North American News
Federal Reserve Chair Powell Casts Doubt as US Stock Indices Snap Winning Streaks
- Major US stock indices close lower, snapping winning streaks, as Fed Chair Powell expresses doubt about the effectiveness of current policies. Yields rise, USD strengthens, and other markets fluctuate.
The major US stock indices are closing lower.In doing so, both the S&P and the NASDAQ index snapped winning streaks of 9 and 8 days respectively. Nevertheless, those were the longest streaks going back to 2021. It wasn’t a bad run.
A snapshot of the closing levels shows:
- Dow industrial average -220.61 points or -0.65% at 33891.67
- S&P index -35.48 points or -0.81% at 4347.31.The high price reached 4393.40. That got within 9 points of its 100-day moving average of 4402.05
- NASDAQ index -128.98 points or -0.94% at 13521.44
A snapshot on yield levels currently shows:
- 2-year yield 5.041% +10.5 basis points
- 5-year yield 4.659% +13.4 basis points
- 10-year yield 4.639% +13.2 basis points
- 30-year 4.776% +12.0 basis points.
US treasury auctions off $24 billion of 30 year bonds at a high yield of 4.769%
- WI level at the time of the auction 4.716%
US Treasury auctioned off $24B of 30-year bonds
- High Yield 5.769%: 6-auction average 4.155%, prev. 4.837%
- WI level at the time of the auction: 4.716%
- Tail 5.3 basis points: 6-auction average 0.9bps, prev. 3.7bps
- Bid-to-Cover 2.24X: 6-auction avg. 2.44x, prev. 2.35x
- Dealers 24.73%: 6-auction avg. 12.7%, prev. 18.2%
- Directs (a measure of domestic demand) 15.16%: 6-auction avg. 18.6%, prev. 16.7%
- Indirects (a measure of international demand) 60.11% : 6-auction avg. 68.6%, prev. 65.1%
- Tail of 5.3 basis points
- The bid to cover is below the 6 month average
- The dealers are stuck with 24.73% well above the 6 month average of 12.7%
- Directs – a measure of domestic demand – was well below the 6 month average
- Indirects – a measure of international demand – was well below the 6 month average
30Y auction: biggest tail on record
US weekly initial jobless claims 217K vs 218K expected
- Jobless claims for the week ending November 3
- Prior initial claims 217K (revised to 220K)
- Continuing claims 1.834m vs 1.820m expected
- Prior continuing 1.818m
SoftBank books another quarterly loss, as investment hits offset Arm
- SoftBank books another quarterly loss, as investment hits offset Arm
Its Vision Fund investment unit, meanwhile, booked an investment profit of 21.4 billion yen in the latest quarter, having made a 160 billion yen profit three months earlier.
The net loss at group level of 789 billion yen compares with a 3.01 trillion yen profit a year earlier when it sold down a large portion of its stake in Chinese e-commerce giant Alibaba.
Goldman Sachs ramp up optimism on economy – low recession risk, lower inflation, rate cuts
Goldman Sachs say they are becoming more and more confident the US will avoid a recession:
- We continue to see only limited recession risk and reaffirm our 15% US recession probability. We expect several tailwinds to global growth in 2024, including strong real household income growth, a smaller drag from monetary and fiscal tightening, a recovery in manufacturing activity, and an increased willingness of central banks to deliver insurance cuts if growth slows
- The global economy has outperformed even our optimistic expectations in 2023. GDP growth is on track to beat consensus forecasts from a year ago by 1pp globally and 2pp in the US, while core inflation is down from 6% in 2022 to 3% sequentially across economies that saw a post-covid price surge.
- More disinflation is in store over the next year.Although the normalization in product and labor markets is now well advanced, its full disinflationary effect is still playing out, and core inflation should fall back to 2-21/2% by end-2024.
- Most major DM central banks are likely finished hiking, but under our baseline forecast for a strong global economy, rate cuts probably won’t arrive until 2024H2.When rates ultimately do settle, we expect central banks to leave policy rates above their current estimates of long-run sustainable levels.
