- US stocks were lower on Tuesday in a slight pullback from record levels and cautiousness ahead of US CPI data with the small-cap Russell 2000 lagging as it gave back some of its recent strength post-US election, while sectors closed largely in the red with underperformance in Materials, Healthcare and Real Estate although there was some resilience in Communications, Technology, and Consumer Staples which were the only industries to finish higher. Elsewhere, the Dollar Index extended on its rally to its highest since May and Treasuries continued to sell off as yields climbed.
- USD continued its strengthening trend alongside upside in yields which lifted the DXY to briefly above 106.00 to print its highest level since May. There were several comments from Fed speakers although they had little impact on price action with Barkin suggesting a mixed view ahead on the labour market and inflation, while Kashkari said if inflation surprises to the upside between now and December, that might give them a pause. Furthermore, the NY Fed Survey of Consumer Expectations saw the year-ahead and five-year-ahead inflation expectations tick lower to 2.9% (prev. 3.0%) and 2.8% (prev. 2.9%), respectively, but the 3yr was lifted to 2.5% from 2.3% and the focus now turns to US CPI.
- Looking ahead, highlights include South Korean Unemployment Rate, Japanese PPI, Australian Wage Price Index, Comments from Fed's Harker & Barkin, Supply from Australia & Japan.
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LOOKING AHEAD
- Highlights include South Korean Unemployment Rate, Japanese PPI, Australian Wage Price Index, Comments from Fed's Harker & Barkin, Supply from Australia & Japan.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were lower on Tuesday in a slight pullback from record levels and cautiousness ahead of US CPI data with the small-cap Russell 2000 lagging as it gave back some of its recent strength post-US election, while sectors closed largely in the red with underperformance in Materials, Healthcare and Real Estate although there was some resilience in Communications, Technology, and Consumer Staples which were the only industries to finish higher. Elsewhere, the Dollar Index extended on its rally to its highest since May and Treasuries continued to sell off as yields climbed.
- SPX -0.29% at 5,984; NDX -0.17% at 21,071, DJI -0.86% at 43,911, RUT -1.77% at 2,392.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Barkin (2024 voter) said the Fed is in a position to respond appropriately regardless of how the economy evolves and the US economy looks pretty good, while he added the labour market is resilient and might be fine or might continue to weaken. Barkin said inflation might be coming under control or might risk getting stuck above the Fed's 2% target.
- Fed's Kashkari (2026 Voter) said he does think growth can continue into next year and the economy has been remarkably resilient, according to Yahoo Finance. Kashkari said if inflation surprises to the upside between now and December, that might give us a pause, while his judgement is the Fed is currently 'moderately restrictive' and noted in hindsight, the Fed only put one foot on the brake instead of two.
- Fed's SLOOS stated regarding loans to businesses over Q3 that survey respondents reported on balance, basically unchanged lending standards for commercial and industrial (C&I) loans to large and middle-market firms and tighter standards for loans to small firms, while banks reported weaker demand for C&I loans to firms of all sizes.
- NY Fed's Perli said recent quarter-end money market volatility is not historically large and there is still strong evidence reserve levels remain abundant, while there are no imminent signs of issues for the Fed to implement monetary policy.
- NY Fed SCE October one-year-ahead inflation expectations 2.9% (prev. 3.0% in Sept), three-year-ahead 2.5% (prev. 2.3%), and five-year-ahead 2.8% (prev. 2.9%).
- US President-elect Trump is reportedly expected to try and halt the TikTok ban, according to Washington Post.
- John Paulson dropped out of the running to become Trump's Treasury Secretary, according to WSJ.
FX
- USD continued its strengthening trend alongside upside in yields which lifted the DXY to briefly above 106.00 to print its highest level since May. There were several comments from Fed speakers although they had little impact on price action with Barkin suggesting a mixed view ahead on the labour market and inflation, while Kashkari said if inflation surprises to the upside between now and December, that might give them a pause. Furthermore, the NY Fed Survey of Consumer Expectations saw the year-ahead and five-year-ahead inflation expectations tick lower to 2.9% (prev. 3.0%) and 2.8% (prev. 2.9%), respectively, but the 3yr was lifted to 2.5% from 2.3% and the focus now turns to US CPI.
- EUR was pressured against the firmer dollar which saw EUR/USD test the 1.0600 level to the downside where it found some support and rebounded off lows. There were several ECB speakers including Holzman who said Trump's tariffs will put pressure on EZ inflation and will mean higher US rates which will have an effect on FX, while ECB's Rehn stated the speed of rate cuts will depend on the assessment at each meeting and that they could be leaving restrictive territory in Spring 2025.
- GBP underperformed in which GBP/USD steadily retreated to a sub-1.2800 level after UK labour data showed a larger-than-expected jump in the unemployment rate to 4.3% (prev. 4.0%) and a slowdown in the rate of employment, although wage components came in hotter-than-forecasted. There were also comments from BoE's Pill who adopted a cautious stance towards further policy loosening as he noted more work is to be done on inflation and high levels of wage data, as well as stated that additional rate cuts will be a gradual process.
- JPY remained pressured against the dollar as US yields edged higher which lifted USD/JPY to just shy of the 155.00 territory where it then stalled and pared some of the moves.
