extended from the border area of Naqoura to Shamaa and Bayada, according to Al Arabiya citing sources.
- Initial reports noted an Israeli attack on the Damascus suburb of Mazzeh, according to Syrian state news agency.
- A senior Iranian official to Reuters said Tehran plans to send a message to the E3 via IAEA chief Grossi that Tehran is serious about resolving the nuclear standoff, while Grossi will deliver the message on Tehran's behalf that pressure will have the opposite effect. Furthermore, it was noted that Tehran has a renewed determination to take confidence-building steps.
- Iran's army chief said "When the time is right, we will not hesitate at all and our response to Israel will be "overwhelming", according to Sky News Arabia.
OTHER
- Russian envoy to the UN said if Trump starts negotiations on Ukraine, it is welcome and "we are open".
ASIA-PAC
NOTABLE HEADLINES
- China's Vice Premier Lifeng met with HSBC (HSBA LN) Chairman on Thursday, while China said it welcomes more foreign financial institutions including HSBC, and long-term capital to invest in China, according to Xinhua.
- China's Foreign Ministry said China's Special Envoy for European Affairs is visiting the EU headquarters between November 12th-15th.
- US National Security Adviser Sullivan said the US seeks to manage competition with China so it doesn't veer into conflict.
- US GOP Rep. John Moolenaar is unveiling a new bill to revoke normal trade relations with China which would trigger major tariffs and likely set off a new trade war, according to Punchbowl.
EU/UK
NOTABLE HEADLINES
- BoE Governor Bailey said the UK must welcome the opportunity to rebuild EU relations and the UK must preserve free trade and the openness of the economy. Furthermore, Bailey endorsed Chancellor Reeves's UK investment plans and noted the UK is not measuring economic intangibles well, while he urged for the UK not to counter protectionism with tariffs.
- BoE's Mann said in the face of uncertainties about the outlook for inflation and output, waiting buys time to learn more about developments and this will help make a better assessment of whether the inflation risk has subsided sufficiently to justify changing the policy stance.
- ECB Minutes stated members generally agreed that monetary policy transmission from the past tightening continued to dampen economic activity, even though some signs of easing were already starting to be visible. It also noted that the upside risks to inflation were now seen as lower, although they were still present and needed careful monitoring, while downside risks were higher and affected by subdued economic conditions.
- ECB's Schnabel said interest rates remain the primary monetary policy tool and that asset purchases are more powerful for stabilising markets than for stimulating the economy.
- Econostream's latest ECB Insight article reported that insiders are said to be convinced of a 25bps cut in December and then tilting towards another in January, while the article noted it is "possible" that back-to-back cuts will occur after December.
- French PM Barnier said they will probably bypass a parliament vote for the budget.
DATA RECAP
- EU GDP Flash Estimate QQ (Q3) 0.4% vs. Exp. 0.4% (Prev. 0.4%)
- EU GDP Flash Estimate YY (Q3) 0.9% vs. Exp. 0.9% (Prev. 0.9%)
- EU Employment Flash QQ (Q3) 0.2% vs. Exp. 0.1% (Prev. 0.2%)
- EU Employment Flash YY (Q3) 1.0% vs. Exp. 0.8% (Prev. 0.8%)
- EU Industrial Production MM (Sep) -2.0% vs. Exp. -1.4% (Prev. 1.8%, Rev. 1.5%)
- EU Industrial Production YY (Sep) -2.8% vs. Exp. -2.0% (Prev. 0.1%, Rev. -0.1%)
