The USD index (DXY) shed 0.6% to 107.17 after three days of gains from 106.28. Although the DXY managed to trade above the 107.2 highs seen on 14 and 17 November yesterday, DXY might be establishing a 106-108 range ahead of the long Thanksgiving weekend starting tomorrow. Sentiment improved after the US Treasury 2Y yield eased for the first time in five sessions by 3.8 bps to 4.51%. The 10Y yield dropped 7.1 bps to 3.76%, near the floor of the Fed Funds Rate range of 3.75-4% again.
Today, the FOMC minutes will affirm that the pace of future increases will assess “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Markets have bought into a 50 bps Fed hike to 4% in December but are undecided if rates will peak at 5% in March or 5.25% in May next year. Dow rose 1.2% to 34098, closing above 34000 for the first time since 16 August. S&P 500 and Nasdaq Composite rallied 1.4% each but remained inside their ranges set on 10 November, i.e., 3900-4030 for S&P and 11000-11500 for Nasdaq.
Ironically, the FTSE 100 broke above its 7290-7430 band despite UK recession fears. GBP appreciated 0.5% to 1.1886, recouping Monday’s losses back to last Friday’s close. However, GBP is languishing in the 1.1760-1.1960 range set after its 1.2028 high on 15 November. Last week, the Commodities Futures Trading Commission (CFTC) reported that speculators were still paring their gross short sterling positions to their lowest levels since mid-March, a good sign that UK financial markets were getting over the mini-budget crisis. Moody’s said the Autumn Budget Statement on 17 November delivered the conservatism needed to restore some of the credibility undermined.
With the Budget complementing the Bank of England’s fight against inflation, the 10Y Gilt yield looked past October’s high inflation (11.1% yoy) and eased to 3.137% yesterday from 3.20% last Thursday. With the 2Y Gilt yield also around 3.14% and close to the 3% policy rate, the BOE will need to sound more hawkish to position markets for a 50 bps hike on 15 December. BOE Chief Economist Huw Pill will speak on returning inflation to target today. Chancellor Jeremy Hunt could help the BOE’s cause in his testimony before the Treasury Committee today. Although the household energy price cap was extended another year, the cap would rise from April 2023 to GBP3000 from GBP2500 a year.
USD/SGD fell 0.3% to 1.3778, in line with the weaker USD overnight. However, USD/SGD may have also established a range between 1.3650 and 1.3850 last week. This morning, Singapore downgraded its 3Q22 GDP growth to 1.1% QoQ sa from its advance estimate of 1.5%. The Ministry of Trade Industry narrowed this year’s growth forecast to 3.5% from its earlier projection of 3-4%. In 2023, MTI sees growth slowing to 0.5-2.5% from weaker growth in the world’s largest economies. Later today, consensus expects CPI inflation to slow to 7% YoY (0.2% QoQ) in October from 7.5% (0.4%) in September and core inflation unchanged at 5.3%. The Monetary Authority of Singapore affirmed that its monetary stance was appropriate. At its policy review in October, the MAS forecasted 2023 CPI inflation at 5.5-6.5% after factoring in the GST increase to 8% from 7% effective 1 January and at 4.5-5.5% without factoring it.
Quote of the day
“Don’t tell people how to do things, tell them what to do and let them surprise you with their results.”
George S. Patton
23 November in history
The first smartphone, the IBM Simon, was introduced at COMDEX in 1992.
Topic
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