With the dovish effects of the Fed, the rise of currencies against the dollar continues. China faces record covid-19 cases.
The dollar index capped its decline after the Fed’s meeting minutes were released. While some FED members think they will face higher interest rates, the majority of the committee agrees that rate hikes could slowdown. The CME FedWatch Tool is priced 50bps rate hike in December meeting with the probability of 76%.
China announced the highest number of Covid-19 cases as of yesterday. Major cities began to be closed as part of quarantine measures. This situation has started to raise the fear of covid in the world again. While the market was trying to get away from the fear of recession, these data from China caused the focus on the possibility of recession again.
In addition, interest policy continues to be discussed on the Eurozone side. Member of the ECB’s Executive Board Isabel Schnabel noted that they would need to raise interest rates further, probably into restrictive territory. European Central Bank’s October policy meeting revealed on Thursday indicated that a few members also voted for 50bps interest rate hike.
Meanwhile, markets evaluated the impact of the G7’s proposed price cap on Russian oil in the range of $65-70 per barrel, higher than current prices for Urals. Analysts suggested that a high cap may have minimal effect on markets as it would likely not disrupt Russian flows.
The market is quiet today due to Thanksgiving. Future retail sales and GDP data from New Zealand and Germany will follow. However, the eyes of the market will be mostly the number of covid-19 cases coming from China.
28.11.2022
Lockdowns in China. Risk appetite is negative.
In China, Covid cases are on the increase and new lockdowns are on the agenda. Yesterday, the daily record is broken again with the new more than 39.7K new Covid infections. Moreover, China PMI data will be followed closely on Wednesday. The economic activity may decrease because Covid curbs continue.
The dollar index is trading around 106.30 level. The safe haven demand is on the increase because protest against lockdowns in China continue. In addition, people call for the Communist Party and President Xİ Jinping to step down in Shanghai. Furthermore, local residents condemn the lockdowns in China.
This week, the market will focus on US Non-farm payrolls report and speeches by several FED officials. Today, the economic calendar is quiet. German Buba President Nagel have a speech.
Risk appetite is mixed. China reopening rumors on the agenda.
The dollar index remains firm because FED officials give speech about that the rate will be hiked. Also, the Covid protests in China lead to the increase in demand for Dollar. Today, US10-year treasury yield is around %3.71 while US2-year bond yield is hovering around %4.47. The spread US10Y2Y widens -76bps. A negative 10-2 yield spread has historically been viewed as a precursor to a recessionary period, but has occurred 6-24 months before the recession occurring, and is thus seen as a far-leading indicator.
Besides, St. Louis FED President Bullard said yesterday that FED has a way to go on interest rate hikes and could keep hiking them and hold them until 2024 to fight inflation. He also stated that rates need to rise at least one percentage to between %5.00-%5.25. Still, the Fed is widely expected to slow the pace of tightening to 50 basis points in December meeting after delivering four straight 75 basis point increases. The investors also look ahead to a lot of US economic reports this week, as well as FED Chair Jerome Powell’s speech tomorrow.
In addition, the unemployment rate remained unchanged at %2.60 in October 2022 in Japan, but in August the data came at %2.50 which is the two-year low.
Furthermore, Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection after the FTX’s bankruptcy. it said on Monday, the latest industry casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month.
FED Powell’s speech, USD GDP data and EU Inflation data will be followed.
The global markets had gone worse on Monday after protesters and police clashed over the forcible COVID restrictions. Thus, risk appetite is still mixed since the beginning of the week.
Today, the investors cautiously awaited Federal Reserve Chair Jerome Powell’s speech that could offer fresh clues on future rate hikes. However, FED officials signaling that interest rates will continue to rise well into next year as inflation remains stubbornly high. Also, the FED is expected to hike rates by an additional 50bps on Dec. 13-14 meeting. In addition, the odds of a 75-basis-point increase have risen over the past several weeks and now stand at a %37 probability. The swaps market is still pricing in a peak policy rate of 5.0%, with small odds of a 5.25% peak.
Follow US non-farm payroll, but the DXY softens and US Treasury yields are decreasing.
