DXY appreciated a second day by 0.1% to 106.8. The DXY’s correction on Tuesday was shallower at 106.1 compared to 105.3 on Monday. The S&P 500 index shed another 0.2% while the US Treasury 10Y yield recovered to 3.74% from 3.65% during US session. Fed Chair Jerome Powell will share his thoughts on the economy and labor market at the Brookings Institute today. The Fed’s narrative has turned from paving the ground for a smaller 50 hike in December to emphasizing that the latest fall in CPI inflation was not enough for the central bank to lower its commitment to control inflation.
Tomorrow, November’s PCE deflators should see headline and core inflation at 6% (consensus) and 5%, respectively, well above the 2% target. Although the Fed did not rule out a recession, the market has been pushing for a hard landing and rate cuts next year. Powell will stress that rates will only pause in 2023 and remind markets that the Fed has yet to start an internal debate on where and when rates will peak. Powell should reaffirm the Fed’s intention to lift the 2023 target for rates from the 4.6% pencilled in September in next month’s Summary of Economic Projections.
Meanwhile, the Conference Board’s consumer confidence index slowed to 100.2 in November, less than the consensus for a fall to 100 from 102.2 (revised from 102.5) in October. Although US consumers were less optimistic about the business outlook, the number of respondents who thought that jobs were plenty was 3.5 times more than those who thought that jobs were hard to find. Today, consensus expects JOLTS job openings to fall to 10.25 million in October from 10.72 million in September. Even so, the openings were still significantly higher than pre-Covid levels. Similarly, the Fed will not be overly concerned about today’s ADP private nonfarm payrolls falling to 200k (consensus) in November from 239k or Friday’s nonfarm payrolls by the Bureau of Labor Statistics dropping to 200k from 261k for the corresponding months.
Our view has stayed the same. If Powell realigns the market to the Fed’s rate trajectory, the UST 10Y yield should rise above 4% again and pull the USD higher.
Quote of the day
“I haven’t eaten at a McDonald’s since I became President.”
Bill Clinton
30 November in history
President Bill Clinton signed the Brady Gun Control Bill in 1993.
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