North American News
US stock markets battered as Powell signals a higher terminal top
- US equities beaten up
Fed chairman Jerome Powell signaled a higher terminal top for rates and also said he wasn’t worried about overtightening.
That completely reversed the dovish hints in the FOMC statement and led to a brutal selloff in stock markets.
- S&P 500 down 96 points to 3759, or -2.50%
- Nasdaq down 3.4%
- Russell 2000 -2.9%
- DJIA -1.5%
- Toronto TSX -0.9%
Federal Reserve hikes rates by 75 bps versus 75 bps expected
- New range of Fed funds is 3.75-4.00% vs prior range of 3.00%-3.25%
- Recent indicators point to modest growth in spending and production
- Repeats that the Committee is highly attentive to inflation risks
- Repeats that ” The Committee anticipates that ongoing increases in the target range will be appropriate”
- Highlights comulative tightening and lags in policy
Powell: Data suggests ultimate level of rates will be higher than previously anticipated
- Comments from the Federal Reserve chairman
- We will not achieve a sustained strong labor without price stability
- We will likely need a restrictive stance of policy for some time
- Price stability is the bedrock of our economy
- US economy has slowed significantly from last year
- Recent data indicates modest growth this quarter
- Activity in housing has weakened
- Jobs market is still extremely tight
- Inflation is still well-above our goal
- Financial conditions have tightened significantly and we are seeing the effects but it will take time for full effects to be realized
- At some point, it will become appropriate to slow the pace of rate increases
- There is ‘significantly uncertainty’
- Incoming data suggests the ultimate level of rates will be higher than previously anticipated
- We will stay the course until the job is done
US ADP October employment +239K vs +195K expected
- US employment data from ADP for October 2022
- Prior was +208K (revised to +192K)
- Forecasts ranged from 150-230K
- Annual pay up +7.7% vs +7.8% prior
Commodities
Gold whipsawed on conflicting FOMC guidance
- The gold price has flipped over on the back of conflicting comments from the Fed’s Chairman Powell.
- The bid that bulls enjoyed following a dovish statement was wipeout by Chair Powell’s hawkish presser.
Gold has dropped back to the start again on the back of hawkish comments from the Federal Reserve’s Chairman, Jerome Powell, that sent the 2-year Treasury yields higher when he said the ultimate rate level will be higher than previously expected. Markets had started to price in a slower pace of rate hikes based on the following from today’s FOMS statement:
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations.”
However, rates shot higher when Powell’s hawkish comments at the presser dropped, sinking gold prices:
- Powell speech: Very premature to be thinking about pausing
- Powell speech: Will likely need restrictive stance of policy for some time
- Powell speech: Longer-term inflation expectations are still well anchored
- Powell speech: Will take time for full effects of monetary restraint to be realized
- Powell speech: Time for slower hikes may come as soon as December or February
OPEC members undershot October target by 1.36mbpd vs 1.32mbpd in September – survey
- Reuters’ secondary sources survey
OPEC October output fell 20,000 barrels per day to 29.71 million barrels per day, according to Reuters’ secondary sources survey.
For October, OPEC+ pledged to cut 100k bpd with 64,000 barrels slated to come from OPEC. They didn’t cut that much but that’s because many countries were far below target and fighting to restore lost barrels. Along those lines, Iraq added 50,000 barrels in the month but is still producing 100,000 bpd below target.
US weekly EIA crude oil inventories -3115K vs +367K expected
- Weekly US petroleum inventory data
- Prior was +2588K
- Gasoline -1257K vs -1358K expected
- Distillates +427K vs -560K
- Refinery utilization +1.7% vs +0.5% expected
- Cushing +1267K
- Production 11.9 mbpd vs 12.0 mbpd prior
- SPR draw of 1.9m
- Implied demand at 20.481 mbpd, down 106K w/w
- Gasoline demand -270K bpd
- Implied mogas demand: 8.66Mbpd
EU News
BoE: MPC decision is increasingly becoming a non-event – TDS
On Thursday, the Bank of England (BoE) will announce its decision on monetary policy. A 75 basis points rate hike is mostly expected by market participants. Analysts at TD Securities look for a 75 bps hike. They consider it could have a small impact on markets.
Key Quotes:
“Despite the period of heightened policy uncertainty, this week’s MPC decision is increasingly becoming a non-event. We, along with the broad consensus, look for a 75bps hike, with a single dissent for a 50bps hike.”
“Markets are well priced for a 75bps hike. We doubt that the BoE is able to provide much certainty ahead of the budget. Thus, we expect Wed evening’s Fed decision to weigh on GBP rates rather than the BoE.”
“A cautious tone is likely to weigh on GBP, reflecting the poor real rate and growth backdrop. With GBP now back to HFFV (near 1.16 – short-term fair value estimate), the short-term fiscal premium has been priced out. In turn, we like selling GBP rallies, consistent with MRSI’s negative bias.”
Other News
The most-telling moment from Powell’s press conference
- A reporter incorrectly told Powell that stock markets were higher
A reporter made a blunder during the press conference but it ended up being the most-revealing moment of the press conference.
He told Powell that stock markets were responding positively to the FOMC and asked Powell about his reaction to that. In fact, markets were decidedly lower when he posed the question.
In any case, Powell didn’t know that and promptly repeated that “we have a ways to go” on rates and “some ground to cover”. Those were the same hawkish words he said in the statement that caused markets to fall.
The implication is that Powell wants stock markets to fall, or at least doesn’t want them to rally. That’s tough to fight.
What’s important now is pegging down the terminal top. Powell erased the current dot plot and said the terminal rate will be higher, while adding that it was still highly uncertain and dependent on data. Previously it was 4.6% and now the market is pricing in 5.07%, which is up from 5.03% before the Fed.
Cryptocurrency News
Deribit loses $28 million worth of cryptocurrencies to a hack
- Deribit, crypto options and futures exchange announced that the platform’s hot wallet was compromised for $28 million on November 1.
- The exchange assured clients that funds are safe and losses are covered by Deribit’s company reserves.
- Deribit has halted withdrawals to third-party custodians Copper Clearloop and Cobo, until all security checks are complete.
Deribit, a crypto futures exchange, lost $28 million worth of cryptocurrencies, in a recent hack on its platform. The exchange has assured users that the insurance fund remains unaffected and losses will be covered from company reserves.
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