Today, the market eye will be on US non-farm payroll and the consensus for a healthy net 200K NFP added for November vs 261K previously. Also, the unemployment rate is expected to remain unchanged at %3.70 while the hourly earnings could soften somewhat. Yesterday, the personal consumption expenditure price index in the United States released and the data increased by %6.00 Year-on-Year in October of 2022, below %6.3 in September. It is the lowest print so far this year. Thus, The DXY index fell to the 104.70 level. In addition, it should be kept in mind that Powell’s message was not very different from his FOMC presser and the Dollar Index (DXY) pullback seems to be moderating.
Furthermore, the US ISM manufacturing surprised to the downside at 49.00 (vs previous 50.20) with price paid at 43.00 (vs. prev. 46.60). Hence, the DXY broke under the 105-figure (200-dma) while US Treasury 10y yield decreased further to levels around %3.54.
Markets also follow Covid development in China after officials appeared to have pivoted away from strict restrictions. Apart from US NFP release, we watch several centralbank official speaks including ECB Lagarde, Villeroy, Guindos, Fed Barkin and Fed Evans.
Broader Positive Risk Sentiment and China reopening rumors on the agenda.
The dollar index dropped carelessly after FED Powell’s speech at the Brookings Institution. Although FED officials give speech about that the rate will be hiked, the market priced that FED will only hike 50bps in December. In addition, the market has focused on easing Covid19 restrictions. Hence, the risk impulse turns positive.
Furthermore, FED’s Evans had a speech and he said that he sees slower rate hike pace, slightly higher peak rate. The Treasury yield have been supported by FED’ Evans. Today, US10-year treasury yield is around %3.53 while US2-year bond yield is hovering around %4.32. The spread US10Y2Y widens -79bps. A negative 10-2 yield spread has historically been viewed as a precursor to a recessionary period, but has occurred 6-24 months before the recession occurring, and is thus seen as a far-leading indicator.
Besides, The Caixin China General Services PMI fell to 46.7 in November 2022 from 48.4 in October, pointing to the third straight month of drop. Today, the inflation data in Turkey will be released. The annual inflation rate in October was at %85.50 YoY, but this time a decrease waiting for the inflation to %84.65 YoY. Also, the investors are looking for the signs about the health of US economy. Hence, they will focus on US ISM service PMI.
The DXY is gaining power. RBA raised the interest rate from 25bps to %3.10.
The Dollar Index keeps its recent advance to above 105.35 level today. The index was supported by renewed concerns that the FED will hike interest rates following better-than-expected US services activity data. On the other hand, the market is still expecting the FED to deliver a more moderate 50bps rate hike at its December meeting following four straight 75 basis point increases, though questions on how long the central bank will need to tighten remain.
Furthermore, the Reserve Bank of Australia (RBA) increased interest rates further by 25bps to %3.10 as widely expected. The Board said they continue to raise interest rate according to incoming data and the outlook for inflation and job market. Hence, the size and timing of future rate hikes is not clear.
BoJ Governor Haruhiko Kuroda told the parliament, “The BoJ is seeking to sustainably and stably achieve its 2% inflation target accompanied by wage growth. Their view is that this will likely take more time.”
Today, we will follow Germany factory orders and UK PMI construction in European session. Later in the day, US and Canada will release trade balance.
Risk appetite is mixed before the news from the FED. Today, Lagarde on stage before the mid-December meetings.
Growth data in the European region, third quarter growth figures came in above expectations. Third quarter annual growth was announced as %2.3, while expected %2.1. Now all eyes are on ECB President Lagarde’s speech. With the strong data coming in, Lagarde’s hand is relaxed to set policies regarding tightening.
US Unit Labor Costs and Nonfarm Labor Productivity data announced are positive. In the third quarter of 2022, Unit Labor Costs rose %2.4, below expectations of a %3.5 increase, while Nonfarm Labor Productivity in the US rose %0.8, well above expectations of a %0.3 increase.
Bank of Canada continues to rise interest rates like other central banks. Yesterday, The Bank brought the interest rate to %4.25 with an increase of 50 bps. Members also signaled that the rate hike should continue until the inflation target is reached.