TD foresees a regime change for the US dollar
- TD Securities predicts a decline in the USD’s strength due to economic indicators suggesting a moderation in US economic growth, leading to a rally in Treasuries. This regime shift in the USD could have far-reaching implications for global currency markets.
Key Points:
- Economic Data Indicating Slowdown: Recent data such as payrolls, ADP employment, JOLTS job openings, and durable goods orders collectively suggest an easing in the US economy’s expansion pace.
- Bonds and Currencies React: These economic signs have sparked a significant rally in US Treasury bonds and catalyzed a depreciation of the USD, particularly benefiting risk-sensitive, high beta currencies.
- Shift in USD Dynamics: TD Securities identifies a clear regime shift for the USD, pointing towards a trend reversal from its previously robust position.
Conclusion:
TD Securities anticipates the ‘USD lower’ trend to persist, with fewer risk events to disrupt this movement. The observed moderation in key economic indicators underpins a notable regime change, hinting at a reversal of the USD’s fortunes, with potentially far-reaching implications for global currency markets.
Powell: We are not confident that we’ve achieved sufficiently restrictive policy
- Hawkish stuff from Powell
- If it becomes appropriate to tighten policy further, ‘we will not hesitate’
- We will continue to move carefully, decide meeting by meeting
- Attentive to risk that stronger growth could undermine inflation progress, which could warrant a monetary policy response
- We expect GDP growth to moderate in coming quarters, but remains to be see
- Labor market tight, but coming into better balance
Powell Q&A: US economy has been stronger than expected this year
- Powell Q&A: US economy may be structurally more-resiliient to higher rates but I don’t see evidence yet
- Economy has been ‘remarkable’
- US economy may be structurally more-resilient to higher rates but I don’t see evidence yet
- It’s hard to draw a ‘direct line’ from things like higher bond yields to a monetary policy response
- The Fed is “not going to ignore” a significant bond tightening, but do not have to make a decision now
- There are many candidate explanations for higher bond rates, says there are 5-6 good ones
- We won’t ignore higher yields but don’t have to make a decision now
- The bigger mistake is not getting rates high enough
Fed’s Paese: Too soon to rule out further US rate hikes
- Kathleen O’Neill Paese is the interim St Louis Fed President
- Central bank still has time to decide next step
- Watching 10-year yield for signals on financial conditions
- Too soon to declare victory on inflation
- Local contacts report better balance in jobs market
- Not sure public expectations are aligned with likely Fed policy path
Fed’s Barkin: I don’t see us as done yet
- Comments from Barkin
- Whether more is needed from the Fed remains to be seen
- We are making real progress on inflation
- The job isn’t done, inflation remains too high
- Not yet convinced inflation on a smooth glide path to 2%
- Weill need economic slowing to beat inflation
- Any downturn will be less severe than past recessions
- I have a hard time declaring ‘sufficiently restrictive’ at any point in time
- Long-term rates have loosened but I don’t think of them as a policy variable or equate them to rate hikes
- A return to elevated inflation would mean we need to look hard if we need to do more
- Core issue on whether another rate hike is needed is inflation
- I anticipate more disinflation on goods
Fed officials Bostic and Barkin: Policy is restrictive. Anecdotal evidence challenges GDP
- Atlanta Fed’s Bostic suggests policy stance is restrictive while Richmond Fed’s Barkin highlights wide range of economic outcomes. Anecdotal evidence contradicts GDP report, sparking belief in necessary economic slowdown to address inflation.
Both Atlanta Fed’s Bostic and Richmond Fed’s Barkin are participating in a fireside chat. Some comments:
- Fed’s Bostic (2024 voter) suggests the current policy stance is likely sufficiently restrictive.
- We will remain restrictive until we’re sure about 2% inflation
- Fed’s Barkin (2024 voter) highlights a wide range of possible economic outcomes.
- Anecdotal evidence contradicts the latest GDP report.
- There’s a belief that an economic slowdown is necessary to address inflation.
