- US stocks mostly closed higher on what was a choppy day across markets as sentiment swung between the European and US sessions with initial risk-off trade seen amid heightened geopolitical tensions after Russia’s Kremlin said "Russia reserves the right to use nuclear weapons in an event of aggression" and Ukraine conducted its first ATACMS strike inside Russia. This triggered a flight to quality which underpinned treasuries, gold, the dollar and haven currencies, while stocks and oil sold off, although the moves were then reversed as sentiment improved in US trade.
- USD was choppy with early support seen as a risk-off theme emerged owing to the elevated geopolitical tensions surrounding the Ukraine-Russia war. although as the sell-off in risk assets gradually waned, the buck then faded its advances which left the DXY ultimately flat on the day. Furthermore, there were comments from Fed's Schmid but had little sway on price action in which he noted it remains uncertain how far interest rates can fall and that the initial reductions made by the Fed are a vote of confidence that inflation is returning to its 2% target, while he added that now is the time to dial back restrictiveness of policy.
- Looking ahead, highlights include Australian MI Leading Index, Japanese Trade Data, PBoC Loan Prime Rates, Supply from Australia, Holiday in India.
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LOOKING AHEAD
- Highlights include Australian MI Leading Index, Japanese Trade Data, PBoC Loan Prime Rates, Supply from Australia, Holiday in India.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks mostly closed higher on what was a choppy day across markets as sentiment swung between the European and US sessions with initial risk-off trade seen amid heightened geopolitical tensions after Russia’s Kremlin said "Russia reserves the right to use nuclear weapons in an event of aggression" and Ukraine conducted its first ATACMS strike inside Russia. This triggered a flight to quality which underpinned treasuries, gold, the dollar and haven currencies, while stocks and oil sold off, although the moves were then reversed as sentiment improved in US trade.
- SPX +0.40% at 5,917, NDX +0.71% at 20,685, DJIA -0.28% at 43,269, RUT +0.80% at 2,325
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed's Schmid (2025 voter) said it remains uncertain how far interest rates can fall, though the initial reductions made by the Fed are a vote of confidence that inflation is returning to its 2% target and noted that now is the time to dial back restrictiveness of policy.
- US President-elect Trump picked Howard Lutnick for Commerce Secretary.
DATA RECAP
- US Building Permits Number (Oct) 1.416M vs. Exp. 1.43M (Prev. 1.425M)
- US Housing Starts Number (Oct) 1.311M vs. Exp. 1.33M (Prev. 1.354M, Rev. 1.353M)
FX
- USD was choppy with early support seen as a risk-off theme emerged owing to the elevated geopolitical tensions surrounding the Ukraine-Russia war. although as the sell-off in risk assets gradually waned, the buck then faded its advances which left the DXY ultimately flat on the day. Furthermore, there were comments from Fed's Schmid but had little sway on price action in which he noted it remains uncertain how far interest rates can fall and that the initial reductions made by the Fed are a vote of confidence that inflation is returning to its 2% target, while he added that now is the time to dial back restrictiveness of policy.
- EUR clawed back initial losses and returned to flat territory amid the fluctuations in the dollar with EUR/USD capped by resistance at the 1.0600 level and after inline final HICP data for October.
- GBP conformed to the two-way price action and ultimately flat performance seen in most major peers, while the slew of BoE rhetoric had little sway on the currency ahead of UK inflation data.
- JPY saw an early haven bid which dragged USD/JPY beneath the 154.00 handle before staging a comeback to return to relatively unchanged levels for the day.
- Canadian CPI Inflation MM (Oct) 0.4% vs. Exp. 0.3% (Prev. -0.4%)
- Canadian CPI Inflation YY (Oct) 2.0% vs. Exp. 1.9% (Prev. 1.6%)
FIXED INCOME
- T-notes caught an early bid in a flight to quality on the Russia/Ukraine escalation but then gradually faded the gains as sentiment in the US improved, while data was quiet although showed US Housing Starts and Building Permits missed forecasts.