According to the data released this morning, although Japan shrank by %0.8 in the third quarter, this figure is below the expectations of %1.1 contraction. Strong Japanese data is suppressing the rise of the Yen parity, but this needs to be supported by a dovish stance from the FED.
Markets are calm today. Today, we will follow US Initial Jobless Claims. With this data, the FED can find a sign for the employment levels and considers for its interest policy. ECB President Lagarde is also expected to speak. Signals are awaited from Lagarde regarding the decisions the ECB will take at its meeting on December 15. Besides, traders started to wait U.S. inflation datas which will be announced tomorrow.
Eyes in the market will be Central Banks’ decisions on interest rate policies.
This week, the market will be shaped by policies from central banks. Markets priced 50bps points higher from the Fed, BoE and ECB as a whole. While the policy rate will rise from %4.0 to %4.50 with the FED’s interest rate hike, with BoE’s increase rate will reach %3.50 from %3.0. The ECB’s deposit interest rate will increase from %1.5 to %2.0.
Despite the fact that the more-than-expectation producer prices data came from the US last week, which caused minor concerns in the market, the expectation of a 50bps score increase from the FED did not change much. However, as of this morning, there is a slight decrease in risk appetite. According to the CME FedWatch Tool, the Fed’s 50bps increase fell to %75.
The market is pretty calm today. Growth and manufacturing production data from the UK will shed light on the BoE’s interest policy meeting on Thursday. Recession concerns in the UK are quite high. However, although the Macro data looks negative, a hawkish stance is expected from the BoE. Because inflation is still at record levels.
Later today, Bank of Canada Governor Macklem has a speech. Last week, the BoC continued to increase interest rates, increasing the policy rate level to %4.25 with an increase of 50 bps, and signaled that the hawkish stance would continue. Today, parallel statements are expected from the governor.
FED hiked rates by 50bps as widely expected, China’s retail sales dropped sharply in November. Central Banks’ policy decision will be followed all the day long.
The US Federal Reserve announced that it raised the policy rate, federal funds rate, by 50 basis points to the range of %4.25- %4.50 following the December monetary policy meeting. This decision came in line with the market expectation. This is the seventh consecutive rate hike, following four straight 75bps increases. FED officials consolidated that ongoing hikes in the target range will be appropriate in order to reach a stance of monetary policy that is sufficiently restrictive to return inflation to %2.00. According to the dot plot projections, FED now expects interest rates to reach %5.10 at the end of next year, %4.10 in 2024, and %3.10 in 2025, a higher level than previously indicated. In addition, GDP growth projections were revised higher for this year (%0.50 vs %0.20). Furthermore, inflation forecasts were revised higher for 2022 (%5.60 vs %5.40), 2023 (%3.10 vs %2.80) and 2024 (%2.50 vs %2.30). In brief, FED maintained hawkish tone in monetary policy statement, almost unchanged from November’s.
In addition, China’s retail trade declined by 5.9% year-on-year in November 2022, much faster than a 0.5% fall in the prior month and worse than market expectations of a 3.7% drop. This was the second straight month of decrease in retail trade and the steepest pace since May, as consumption deteriorated due to the impact of a new wave of COVID infections and ongoing restrictions.
Today, central banks’ decision will be followed all day long. First, the Bank of England is to expect a 50bps rate hike because the inflation in UK still high above %10.70. Then, eyes will be on European Central bank’s policy decision. The economist expects a 50-bps rate hike to %2.00 for the deposit facility since the inflation in Euro Area is still double-digit, at %10.00.
BoJ decided more hawkish than expected. Risk aversion mood is on again while the market are waiting noel rally.
Yesterday, The German IFO Business Climate Index rose more-than-expectation to 88.6 in December. It was the highest level since August and it signaled recovery for business world altough there is high inflation period. İn addition, labor costs are increased by %2.9 while market expectation was %3.0.
Earlier this morning, the Japanese central bank announced its interest rate decision and monetary policy. The BOJ kept its short-term interest rates unchanged at -%0.10, while keeping its 10-year bond yield around %0. What came as a surprise, however, was that the BOJ increased the volatility of 10-year government bond yields from +/-0.25 points to +/-0.50 points. In addition, the bank increased its monthly Japanese government bond purchases from 7.3 trillion yen to 9 trillion yen.
