DXY closed the session 0.7% higher at 106.66 after its initial drop to 105.32. The Fed speakers on Monday did not focus on slowing the pace of hikes. They were united in hammering home the message that the Fed has some ways to go before deciding where and when to hike rates.Cleveland Fed President Loretta Mester was more worried about doing too little rather than too much to bring down inflation. San Francisco Fed President James Bullard believed that bringing down elevated inflation to its 2% target required rates to be restrictive at 5-7%. New York Fed President John Williams warned that the Fed’s determination to control inflation could lift the unemployment rate from the latest 3.7% level to 4.5-5% in 2023. Today, Fed Governor Lisa Cook will likely join them in setting the stage for Fed Chair Jerome Powell’s speech tomorrow.
Hence, attention will fall on Thursday’s US PCE deflators and Friday’s monthly jobs report. Consensus expects November’s headline and core inflation to slow to 6% YoY (vs 6.2% previously) and 5% (vs 5.1% previously), respectively, still high above the 2% target. Nonfarm payrolls are expected to drop to 200k in November from 261k in October. The unemployment rate is seen unchanged at 3.7%. Today, consensus expects the Conference Board’s consumer confidence index to drop to 100 in November from 102.5 the previous month. The US consumer was less complacent about the availability of jobs and the business outlook in the October survey. With the Fed pushing back against any pivot and reinstating its willingness to risk a recession to control inflation, markets will need to reassess if bad news will still be good news.
The Fed’s narrative on Monday arrested the slide in the US Treasury 10Y yield at 3.62%. Although the yield returned to 3.68%, just above Friday’s close, it has yet to rise above the Fed Funds Rate, presently at 3.75-4%. Risk appetite will matter. So, pay close attention to the US stock market futures. Commodity and European currencies will be volatile with a downside bias. EUR, GBP, and NZD are back below 1.04, 1.20, and 0.62, respectively, while AUD aborted an attempt to test the 0.68 level. Stay defensive in the export-led Asian currencies where the protests in China over the Covid-Zero policy are dampening investor sentiment. According to our model, the SGD NEER has retreated from the top towards the mid-point of its policy band, consistent with the worries over the slowing global economy next year.
Quote of the day
“Your attitude, not your aptitude, will determine your altitude.”
Zig Ziglar
29 November in history
The first US patent for inventing the traffic lights system was issued in 1910.
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