- Barkin: Not seeing full effect of rate hikes
Fed’s Goolsbee Says Fed Will Need to Monitor Risks of Overshooting on Rates
- Fed’s Goolsbee Says Fed Will Need to Monitor Risks of Overshooting on Rates
A sustained rise in long-term rates can ‘have a very substantial effect on real economic performance,’ the Chicago Fed president says
- “The historical evidence suggests that long rates, even more than short rates, have a very substantial effect on real economic performance in a number of predictable areas —construction, investment, consumer durables,”
- “If that is sustained, the Fed will have to think about the tightening impact of those credit conditions on economic performance, and would there be dangers of overshooting.”
Fed’s Harker says FOMC will stay higher for longer, no sign of near-term rate cuts
Federal Reserve Bank of Philadelphia President Patrick Harker:
- Says he supported the steady interest rate stance at latest FOMC meeting
- Fed will stay higher for longer, no sign of near-term rate cuts
- Now is a time to take stock of past rate hikes’ impact
- Next Fed rate choice “could go either way” depending on the data
- Labor market is moving into a better balance
- Unemployment rate to rise to 4.5% in 2024 before falling
- Confident consumers will help achieve a soft landing
- Unclear yet whether consumers have expended spending power
- No recession seen, but growth is likely to cool off
- Inflation steadily falling, to hit 3% in 2024, 2% after
The two factors helping the Federal Reserve cruise to a soft landing for the US economy
Bank of Montreal have previewed next week’s US CPI data, due on Tuesday November 14 at 1330 GMT (0830 US Eastern time):
- the latest slide in U.S. oil prices follows a serious run at the $100 figure in September. Rising OPEC exports, a large build in U.S. crude stocks, and concerns about China’s economy have taken the shine off black gold.
- Meantime, gasoline prices are mining eight•month lows.
- The slide in fuel costs has two important economic effects. They support spending, providing resilience in the face of high interest rates. And, they reduce inflation, with next week’s CPI report likely to see the headline rate dip back into the low-3s.
- Together with an upturn in productivity, the Fed couldn’t have asked for much more to help it achieve a soft landing.
BOC’s Rogers: Canadians are feeling some pressure as they adjust to higher rates
- Comments from the BOC Deputy
- It’s easy to see a world where rates are persistently higher
- It’s important for people and businesses to adjust to a potentially higher-rate environment
- Adjusting early and bit by bit lowers the risk of abrupt steps later
- Adjustment to higher rates is well underway globally, there is less wiggle room for the global financial sector in the event of a shock
- Canadians are adjusting as they feel some pressure and juggle effects of inflation and higher rates
- Data suggest most Canadian businesses can service existing debt as servicing costs rise and revenue growth slows
- Bank is watching high levels of fixed-payment mortgage debt, given that 60% of mortgages holders must renew by end-2026
- Most mortgage holders still expect they can deal with higher payments when they renew
- BOC is not yet talking about reducing rates
- BOC is not yet talking about reducing rates
- Does expect house prices will likely come off a bit more
Commodities
Gold shines on upbeat mood, soft US jobs data
- Gold prices rebound sharply from weekly lows, marking a 0.43% increase as traders digest the latest U.S. jobless claims report.
- A divided Federal Reserve and the anticipation of Chairman Powell’s speech keep investors on edge, with a dovish tilt currently in the lead.
- The geopolitical tensions contribute to the safe-haven asset’s appeal.
Gold rebounds in early morning trading during the North American session, bounces from weekly lows of $1944.80, prints solid gains of 0.43%, and exchanges hands at $1958.00.
WTI remains stuck on the low end as US Crude Oil production hits all-time high
- Crude Oil saw a minor relief bid on Thursday before getting pushed back down.
- WTI ticked into $77.00 before slipping back to $75.00.
- US hits all-time highs on Crude Oil production.
WTI Crude Oil continues to get pushed into recent lows as barrel bids struggle to find the floor on bearish price pressures.
WTI climbed Thursday, recovering the $77.00 handle before getting pushed back down towards $75.00 in the back half of the trading day. The overarching market narrative of chronic undersupply that has been shooting through energy markets are running up against a hard barrier as reality sets into Crude Oil markets; despite strategic, long-running cuts from oil-producing nations, expectations of global undersupply are failing to materialize.
A lack of a surge in Crude Oil demand is certainly helping things as China’s economy recovery continues to falter and oil demand remains much more tepid than most investors expected, but the US also hit an important milestone this week.