With these steps, the central bank of Japan changed its extremely dove stance and did not break the tradition of other central banks. Rising inflation and the change in food and energy prices caused the BOJ to abandon its dove stance.
After the BoJ hawkish decision, Japanese Yen decreased sharply to 4 month low of 132.808 level. Also Japan 10 Year Government Bond Yeld increased to a 7-year high of %0.353.
This week, it is initial of Christmas and the markets fairly calm. From US, macroeconomic data will announce such as CB Consumer Confidence, GDP and Core Personal Consumption Expenditure Price Index on Friday.
Today, German PPI and Canada Core Retail Sales datas will be released. The German PPI for November are expected to decrease %2.50 while it was -%4.20 previously.
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DXY continues its decline during the Christmas week. With this decline, metals started to rise. US Consumer Confidence and PCE Price Index data is now awaited.
The echoes of BOJ’s hawkish stance continue in the market. BoJ decided to allow 10-year government bond yields to increase 0.50 points from 0.25. That’s why, Japanese Yen appreciated against dollar and was last seen at 132.170 level. With these decision, risk appetite mood was on and DXY started to fall. DXY is trying to hold above 103.50 level.
Yesterday, the annual producer inflation in Germany fell %3.9 on a monthly while the market expectation was %2.5 fall. This data came in with a decrease of %4.2 in October and the data for November showed that the peak point in inflation was seen. Also the yearly PPI data fell to %28.2 in November from %34.5. It was below than expectation compared by %30.6.
The markets focused on US GDP and PCE Price Index which will be announced this week. Currently, due to BOJ’s decisions, DXY is falling and metals rally. The data coming from the US will remove some of the uncertainty in the market.
Today, Canada Core CPI and US Consumer Confidence data will be released. Canada CPI data is expected to increase %0.2 in November, while US Consumer Confidence data is expected to increase slightly to 101.0.
Finally, US Crude Oil Inventories data will be released by The Energy Information Administration (EIA) today. This data will be an important indicator for the situation on demand for oil. Currently, the weekly change is expected to decrease by 1,657M barrels.
Recession fears decreased with the data of increasing US Consumer data. DXY continues its decline. Oil jumped with increasing demand.
The US Consumer Confidence data jumped to 108.3, while the expectations were 101.0. With this data, it was seen that the fears of recession for consumers were somewhat left behind. With this news, the US stock markets started to take back their losses after the FED.
Canada’s annual inflation rate rose to %6.8 in November. The rate was more than expectations of %6.7. The increase in energy prices and food prices played a role in this increase. The data rose slower by %0.1 in November than previously month of %0.7 on a monthly basis. however, Canadian inflation rate showed slowing not much as expectations.
Stocks of crude oil in the US was also announced by US Energy Information Administration yesterday. US oil fell 5.894M barrels week on week, well above market expectations of 1.657M barrels. US oil jumped to above 78$ due to reduced stocks more than expectation. While oil traders awaited to increase demand news, reducing stocks data supported these expectations.
Today, the markets are waiting the growth data from UK and US respectively. While %0.2 contraction is expected in the UK economy, strong growth data is expected on the US. In addition, US Initial Jobless Claims will be announced today. The market expectation is increasing to 221K while 211K previously.
Besides, Japan National Core CPI will be announced today. BOJ had decided surprisingly hawkish decisions on Tuesday. That’s why, CPI data from Japan will be followed closely and will examine whether Japanese central bank decided correctly. Yen hold the positive outlooks against dollar. It stucked around 132.0 levels.q
Despite the hawkish Fed, US Futures, and Major currencies are steady.
The FOMC Meeting Minutes showed that FED members were still worried over high inflation and the resilience shown by the labor market.
Fed officials acknowledged that recent data on easing inflation was positive, but emphasized that they would need to see more evidence of sustained of falling rates of inflation before feeling confident in the trend. They indicated that they would continue to maintain a “tight” monetary policy until there was clear evidence that inflation was decreasing consistently.
