Fragile calm returns and Powell’s anti-inflation rhetoric increases
Uncertain about Omicron’s implications, the Federal Reserve chairman injected a particularly hawkish signal into the mix in his testimony before the Senate. These are the two forces that shape the evolution of the market. Travel restrictions were tightened, although the new variant was found in more countries, and it seemed like closing the proverbial barn door after the horses bolted.
The shares were higher. Le, led by and, rose for the first time in four sessions, and Europe recovered more of yesterday’s loss. US futures were trading more than 1% higher.
Benchmark returns were higher. The yield rose four basis points, while remaining below 1.50%. European yields were mostly up 3-5bp, although Italy’s was up 8bp to nearly 1.05%.
The rest were the pivot of the swing, but the funding currencies (,, and) were weaker and the dollar block higher. The dollar retreated against the dollar after approaching 14 TRY yesterday, although President Erdogan’s rhetoric of pushing for even lower rates appeared to have increased.
Emerging market currencies overall were mixed, but the JP Morgan Emerging Market Currency Index was up for the third session in a row to tie the longest advance in nearly three months.
posted a bearish day outside yesterday, but there was no follow-up selling today, and the yellow metal was consolidating inside yesterday’s range. January slipped below $ 65 yesterday and topped $ 69 today before. natural gas prices were firm, recouping most of yesterday’s loss. and prices were also retracing yesterday’s weakness.
China unexpectedly slipped below the 50 expansion / recession level, albeit barely (49.9). It should remain unchanged at 50.6. It had fallen below the 50 mark in August (49.2). Recall that the world’s second-largest economy almost stagnated (0.2% quarter-over-quarter) and seemed to accelerate here in the fourth quarter. Still, many expect the PBOC to provide more stimulus, perhaps in the form of a reduction in reserve requirements, as it did last July. Separately, the authorities seemed to crack down more harshly on the structure of “variable interest entities” that characterizes offshore listings, particularly in the United States.
Japan’s November was revised to 54.5 from 54.2. It stood at 53.2 in October. The world’s third-largest economy was recovering. Australia said it contracted 1.9%, less than the 2.7% contraction predicted by economists (Bloomberg median). Its economy has also recovered. The November manufacturing PMI was confirmed at 59.2 vs. 58.2 previously.
House prices in New Zealand and New Zealand rose last month, but sequentially at a slower pace. To complete this regional snapshot, note that South Korea in November was stronger than expected, indicating robust foreign demand. Exports grew 32.1% year-on-year. Economists (Bloomberg median) expected a rate of 27.2% after 24.1% in October. It was the strongest pace since August. jumped 43.6% year-over-year, which was also more than expected, and follows an increase of 37.7% previously.
The dollar was firm after being sold at its lowest level against the yen yesterday since October 11 (~ JPY112.55). It landed near 113.60 JPY at the end of Asia, which was slightly lower than yesterday’s US high in response to the Fed’s hawkish pivot Powell. However, barring further negative pulses, JPY113 area may offer support again.
It was firm near yesterday’s highs after falling to a new year low yesterday. This low (~ $ 0.7065) approached the retracement target (38.2%) of the Aussie rally from the March 2020 low, near $ 0.5500. A move above $ 0.7080 would raise the technical tone and target the $ 0.7120-0.7150 area.
It initially fell to near CNY 6.36, just ahead of May’s low of the year near CNY 6.3570, before rising to around CNY 6.3720. Resistance can be seen in the CNY6.3750-CNY6.3800 area. The PBOC set the benchmark dollar rate of CNY6.3693. The market (Bloomberg survey) had anticipated 6.3682 CNY.
COVID was on the rise in several parts of Europe, including Germany, before the Omicron variant was sequenced, and things got worse. The economic impact was starting to be felt. The German month of October, which economists expected to recover from a 1.9% drop in September, disappointed with a 0.3% drop. Last November was revised to 57.4 from Flash 57.6 (and 57.8 in October). This is the fourth consecutive decline.