UBS bullish oil – forecast Brent crude toward $100 / barrel, potential for $110
Brent crude has dropped under USD 80 / bbl for the first time since prior to the conflict in the Middle East.
UBS remain positive on oil, expecting it to move back between USD 90 and 100. In summary from their note:
- still rising global demand
- still tight supplies
- US Energy Information Administration expects domestic petroleum consumption to fall by 300,000 barrels per day in 2023
- elsewhere … positive demand signs … China has stepped up stimulus measures, stronger growth likely to boost energy demand … oil consumption in India is also rising …OPEC forecasts demand to grow by more than 2 million barrels per day in 2024 …International Energy Agency is forecasting growth of 800,000 barrels a day
- Key oil producers have remained disciplined on production, keeping supply tight (Saudi Arabia and Russia say their extra supply cuts will be kept in place for December) … We believe these voluntary supply cuts are likely to be extended into the first quarter of next year
UBS flag the potential for $110 / bbl
- the risk of a disruption to oil production arising from the Israel-Hamas war has not gone away. Our base case is that the conflict will not escalate. However, events in the region remain fluid. The clearest threat is to Iranian output.Should Iranian crude exports fall by around 300,000–500,000 barrels per day, this could further constrain the already undersupplied market, potentially pushing Brent prices up to USD 100–110/bbl
Russia is considering lifting an export ban on some grades of gasoline
News report overnight citing Russia’s Interfax news agency quoting Energy Minister Nikolai Shulginov.
- Russia is considering lifting an export ban on some grades of gasoline
- Ai 92 and Ai 95 gasoline
EU News
SNB Schlegel speaks on bank liquidity and risk
SNB Schlegel is on the wire saying:
- Banks need to better prepare collateral in the future to obtain emergency liquidity from central banks.
- It is crucial to slow the speed at which deposits can be withdrawn.
- Credit Suisse received the largest amount of liquidity assistance ever provided to a single bank worldwide.
- Liquidity assistance alone would not have resolved the crisis
Economist poll now sees the Bank of England cutting rates in Q3 2024
- BOE cuts seen in the third quarter now
Reuters is out with a poll of UK economists and they now see a soon start to the BOE rate cutting cycle.
The next BOE meeting is on Dec 14 and 68 of 69 economists see no change in the 5.25% with one seeing a 25 bps cut.
Where the poll gets interesting is in Q2 where 24 of 62 economists now see a cut; that rises to a majority in Q3. Moreover, the median sees 50 bps of cutting in Q3 compared to just 25 bps in a poll last month.
Markets see a 50% chance of a cut in June and a cut is fully priced in for the August 1 meeting with a second cut priced in for November and a good chance of another in December, totalling 62 bps of easing priced in.
German Govt agrees on electricity price package
- Chancellor Scholz, Economics Minister Habeck and Finance Minister Lindner have agreed to relieve companies of electricity costs. The electricity tax should fall significantly.
Chancellor Scholz, Economics Minister Habeck and Finance Minister Lindner have agreed to relieve companies of electricity costs. The electricity tax should fall significantly.
The electricity tax reduction will now cost six to seven billion euros.
Special help is planned for 350 companies that consume a particularly large amount of electricity and face strong international competition.
For them, the electricity price compensation will be extended by five years.
ECB’s Centeno: We are at a plateau in terms of interest rates
- Comment from the governing council member
- Monetary policy is working and helping inflation to come down
ECB’s de Guindos: Any Discussion of Rate Cuts ‘Clearly Premature’
- ECB’s de Guindos asserts that discussing rate cuts is premature, echoing ECB President Lagarde’s stance. Current interest rates will be maintained to reach the inflation target.
- ‘We are not there yet. We will see how things evolve month by month, but our approach now is to keep interest rates at this level long enough to reach our target.’
- ‘Any discussion about lowering interest rates is clearly premature’, he added, echoing ECB President Christine Lagarde following the ECB’s October decision to keep interest rates.