COMMODITIES
- Oil prices were choppy and settled relatively flat as heightened geopolitical tensions dominated macro newsflow on Tuesday.
- Saudi Aramco and Rongsheng Petrochemical signed a framework agreement to advance Sasref expansion and pave the way for a major petrochemical project.
GEOPOLITICAL
MIDDLE EAST
- US Envoy Hochstein said talks are continuing to narrow the gaps on a ceasefire deal. It was later reported that Hochstein will stay in Lebanon until Wednesday and then go to Israel, while the new wording states that each side has the right to self-defence if attacked, provided the US guarantees that Israel does not carry out pre-emptive strikes.
- IAEA said Iran has agreed to stop producing near bomb-grade uranium and has reportedly agreed with the IAEA to allow experienced inspectors to verify.
OTHER
- Ukraine conducted its first ATACMS strike inside of Russia and a target was successfully hit, according to Ukraine press. Furthermore, Russia’s Defence Ministry confirmed Ukraine hit Russia with ATACMS missiles and said that Russia downed five of the six missiles.
- Russian Foreign Minister Lavrov said in response to Ukraine's attack against Russia's border region with US-made ATACMS missiles that it is a signal they seek escalation, while he noted that Russian President Putin had issued his warnings already and Russia published its updated nuclear doctrine. Furthermore, Lavrov said that Russia's position is that nuclear war will not happen and is convinced that a nuclear weapon is a deterrent.
- Russian Head of National Security Medvedev said Russia may respond with weapons of mass destruction against Kyiv and NATO infrastructure wherever they are located, in response to the reports that Ukraine launched long-range missiles at Russia, according to N12 News.
- US indicated it won't respond to the Russian nuclear doctrine move, according to Bloomberg.
- US will send Ukraine at least USD 275mln in new weapons in a push to bolster Kyiv ahead of Trump, according to AP.
- EU’s foreign policy chief Borrell confirmed that European states have also given Ukraine permission to launch their long-range missiles at Russian territory, according to Visegrad 24.
ASIA-PAC
NOTABLE HEADLINES
- Chinese President XI is to meet German Chancellor Scholz at the G20 summit.
EU/UK
NOTABLE HEADLINES
- BoE Governor Bailey said services inflation is still above the level that is compatible with on-target inflation and the BoE must watch services inflation carefully, while he added that recent evidence is that inflation has been lower than expected, but does not know if that will continue and said a gradual approach to removing monetary policy restraint will help them to observe risks to the inflation outlook. Furthermore, Bailey later said tiering of reserves is not necessary for the BoE to achieve its objectives and would be inconsistent with monetary policy.
- BoE Deputy Governor Lombardelli said they have seen a fall in services inflation and wage settlements, while she sees risks to inflation on both sides and said minimum wages come up as a pressure for more businesses than any other pressure.
- BoE's Mann said forward-looking price and wage indicators have been flat and above target for four months which raises the risk of inflation persistence. Mann said it is important to keep rates on hold and not pursue a gradualist strategy of rate cuts, while she added the current stance of monetary policy is not particularly restrictive.
- BoE's Taylor said disinflation is unfolding as we should expect and there is a wide range of possibilities for BoE rate cuts which depends on how data unfolds. Taylor also said that QE is a tool that needs to be there for a crisis and that QT is moving the BoE in a healthy direction compared to the past.
- ECB's Muller said he does not see a reason to move in bigger steps right now.
- ECB's Panetta said the ECB should move to a neutral monetary stance, or expansionary if necessary and that the forthcoming change in the US government adds uncertainty to the inflation outlook. Panetta said they are still a long way from the neutral rate and the ECB needs to give more explicit indications of its policy rate intentions, while he later commented that it is not "blasphemy" that rates could go below the neutral level.
- Bundesbank said the German economy is to stagnate in Q4 and negotiated wages likely peaked in Q3.
DATA RECAP
- EU HICP Final MM (Oct) 0.3% vs. Exp. 0.3% (Prev. -0.1%)
- EU HICP Final YY (Oct) 2.0% vs. Exp. 2.0% (Prev. 2.0%)