Investors see the ceiling value of the Fed’s interest-rate range hitting 5.25% this summer and then retreating. According to the meeting minutes, none of the Federal Reserve officials expect a cut in interest rates to be necessary for 2023.
Fed members described the job market as extremely robust, citing low unemployment, continued strong employment growth, high job openings, and rising nominal wages. Some members noted that there were early indications that imbalances in the labor market, such as the number of job openings and voluntary quits, may be beginning to improve in the latter half of 2022.
On the other hand, the manufacturing sector saw a decline in activity in December. It can be understood that the Fed’s forceful approach has had a cooling effect on the economy.
In the bond markets, interest rates were largely unchanged following the release of the Fed minutes. The 10-year Treasury yield decreased by 8 basis points to 3.71%, while the 2-year yield decreased by 3 basis points to 4.38%.
Investors will pay attention to PMI reports from the UK and Nonfarm Employment
The probability of a 25 basis point of policy rate hike possibility slipped from 70% to 55% on the CME’s FED Watch Tool.
The recent job market reports show that there is strong demand for workers, despite the Federal Reserve’s efforts to tighten monetary policy in order to control inflation. The data from ADP and the weekly jobless claims, as well as a separate report on Wednesday indicating that job openings decreased less than expected in the previous month, suggest that the labor market remains robust. The monthly nonfarm payrolls survey from the Labor Department, which will be released on Friday, is closely watched by Fed officials and investors as it provides important insights into the direction of monetary policy.
It seems that strong performance in the labor market is negative for the market, as it may lead to the Federal Reserve tightening monetary policy in response to improving economic conditions. The recent data indicates that the labor market is strong and resilient, which could potentially lead to higher interest rates and negatively impact prices.
Positive news; China is likely to be able to cope with the COVID-19 pandemic by the end of March based on the rapid return of people to the streets. Subway and road traffic in major cities shows that activity is recovering, which suggests that the worst of the latest wave of COVID-19 cases has passed.
Markets are declining due to investor concerns about potentially higher interest rates following the release of stronger-than-expected jobs data. US Treasury yields rose on Thursday. The 10-year Treasury yield increased by 5 basis points to 3.76%, and the 2-year Treasury yield rose by 9 basis points to 4.47%.
Investors will pay attention to PMI reports from the UK, CPI data from the Eurozone,
US Indices Futures, precious metals, oil, and major currencies start positive to the week as the effect of weakness of the Dollar Index (DXY).
Economic data concerning inflation and producer price index will be announced in China on Wednesday and in the United States on Thursday. The overall sentiment among investors is optimistic at the moment. The market views China’s decision to allow quarantine-free travel as the end of their zero-Covid- policy. In addition, the fact that China is adding to its gold reserves is causing the price of gold to rise.
The Consumer Price Index (CPI) for December will be released on Thursday and is expected to impact predictions on whether the Federal Reserve will increase interest rates by 0.25% or 0.50% in the beginning of the following month. According to Bloomberg data, economists expect the CPI to have increased 6.6% from the previous year in December, a decrease from the 7.1% increase seen in November.
Asian stocks experienced a surge on Monday due to optimism about the global economy, fueled by expectations that the US will not significantly increase interest rates and by China’s decision to lift border restrictions.
Japan’s stock market, represented by the Nikkei index, is closed on Monday for a holiday. However, futures for the index were being traded at a level of 26,215, compared to the previous closing level of 25,973 on Friday.
This week marks the start of earnings season for major banks in the United States. There is concern among analysts that overall earnings will not show any year over year (YoY) growth.
Investors will also pay attention to Unemployment Rate from Euro Area today.
Asian Markets were relatively stagnant and the US dollar stabilized as investors awaited a speech by Jerome Powell, Chairman of the Federal Reserve, for further information on the direction of US interest rates and the overall state of the economy.
The Dollar index (DXY) softens with the expectation that the FED could slow the pace of tightening. Yet, the Officials said that at least a 25bps rate hike is on the table for the February meeting. Mainly, they believe that a rate hike is needed to fight inflation.
Raphael Bostic, President of the Atlanta Federal Reserve, stated on Monday that the US central bank should increase interest rates above 5% by the beginning of Q2 and then maintain those rates for an extended period of time. Bostic emphasized that he does not believe in pivoting on monetary policy and thinks that the current approach should be allowed to have an effect.