- ‘[W]e believe that, if interest rates are maintained at their current levels, inflation will continue to fall and converge towards our target’
- ‘Our most recent projections indicated some downside risks to growth; some of these risks have now started to materialise and this will have an impact on inflation’,
- ‘It might be premature to say it, but leading indicators point to the growth outlook being somewhat more negative than we previously projected’
- ‘As regards inflation, the evolution may not be very different from what we projected in September.’
ICYMI – Former ECB President Draghi says a eurozone recession is almost sure to happen
Former European Central Bank President, and former prime minister of Italy, Mario Draghi was cited in a report on a conference organised by the Financial Times.
The FT is gated but other news services have picked up the main points made by Draghi:
- euro zone is nearly certain to experience a recession by the end of 2023
- “The starting point of this recession is pretty high — we never had such low unemployment,”
- “So we may have a recession, but maybe it is not going to be destabilizing.”
Comments were also reported from Belgian central bank governor Pierre Wunsch:
- acknowledged the impact of tighter monetary policy
- said that growth risks are “tilted to the downside.”
- euro zone is “entering some weak form of stagflation”
Other News
China’s largest bank hit by ransomware attack that may have disrupted Treasury market
- ICBC hit by ransomware attack
The FT reports that the Industrial and Commercial Bank of China was hit by a ransomware attack that may have disrupted the US Treasury market.
The report says ICBC was prevented from settling bond trades on behalf of others. It’s a worrisome attack at China’s largest bank, though reports say that it’s starting to restore services.
China October CPI -0.1% m/m (vs. expected +0.0%)
- China CPI and PPI data for October 2023
Inflation data from China doesn’t dispel any of the fears of deflation. CPI fell m/m, by a tiny 0.1% admittedly. Still while many consumers across the world grapple with ‘cost of living’ worries Chinese consumers won’t be complaining. The low inflation rate means authorities will not have to factor in rising prices to their considerations.
- PPI m/m 0%
China’s National Bureau of Statistics (NBS) says declining inflation during the month was mainly caused by softening food prices,
- food prices -4.0% in October
- contributing around -0.75% to the headline drop
Goldman Sachs Boosts China Growth Forecast to 4.8%, Citing Government Easing Measures
- Goldman Sachs raises 2024 China growth forecast to 4.8%
(Reuters) – Goldman Sachs has raised its forecast for China’s economic growth next year as the bank’s economists expect the Chinese government to “step up easing materially” in the coming months, the investment bank said in a note on Thursday.
Citi boost 2023 China growth forecast well above 5%: economy has hit its cyclical trough
Citi has published a note from global chief economist Nathan Sheets. Its wide-ranging comments on China.
In brief:
- The forecast for China’s 2023 growth has been boosted from 4.7% to 5.3%
- 2024 forecast unchanged at 4.6%
- notes early signs that the Chinese economy has reached a cyclical trough, with consumer spending looking like it’s climbing back and those consumers likely having ample savings to support a further cyclical bounce
- actions taken by the People’s Bank of China have helped put a floor under the ailing property sector as well as providing more general support
- But … China’s deeper structural challenges, which begin with elevated indebtedness and the need to make household consumption a more central part of the growth process and extend to challenging demographics and geopolitical tensions with the United States
Japan lobby head urges BOJ to normalise policy to live with interest rates
- Japan lobby head urges BOJ to normalise policy to live with interest rates
Takeshi Niinami, chairman of Keizai Doyukai, who also heads Suntory Holdings Ltd, said the Bank of Japan “must normalise” monetary policy so that it could help weed out incompetent firms and facilitate labour turnover towards growth industries.
- “The BOJ must make a move,”
- “There must be quite a lot of political reservation about completely abandoning them,”
- “That’s why the BOJ may be thinking it would be better off falling behind the curve.”
- “That should be taken as a message that the BOJ is leaving the YCC behind gradually,”
- “If it’s unwound all at once that would cause ripple effects though.”
