DXY depreciated a third session by 0.5% to 102.7, its lowest close since 10 August. The 10Y US Treasury yield fell for a second session by 6.6 bps to 4.32%, breaking its 100-day moving average to its lowest since 18 September. The Dow, S&P 500, and Nasdaq Composite rose 0.2%, 0.1%, and 0.3%, respectively. Expectations have increased for Fed Chair Jerome Powell to support another rate pause this Friday. Tomorrow’s US PCE deflator should mirror CPI inflation in slowing to 3% YoY (0.1% MoM) in October from 3.4% YoY (0.4% MoM) in September and PCE core deflator to 3.5% YoY (0.2% MoM) from 3.7% YoY (0.3% MoM).
Fed Governor Christopher Waller fueled the dovish sentiment with his increased confidence that policy was well-positioned to slow the US economy and get inflation back to the 2% target. New York Fed President John Williams called the decline in inflation encouraging, but that has been something he has been saying. Chicago Fed President Austan Goolsbee highlighted this year’s fall was the most significant drop in 71 years. Waller attributed the disinflation mainly to an easing of post-pandemic supply chain disruptions. Waller reckoned that financial conditions were still tight despite the recent decline in bond yields which he said were high vs. levels in mid-2022. Waller’s tone was shaped by the slide in CPI inflation to 3.2% YoY in October from 3.7% in September. The next CPI report will be out on the first day (12 Dec) of the FOMC meeting.
However, Fed Governor Michele Bowman cautioned that the market’s tightening cannot substitute monetary policy to achieve the Fed’s mandate. Bowman did not change her longstanding position that interest rates may need to rise again if incoming data indicated that the progress on inflation has stalled. Despite the surge in the 10Y US bond yield in May-October, the increase in the FHFA House Price Index accelerated a fourth quarter to 2.1% QoQ sa in 4Q23 vs. 1.9% in 2Q23 and 0.9% in 1Q23. Consumer confidence rose again to 102 in November after falling three months to 99.1 in October, in line with this month’s stock market rebound and lower bond yields. Initial jobless claims also stopped climbing on a 4-week moving average basis. Let’s see if claims surprise on the downside tomorrow. Consensus is already anticipating a recovery in next week’s nonfarm payrolls to 175k in November after the larger-than-expected plunge to 150k in October.
In the end, Powell’s comments this Friday will be important in balancing the views of his Fed colleagues and setting the tone for the Fed’s blackout period next week. He will probably agree that the progress on inflation has been encouraging but will need more evidence before declaring victory, and least of all endorsing a dovish pivot.
Quote of the day
“"In my view, given potential structural changes in the economy, such as higher demand for investment relative to saving, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic.”
Fed Governor Michele Bowman, 28 November 2023
29 November in history
The Meiji Restoration went into effect in Japan in 1890.
Topic
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.