On the other hand, the end of the zero-covid policy in China led the market to behave risk-on mood. This reopening news increases the hopes for demand recovery in China. Oil prices increased by 1% on Monday as investors believed that the reopening of China’s economy from COVID-related restrictions would increase oil demand. In addition, China announced the re-opening of sea and land crossings with Hong Kong, which were closed three years ago.
Today, US 10-year treasury yield is hovering at 3.54%. The 2-10-year yield spread remains unchanged at -70bps. However, the real rate tightens to 103bps.
Finally, the central banks’ officials have a speech during the day. First, the Bank of Japan Kuroda will be followed by the investors closely. Then, FED Powell’s speech may guide monetary policy decisions for the next meeting.
Jerome Powell , Chairman of the Federal Reserve, is expected to provide further insight into the trajectory of US interest rates and economic growth during a speech at a bank symposium in Sweden later in the day.
US Indices Futures remain stable, but the value of the US Dollar (DXY) is decreasing. The price of gold keeps its bullish momentum. Asian Markets look slightly negative.
The main stock indices on Wall Street finished with gains yesterday, stabilizing in the latter part of the day following some initial fluctuations. At the same time, Treasury yields increased yesterday and down today as investors are nervously anticipating the release of inflation figures from the US, which are set to be revealed later this week.
The value of the US dollar is slightly negative, staying close to its lowest point in seven months as investors adjusted their positions in anticipation of the consumer price index data for December that is due to be released the next day. On Tuesday, in a speech given at the Symposium on Central Bank Independence in Stockholm, Sweden, Powell emphasized the significance of having stable inflation levels.
Today, US 10-year treasury yield is hovering at 3.59%. The 2-10-year yield spread remains unchanged at -64 bps. However, the real rate tightens to 103bps.
The markets are generally on hold and paying attention to the release of the Consumer Price Index (CPI) data for December, which is scheduled to be published this Thursday. This is likely to be the most significant piece of data to be released this week, and it will provide a clearer understanding of the current trend of inflation.
The World Bank has significantly reduced its outlook for global economic growth in 2023. Additionally, the statement implies that the World Bank believes the global economy is dangerously close to falling into a recession.
There is no major macroeconomic event happening today. However, attention this week is also likely to be directed toward the Chinese Consumer Price Index (CPI) inflation data for December. China’s currency, the Yuan, maintains a level close to five-month highs. This was driven by optimism that most anti-COVID measures would be lifted in the country. Despite this, it is anticipated that the slowing economic growth in China will result in deflationary patterns.
US Indices, the Dollar Index (DXY), Asian markets, major currencies, and precious metals are stable after the US CPI report shows that inflation has risen by 6.5% in line with expectations.
The rate of inflation slowed again in December 2022, after the Federal Reserve raised interest rates to the highest level in 15 years. The Consumer Price Index (CPI) for December showed a 6.5% increase in prices compared to the previous year and a 0.1% decline compared to the previous month, according to government data released on Thursday. This is in line with the consensus estimates compiled by Bloomberg.
The core Consumer Price Index (CPI) figures, which exclude the volatile components of food and energy, have increased by 5.7% compared to the previous year, and 0.3% compared to the previous month.
On Friday, US stock futures remained stable as investors waited for earnings reports from large banks while considering the recent inflation report and its impact on monetary policy. The futures contracts related to the major indexes were all close to even. In the previous day’s trading, the Dow30 and Nasdaq100 both rose by 0.64%, and the S&P500 increased by 0.34%. These gains came after the December inflation report revealed that the annual headline and core inflation rates in the US dropped to 6.5% and 5.7%, respectively, supporting the idea of further declining inflationary pressure and making the case for a less aggressive tightening from the Federal Reserve.
Investors will pay attention to the upcoming quarterly results from major bank stocks, including JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America, and Gross Domestic Product (GDP) data from the UK which will be released on Friday.
Today, United States 10-year treasury yield dropped to 3.46%. The 2-10-year yield spread is at -70 bps. However, the real rate is tightening to 101 bps.