- US stocks were choppy and finished mixed following the US CPI data which printed in line with expectations and initially triggered a dovish reaction owing to the lack of upside surprise which boosted December Fed rate cut bets, as well as benefitted bonds and pressured the dollar. However, the initial moves were then reversed as the 'Trump Trade' gathered steam once again which lifted the dollar to YTD highs, weighed on bonds and boosted Bitcoin to briefly above USD 93,000.
- USD initially saw weakness upon the October CPI report which saw all metrics in line with expectations, with the DXY troughing at 105.71 as Fed pricing saw odds of a December 25bps rate cut rise to ~ 85% from 60% pre-data. However, dollar strength then picked up at the US cash open as a continuation of a Trump trade seemed to offset recent data implications to lift the DXY to a fresh YTD high. There were also a series of remarks from Fed members including Fed's Logan (2026 voter) who said it is difficult to know how many rate cuts may be needed and how soon they need to happen, as well as that models show that the FFR could be very close to neutral and if the Fed cuts too far, past neutral level, inflation could reaccelerate, while Fed's Schmid (2025 voter) said "it remains to be seen" how much more the Fed will cut rates and where they may settle.
- Looking ahead, highlights include Australian MI Inflation Expectations & Employment Data, Comments from RBA Governor Bullock & Assistant Governor Jones.
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LOOKING AHEAD
- Highlights include Australian MI Inflation Expectations & Employment Data, Comments from RBA Governor Bullock & Assistant Governor Jones.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were choppy and finished mixed following the US CPI data which printed in line with expectations and initially triggered a dovish reaction owing to the lack of upside surprise which boosted December Fed rate cut bets, as well as benefitted bonds and pressured the dollar. However, the initial moves were then reversed as the 'Trump Trade' gathered steam once again which lifted the dollar to YTD highs, weighed on bonds and boosted Bitcoin to briefly above USD 93,000.
- SPX +0.02% at 5,985, NDX -0.16% at 21,036, DJIA +0.11% at 43,958, RUT -0.94% at 2,369.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Musalem (2025 voter) said the Fed may be on the "last mile" to price stability and inflation is expected to converge to the 2% target over the medium term, while he noted recent information suggests that the risk of inflation moving higher has risen and risks to the job market remain unchanged or have fallen. Musalem added that monetary policy is 'well positioned' and the Fed can 'judiciously and patiently' judge incoming data to decide on further rate cuts. Furthermore, he noted monetary policy is to remain 'appropriately restrictive' while inflation remains above 2% and further rate easing is appropriate if inflation continues to fall, as well as noted that the data since the Fed policy meeting suggests the economy may be materially stronger than expected and inflation data is also stronger but has not yet changed the view that policy is on a path to neutral.
- Fed's Schmid (2025 voter) said "it remains to be seen" how much more the Fed will cut rates and where they may settle, while he added that Fed rate cuts to date are an "acknowledgement" of growing confidence inflation is on the path to the 2% goal. Furthermore, Schmid said the baseline of interest-rate cost appears to be higher than people thought a year or two ago.
- Fed's Kashkari (2026 voter) said today's inflation data, on the headline level, seems to be confirming the path the Fed is on, while he currently thinks inflation is heading in the right direction and has confidence in that. Furthermore, Kashkari is not ready to say that inflation is stuck above 2% and wages are definitely trending down, while he is not seeing a lot of upside inflation risks.
- Fed's Logan (2026 voter) said the Fed will most likely need more interest rate cuts, but should proceed cautiously, while it is difficult to know how many rate cuts may be needed and how soon they need to happen. Logan said models show that the FFR could be very close to neutral and if the Fed cuts too far, past neutral level, inflation could reaccelerate. She also said the Fed has made a great deal of progress bringing down inflation and restoring balance to the economy but is not quite back to price stability yet.
- US President-elect Trump is to endorse Mike Johnson as House speaker and picked Matt Gaetz, who is seen as pro-weed, to serve as Attorney General.
- Edison Research projected Republicans are to retain control of the US House.
- Republicans are planning to pass a major tax bill in the first 100 days of the new Trump presidency, according to Punchbowl News.
DATA RECAP
- US CPI YY (Oct) 2.6% vs. Exp. 2.6% (Prev. 2.4%)
- US Core CPI YY (Oct) 3.3% vs. Exp. 3.3% (Prev. 3.3%)
FX
- USD initially saw weakness upon the October CPI report which saw all metrics in line with expectations, with the DXY troughing at 105.71 as Fed pricing saw odds of a December 25bps rate cut rise to ~ 85% from 60% pre-data. However, dollar strength then picked up at the US cash open as a continuation of a Trump trade seemed to offset recent data implications to lift the DXY to a fresh YTD high. There were also a series of remarks from Fed members including Fed's Logan (2026 voter) who said it is difficult to know how many rate cuts may be needed and how soon they need to happen, as well as that models show that the FFR could be very close to neutral and if the Fed cuts too far, past neutral level, inflation could reaccelerate, while Fed's Schmid (2025 voter) said "it remains to be seen" how much more the Fed will cut rates and where they may settle.
- EUR suffered a fourth consecutive daily loss against the greenback and dipped beneath the 1.0600 handle, while there were prior comments from ECB's Villeroy that he expects mores more rate cuts and expects the French Unemployment Rate to increase to ~8% before easing back down to 7%.