Bank of Japan Governor Ueda says when CPI sustainably hits 2% wages likely to be rising
Bank of Japan Governor Ueda
- Companies becoming more active in raising prices, wages than before
- Whether wage hikes will broaden and become embedded in society, firms begin to hike prices on prospects of rising wages, will be key to judging whether inflation target will be met sustainably
- When inflation sustainably hits 2%, wages are likely to be rising at around the same pace or higher
- We will maintain negative rate, ycc framework until sustained achievement of 2% inflation comes into sight
- In what order we will end these policies will depend on economic, price developments at the time of an exit
Ex-BOJ official says BOJ may end negative rates in January
Former executive director in charge of monetary policy during the pandemic (and also once head economist at the Bank of Japan) Eiji Maeda. Maeda spoke with Reuters in an interview on Wednesday.
- says the BOJ may end its negative interest rate policy in January
- may then raise short-term rates in stages, if the economy can weather risks from overseas uncertainties
- says the “surprisingly big” upgrade in inflation projections at the October meeting meansinflation is already on course to sustainably hit the BOJ’s 2%target
- BOJ could revise up its price forecasts again in January
- Such a revision would would allow the Bank to end negative short-term rates
- “There’s a chance the BOJ could end negative rates as early as January next year, if it judges that inflationary pressure isheightening,”
- “The BOJ could also end yield curve control.In doing so, it may put in place a guidance pledging to buy government bonds nimbly to counter any spike in long-term rates,”
- “After pushing short-term rates to zero from negative territory, the BOJ could raise interest rates gradually in a pace of once every few months with a close eye on economic and price developments,”
Cryptocurrency News
Ethereum price breaks past $2,000 as BlackRock hints at filing for spot Ether ETF
- BlackRock iShares has registered the Ethereum Trust in Delaware, hinting that a spot Ether ETF could be next.
- The asset manager followed the same route when filing for a spot BTC ETF, registering the iShares Bitcoin Trust a week earlier.
- Ethereum price is up almost 10% on the news, breaking past the $2,000 psychological level.
Ethereum has shot up, breaking past key barricades as ETH shows strength. This time, the breakout has nothing to do with Bitcoin (BTC), with the largest altcoin by market capitalization following its own mania amid recent developments in the institutional crypto space.
Ethereum price shatters $2,000 on BlackRock iShares news
Ethereum has breached the $2,000 barricade and then some, stretching high to revisit levels last tested in April.It comes after reports that BlackRock, which boasts almost $10 trillion in assets under management, has registered the iShares Ethereum Trust in Delaware.
Bitcoin crashes 8%, wiping out $1 billion in open interest
- Bitcoin price peaked above the $38,400 level, wiping out $1.56 million worth of shorts.
- Shorts were squeezed and longs are trapped, leading to around $1 billion in open interest wiped out.
- It comes a day after Bloomberg’s James Seyffart reinvigorated the market with prospects of a spot BTC ETF approval within eight days.
Bitcoin has been nothing but volatile on Thursday. BTC surged higher via a short squeeze and countered with a long squeeze shortly after, leaving perpetual traders wrecked as BTC speculators front-run a spot Bitcoin exchange-traded fund (ETF) approval from the SEC.
Bitcoin wrecks perps as BTC speculators front-run ETF approval
Bitcoin (BTC) price soared almost 8%, sprinting past the $36,000 and $37,000 psychological levels to record an intra-day high above $38,400.This was in favor of longs as more than $1.56 million in short positions were liquidated. However, the elation was only momentary before the markets crashed, with the king of crypto spiraling almost 5% lower. The long squeeze liquidated up to $17 million worth of long positions, with approximately $1 billion in open interest wiped out in only hours.
Bitcoin has moved higher again today – ETF excitement cited
The price of crypto has been underpinned in recent weeks by the expectation that approval for Bitcoinexchange traded fund (ETF) applications by the US Securities and Exchange Commission is imminent.Or at least in the days and weeks ahead.
Analysts are speculating that starting from today, November 9, the SEC has a timewindow to approve all 12 spot Bitcoin ETF filings.This includes the Grayscale conversion of its GBTC trust product to a fund.The window is said to last until November 17. As with this whole (potential) approval saga the time window is not set in concrete but its a possibility.
In a nutshell, analysts cite their reasoning as being that the SEC set November 8 as the last day of the comment period when it extended the deadline for a number of pending spot Bitcoin ETF filings.
This seems to be rather thin but the whole process has been devoid of much substance.
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