Markets sees Powell comments as dovish

Good morning

Feds Powell spoke on Friday, overall said nothing particularly new, will tighten further if needed although for now policy is restrictive and the full effects of previous rate rises are yet to be fully felt. The US Dollar had brushed off earlier weak PMI numbers but despite Powell adding that it was far too early to be talking of easing, the market took his comments as dovish and sent USD lower, with GBPUSD moving almost 100 pips higher from 1.2625 to test as high as 1.2725 overnight, while EURUSD traded up from 1.0830 to within a few pips of 1.0900. GBPEUR is up at three month highs, trading as high as 1.1675 this morning.

The US dollar selling seen since markets reopened last night seems to be in part down to price action in gold, which traded up from a close around $2070 to reach new all-time highs of $2150, a move which as yet has not been well-explained although to me it smells of short positions being closed out. Other suggestions are that the gold buying was a safe-haven play as reports of a possible attacks on a US warship and three commercial ships in the Red Sea came to light. As I type we are back at $2065. The move happened in illiquid markets overnight, as such the reported highs do differ, some suggest it only reached as high as $2135.

A lot of talk though that gold could see new highs through 2024 and 2025, UBS in particular are pretty bullish, especially if Fed do start lowering interest rates. It does cost a lot to hold a long gold position, with spot around $2065 the one year forward is nearer $2175. This doesn’t necessarily make it bad value but one would have to be very confident of a move higher to go long at these levels.

Turkish inflation was released this morning, coming in lower than expected at 62%. USDTRY is just a smidge under 29.00. That’s a pretty terrifying inflation number. I do remember looking at upside EURTRY many years ago, at the time it was difficult to be long given the forward points were so much against you. It was around 3-4.00 back then. Now it’s trading around 31.50. Just shows that some things can be worth buying even if the forward points are heavily agaisnt you.

Regular readers will know I rarely talk of Bitcoin but I do feel obliged to report that is has shifted back above $40,000, indeed it now trades at $41,600, the highest level since April 2022. One year ago Bitcoin was down at $17,000 or so, I have managed so far to avoid anyone who has claimed to have bought it down there, I’m sure instead many holders of Bitcoin are now reporting smaller losses on their holdings which they probably got into a couple of years ago and have been sitting on ever since.

Quite a big week for AUD, we have the latest RBA rate announcement in the early hours of tomorrow morning, followed by the latest Aussie GDP reading the next night. GBPAUD did test lower to 1.8970 overnight when gold was moving around but is now back up to 1.9070 which is very close to the middle of the trading range we have seen since late-Sept.

We have some reasonable data to look forward to this week, US services ISM tomorrow, EU retail sales and BoC rate announcement Wednesday and EU GDP Thursday, but the focus will be on US employment numbers which comes in the form of JOLTS data tomorrow, ADP Wednesday, initial claims Thursday and then the nonfarm payrolls Friday.

Spurs were involved in another thrilling match and benefitted once again from a rather odd refereeing decision in their 3-3 draw with Man City. An unlikely result given the team is still facing many injuries, but wit City dropping points, this season could be a really interesting title race with just four points separating the top four teams.

Have a good day and stay warm. We’ve seen none of the snow that some parts have had although I did have to smile when I saw a headline about a major incident being declared after snow in Cumbria which, to my eye, looked like just a couple of inches. We had a couple of thick frosts and its still cold now although we’re out of the minus numbers. Back to cold, wet miserable winter weather.

- 09.30 EU investor confidence

- 11.10 ECBs Elderson speaks

- 14.00 ECBs Lagarde speaks

- 15.00 US factory orders

- 23.30 Japan Tokyo CPI

- 00.01 UK BRC retail sales

- 01.45 China caixin services PMI

- 03.30 RBA rate announcement

Fed officials offer differing opinions, will Powell set us straight

Good morning

Welcome to December. I’ve been away for a couple of days and return this morning to a very thick frost indeed. Can’t complain, it is December after all, but it has been a long while since I have seen a frost like this and with temperatures looking like they will struggle to get beyond zero, my weekend looks like it will be a cold one giving most of the leaves are now off the trees and need dealing with. So much for Autumns golden gown, more like winters freezing blanket.

I’ve missed a bit in the currency world while I’ve been out. The US dollar weakened on dovish talk from some Fed officials, before turning on more hawkish talk from other Fed officials. Feds Waller had suggested rate cuts could be seen as early as Q1 2024, but Barkin later said he is sceptical of a quick return to 2% inflation and sees potential for another rate rise from the Fed. This goes to show the divergence of opinions with the central bank, we are seeing it other central banks as well, and is pretty normal when we are at something of a turning point.

A further rate rise from the Fed does seem unlikely at this stage but clearly not completely out of the question. With this difference of opinions, we look to Powell to see how he is likely to steer his ship. Powell speaks late this afternoon, twice in fact, which could offer a late flurry of volatility to take us into the weekend.

While the US dollar is off its lows for now, it is still at pretty low levels compared with the previous couple of months. GBPUSD is 1.2650 as I type, EURUSD 1.0900, compared to recent highs of 1.2730 and 1.1015. GBP has gained on EUR, with GBPEUR now up at 1.1610, some 200 points higher than levels from just over one week ago, generally on a greater chance of UK rate rises than EU rate rises, helped by comments from BoEs Greene who warned rates may not be as restrictive as previously thought. Lagarde speaks this morning, although it is unusual for her comments to impact the market to any great extent. Meanwhile the IMF have warned central banks they must not cut rates too quickly and/or too far, in order to avoid a 1970s style inflation crisis. UK inflation hit 25%, while US interest rates were above 20%. A bit before my time, but it has happened in my lifetime.