French was revised to 55.9 against a preliminary estimate of 54.6 (53.6 in October). It was the first win since May. Economists were hoping Spain would rise after falling for two months until October. Instead, it fell again (51.1 from 57.4) to sit at its lowest level since March. Italy was the star. It was stronger than expected, rising from 59.7 to 62.8, which represents a new cyclical high. The euro area as a whole edged up to 58.4 from 58.3 in October, but slower than the flash estimate of 58.6. Still, he managed to achieve his first gain since June.
UK November is 58.1, down slightly from the preliminary estimate (58.2). It was at 57.8 in October. This is the second consecutive monthly gain after a drop from June to September. The UK economy grew 1.3% in and is expected to slow to 1.1% this quarter. The implied yield on December 2021 futures fell for eight sessions this week. It has been choppy so far this week, and net-net the return was about 1.5bp higher than late last week. Overnight index swaps implied about a 40% chance of a hike next month.
The euro traded on both sides of Monday’s range yesterday and closed above Monday’s high. However, there was no follow-up purchase today and a tone of consolidation emerged. A move above $ 1.1400 was needed to raise the tone, and that probably won’t happen today. A € 1.2 billion option was concluded there and expires today. The focus was on the downside. So far it has held above $ 1.13 and support was around $ 1.1290.
posted the lowest of the year yesterday, just below $ 1.3200. It stopped just ahead of our target of $ 1.3165, the retracement (38.2%) of the cable rally from the March 2020 low. Its rebound from yesterday’s lows has collapsed nearly $ 1.3330. Note that there is a £ 600million option at $ 1.33 which expires tomorrow.
We argued that the US surprise (6.1%) was a pivotal point for Fed officials, if not a famous dove like Daly from San Francisco. We have also detected a change in rhetoric, and this point was made by Fed Chairman Powell yesterday. He clearly brandished his anti-inflationary credentials.
Powell said the Fed will use its tools to prevent inflation from taking hold. At the same time, he acknowledged that he cannot rate the Omicron now, although that clearly poses a risk. Still, the next FOMC meeting is in two weeks, and by then more information will be known. Powell confirmed that the Fed will discuss the pace of the cut.
While the Fed will stop calling inflation transient, Powell echoed Yellen’s recent assessment that price pressures should ease in H2-22. It should be noted that the short end of the coupon curve sold out, but the long end remained firm. The bond yield slipped to its lowest level since January and flattened 13bp to less than 90bp, the flattest in 10 months.
The North American economic calendar is stuck today. The United States sees. Around 525,000 positions are expected to have been filled, up from 571 in October. Over the past three months, the ADP estimate has exceeded official measures by 23,000 on average. Since the start of the year, the average underestimate is just over 50,000.
November is expected to have increased for the second consecutive month after declining from May to September. The final will also be flagged. Flash reading was the first increase since July. The survey will also be published. It was a bit more resilient than the PMI. At the end of the session, the will be published.
Canada reports October (expected lower after the 4.3% gain in September) and October (57.7 in October).
Mexico reports its surveys and those of the IMEF. The central bank’s inflation report is also expected. Mexico today reports workers’ remittances for October. They averaged $ 4.15 billion per month this year through September. The average for the same period in 2020 was $ 3.33 billion and in 2019 $ 3.03 billion. Note that the average trade deficit this year (through October) is nearly $ 1.2 billion.
After hitting near CAD1.2840 yesterday, its highest level since the September FOMC meeting, the greenback came back offered today. It traded briefly and marginally below yesterday’s CAD1.2730 low. It had to convincingly break below CAD 1.2720 to be of any technical significance. Initial resistance can be seen near CAD1.2780.
The dollar peaked against the late last week near MXN22.1550. It was down for the third session in a row and found initial support around MXN 21.27 today. The MXN21.20 zone was midway through last month’s range. A move above MXN21.40 may indicate that the dollar’s downward correction is over.