- GBP retreated to test the 1.2700 level to the downside where support ultimately held, while BoE's Mann noted it is better for the BoE to lean against the risk that inflation is higher than expected, than to wait and see, as well as noted a readiness to cut rates in bigger steps when inflation risks have gone.
- JPY continued to weaken amid the dollar strength and USD/JPY steadily extended higher following a return above the 155.00 level.
FIXED INCOME
- T-notes settled unchanged and the curve steepened in reaction to inline CPI which saw traders boost bets for a 25bps rate cut in December.
COMMODITIES
- Oil prices were choppy with price action driven by Middle East reports with pressure seen after reports that Iran is postponing the implementation of its response to Israel to open negotiations with Trump although prices later rebounded after Israel's Defence Minister said there is no ceasefire and no arrangement in Lebanon that does not include Israel's right to enforce and act on its own against Hezbollah.
- Private Inventory Data (bbls): Crude -0.8 (exp. +0.1mln), Gasoline +0.3mln (exp. +0.6mln), Distillate +1.1mln (exp. +0.2mln), Cushing -1.9mln.
- EIA STEO sees 2024 world oil output of 102.6mln BPD (prev. 102.5mln) and 2025 output of 104.7mln BPD (prev. 104.5mln), while 2024 world oil demand is seen at 103.1mln BPD (prev. 103.1mln BPD) and 2025 demand of 104.4mln BPD (prev. 104.3mln).
- Russian President Putin and Saudi Crown Prince MBS stressed the importance of OPEC+ cooperation, according to RIA.
- Iran reportedly made plans to keep oil exports stable under a Trump presidency, according to local press Shana.
- A fire that followed a pipeline explosion at a natural gas co. in Venezuela and has forced regions of the country to enforce tougher power rationing was almost completely extinguished on Wednesday, according to Reuters citing three sources.
- Russian Energy Ministry considers the possible lifting of the ban on gasoline exports and notes gasoline prices are stable, according to Ifax.
- Cyprus Energy Minister said they are considering a new licensing round for offshore gas fields dependent on interest and see plenty of demand for gas.
GEOPOLITICAL
MIDDLE EAST
- Iranian sources said Iran is postponing the implementation of its response to Israel to open negotiations with Trump. It was separately reported that Israeli officials stated as of now, the Iranians withdrew from their decision to respond and that Trump's election had an impact on Iran's decision on whether to retaliate, according to Kann News' Stein.
- Israel's Defence Minister Katz said there will be no ceasefire and no arrangement in Lebanon that does not include Israel's right to enforce and act on its own against Hezbollah.
- Israel is reportedly preparing a Lebanon cease-fire plan as a "gift" to US President-elect Trump, according to WaPo.
- Lebanon is reportedly awaiting concrete ceasefire proposals after a senior US official said he saw a shot at a truce soon, according to Reuters citing Parliamentary speaker Berri.
- Hezbollah announced the targeting of a military base in Tel Aviv for the first time with specific drones, according to Al Arabiya. It was later reported that Hezbollah announced the targeting of the headquarters of the Israeli Ministry of Defense and General Staff in Tel Aviv for the second time on Wednesday.
- US Secretary of State Blinken said Israel has accomplished all of the goals it has set in Gaza and this should be a time to end the war.
- There were initial reports of Israeli aggression targeting Syria's Homs countryside, according to Syrian state media.
OTHER
- White House said US President Biden reinforced the need to back Ukraine in the meeting with President-elect Trump.
- Russia's Kremlin said the opening of a US military base in Poland shows American military infrastructure advancing towards Russian borders.
ASIA-PAC
NOTABLE HEADLINES
- China cut taxes for home purchases in fiscal support effective December 1st and the MOF said that tax cuts target boosting the property market, while the China Taxation Bureau announced a land appreciation tax cut effective December 1st.
- US President Biden and Chinese President Xi are to meet on Saturday in Lima, Peru and are expected to 'take stock' of their relationship, while China is taking some steps to help the US combat the global fentanyl crisis. Furthermore, Biden will express concerns to Xi over Chinese support for Russia's war in Ukraine, North Korean deployment in Russia, and Chinese actions in the Taiwan Strait and South China Sea, as well as cyber issues.
- Japan's government is considering restarting electricity and gas price subsidies from January-March.
EU/UK
NOTABLE HEADLINES
- BoE's Mann said headline CPI is not telling us whether underlying inflation dynamics have been vanquished and UK services inflation is pretty sticky. Mann stated it is better for the BoE to lean against the risk that inflation is higher than expected than to wait and see, while she noted a readiness to cut rates in bigger steps when inflation risks have gone.
- UK government plans to leave scrutiny of Shein’s pursuit of a stock listing in London to the country’s financial regulator, according to Bloomberg.
- ECB's Kazaks said the ECB should not deliberately set out to undershoot or overshoot its 2% inflation target and the ECB’s best bet was therefore to aim strictly for 2% at all times so it should continue to follow its current cautious approach, according to Econostream.
- ECB's Nagel said the core inflation rate is still quite high and there are still noticeable price pressures, particularly in services, while he added that Trump's proposed tariffs could cost Germany 1% in economic output.
- German Conservative Leader Merz said a response to Trump's protectionism cannot be protectionism of their own.