For those following Gold, my $2000 option expired on Tuesday. With spot above $2000 at expiry, $2027 to me more precise, and not having been above $2075 the strategy worked well enough, having paid out US$9/oz it made for an $18/oz profit at expiry. Buyers of the option may well have held the resulting long gold positions which would have increased profits further, the shiny metal is now up at $2043, US$10 or so from the recent highs.

Deliveries of the Tesla Cybertruck are beginning to take place. For those who don’t follow the car world, Musk is trying to break into US’s lucrative truck market with a rather unusual but visually eye-catching design. It will be a while before we see them here I presume, if ever. They are big vehicles and I’m not sure are well suited to UK roads. In true Musk style, Tesla raced a Cybertruck against a Porsche 911 in a straight sprint. The Cybertruck won, quite a feat for a truck, but all the more impressive given it was towing another 911 at the time. Electric vehicles have such terrific acceleration, however this cold weather does nothing for the batteries which can see range reduced a fair bit.

The uneasy truce between Israel and Hamas has ended but not before many hostages and prisoners were released from both sides. Israel claims Hamas broke the truce, firing rockets towards Israel and failing release all the hostages. Only around 100 were released, 140 or so are still being held. The almost immediate commencement of hostilities will make further peace talks all the more difficult.

So, to the weekend. I have the usual chores to catch up on which will be pretty cold as I mentioned above. Mind you with Spurs playing Man City I may be well advised to stay away from the TV on Sunday, Spurs have a reasonable record against City but with many injuries and suspensions I fear Spurs will suffer their fourth defeat in a row. They failed to win at all in November and are, if anything, weaker now than they were at the start of last month.

Whatever you have planned, enjoy it. Don’t put off that Christmas shopping for much longer, we have just three weeks or so until Christmas Day and we all know how quickly time is passing these days. I was rather hoping to have come home and found our Christmas tree up and decorated. Not so. Looks like that’s another job for the weekend!

- 09.00 EU manufacturing PMI

- 09.30 UK manufacturing PMI

- 10.00 ECBs Elderson speaks

- 11.30 ECBs Lagarde speaks

- 13.30 CAD employment

- 14.30 CAD S&P manufacturing PMI

- 15.00 Feds Goolsbee speaks

- 15.00 US manufacturing ISM

- 16.00 Feds Powell speaks

- 19.00 Feds Powell, Cook speak

USD remains soft, will the weakness continue

Good morning

Overall it was a bit of a nothing day in the currency markets yesterday, GBPUSD traded a range around 1.2600-1.2640, EURUSD 1.0925-1.0960 and both pairs remain within those ranges as I type. USDJPY did see a bit of movement, trading lower from 149.30 to 148.65, and overnight it traded below 148.00 but has since clawed its way higher back up to 148.65. An article from Nikkei about the potential for Japan to lift rates out of negative territory as early as H1 2024 perhaps contributed to a bit of the yen strength although. Rates have been negative since 2016 and Japan have not raised rates for some 17 years, so any change higher will be a major thing. As we know with yen though, timing is absolutely everything.

Key question for now is whether USD continues to show signs of weakness or whether the move is overdone. I think we are seeing the effects of a possible peak in US rates but the likes of GBP and EUR do not seem to be weakening despite comments from their central bank officials that are not too dissimilar to those coming from the Fed. We are moving away from how much higher rates will go to how long it will be before we see rate cuts. We have several central bank officials speaking today so maybe we will get a little more insight into their current thinking. For what its worth, Deutsche Bank have said we could see up to 1.75% in rate cuts from Fed in 2024, while Citibank technicals are looking for a softer USD across the board, looking at levels such as 1.2745 in GBPUSD, 1.1000 in EURUSD and 146.70 in USJPY.

RBNZ rate announcement is due overnight, no change is expected it will be interested to see if RBNZ follow the dovish outlook they gave in early November when they said they don’t see a further rate rise and that cuts could come earlier than expected. For the record NZDUSD is just shy of 0.6100, highest levels August, while GBPNZD is 2.0750. 2.0600 has been a key level over the past month, having tested and held on four or five occasions. Similarly, 2.0965 has capped the upside over the same period of time. A dovish RBNZ could be enough to send NZD lower.

The temporary ceasefire in Gaza has been extended by a further 48 hours, more aid is arriving in Gaza and more hostages are being released slowly, although Hamas says it may take a while for some hostages to be tracked down as they are held by other groups. Hopefully we will see the truce extended until all hostages are released.

Elsewhere, I’ve just seen news that India have finally managed to reach the workers who have been trapped in a tunnel for two weeks, with their evacuation hopefully taking place shortly.

And finally, I didn’t see the football last night but I understand it was another VAR failure with some rather unusual and certainly unpopular decisions, mostly in favour of Fulham over Wolves. I was never a great fan of VAR but do believe it has its place, however some of the mistakes they have made have been truly awful. Room for improvement, that’s for sure.

Have a great day

- 14.00 US house price index

- 15.00 US consumer confidence

- 15.00 Feds Goolsbee, Waller speak

- 15.45 Feds Bowman speaks

- 16.00 ECBs Lagarde speaks

- 17.00 BoEs Haskell speaks

- 18.30 ECBs Lane speaks

- 00.30 AUS monthly CPI

- 01.00 RBNZ rate announcement

- 02.00 RBNZ press conference