FIXED INCOME
- T-notes extended on the recent sell-off in a continuation of the Trump Trade ahead of CPI data.
COMMODITIES
- Oil prices were choppy and settled marginally higher as the initial heightened Middle East rhetoric was offset by the broad dollar strength, while while Israel's Defence Minister Katz had also pushed back against some of the positive commentary regarding Israel and Hezbollah.
- OPEC MOMR (November) noted demand growth for 2024 was revised down 107k BPD to about 1.8mln BPD (Prev. 1.9mln BPD) and the forecast for 2025 was also slightly revised lower.
- BSEE stated 10.5% of oil production in the Gulf of Mexico shut-in due to Rafael (prev. 25.7%) and 3.2% of nat gas shut-in (prev. 13.1%) in the final production notice from BSEE in response to Rafael.
GEOPOLITICAL
MIDDLE EAST
- Israeli PM Netanyahu said in conversations in recent days that they should put the annexation issue back on the table when Trump goes back to the White House, according to sources via Kann News.
- Israeli President Herzog said he had a productive meeting with US President Biden and hopes to see results on some commitments in the foreseeable future including in the next few days.
- US President Biden's advisor Hochstein said in a conversation with reporters at the White House that there is a chance to reach a ceasefire agreement in Lebanon soon, according to Axios.
- US Secretary of State Blinken has decided there will be no change for now in military assistance to Israel following the deadline the US gave Israel regarding the humanitarian situation in Gaza which expires this Tuesday, according to Axios' Ravid citing two US officials.
- Israel reportedly conducted a bombardment with phosphorus bombs on the area of the Litani River in southern Lebanon, according to Sky News Arabia. - Israeli military said it dismantled the majority of Hezbollah's weapons and missile facilities in southern Beirut.
- IAEA director will carry during his visit to Iran an initiative that includes reducing the conflict and ending the escalation in the Middle East in exchange for the lifting of sanctions on Tehran, according to sources cited by Sky News Arabia.
- Yemen's Houthis said they conducted two military operations in the Red Sea and the Arabian Sea.
OTHER
- Chinese Foreign Ministry said they are ready to work with Russia to strengthen communication and coordination.
ASIA-PAC
NOTABLE HEADLINES
- China State Council added two extra days to annual statutory holidays from 2025, according to state media.
- Fitch said China's new fiscal proposals are unlikely to immediately bolster growth.
- France and China have resumed dialogue on the Cognac issue, according to the Cognac association, while it added that China's decision to change the deposit on cognac to a less complex guarantee is a positive step.
DATA RECAP
- Indian CPI Inflation YY (Oct) 6.21% vs. Exp. 5.81% (Prev. 5.49%)
- Indian Industrial Production YY (Sep) 3.1% vs. Exp. 2.5% (Prev. -0.1%)
EU/UK
NOTABLE HEADLINES
- UK is reportedly nearing a free trade agreement with oil-rich Gulf nations including Saudi Arabia, according to Bloomberg sources.
- BoE's Pill said there is still some work to be done on underlying domestic inflation pressure in the UK and that policy has anchored expectations close to the target. Pill noted the latest labour data showed that pay growth is still at high levels, while he stated that additional rate cuts are to be a gradual process.
- ECB's Holzman said Trump's tariffs will put pressure on EZ inflation and will mean higher US rates which will have an effect on FX.
- ECB's Kazaks said US tariffs will not be good for Europe and might push up inflation, while rates are dependent on what's happening in the economy and the base scenario is to lower rates step by step.
- ECB's Rehn said the ECB is data dependent, not data point dependent and the direction of the ECB is clear, while the speed depends on data and they could be leaving restrictive territory in Spring 2025. Rehn later reiterated that the speed of rate cuts will depend on the assessment at each meeting and he sees downside risks to growth and is waiting for the December macro projection for a better view, while he added most of the data is quite weak, particularly in manufacturing.
- Germany's political parties proposed February 23rd as the date for the new election, according to Rheinische Post. It was separately reported that the German Parliament will hold a confidence vote on December 16th, according to Reuters sources.
DATA RECAP
- UK Employment Change (Sep) 219k (Prev. 373k)
- UK ILO Unemployment Rate (Sep) 4.3% vs. Exp. 4.1% (Prev. 4.0%)
- UK Avg Earnings (Ex-Bonus) (Sep) 4.8% vs. Exp. 4.7% (Prev. 4.9%)
- UK Avg Wk Earnings 3M YY (Sep) 4.3% vs. Exp. 3.9% (Prev. 3.8%, Rev. 3.9%)
- German CPI Final YY (Oct) 2.0% vs. Exp. 2.0% (Prev. 2.0%)
- German HICP Final YY (Oct) 2.4% vs. Exp. 2.4% (Prev. 2.4%)
- German ZEW Current Conditions (Nov) -91.4 vs. Exp. -85.9 (Prev. -86.9)
- German ZEW Economic Sentiment (Nov) 7.4 vs. Exp. 13.0 (Prev. 13.1)
- EU ZEW Survey Expectations (Nov) 12.5 (Prev. 20.1)
