Hoping Hunt's message won't have the same effect as Kwarteng's mini-budget

Good morning

It’s a mixed bag this morning, the US dollar has held or even reversed some of its losses, with EURUSD now 1.0910 and USDJPY back up to 149.15. GBP however has held its recent gains, GBPUSD now at 1.2530 and GBPEUR up to 1.1485. FOMC minutes released yesterday evening show Fed are seeing the risks of raising rates too much versus too little are far more balanced now, suggesting we’ll see rates on hold into the year end. I still think its unlikely we will see rate cuts in Q1 2024, perhaps not even Q2, but Fed have made it clear their rate moves are highly data-dependent.

CAD brushed off yesterdays inflation numbers with USDCAD staying in its tight range. I mentioned yesterday the converging trend lines in USDCAD, the upper bound is now around 1.3735, the lower is 1.3685, I’m watching for a break of either level.

Gold made its way back above $2000/oz, so far staying under the $2010 level but any further USD weakness could see XAUUSD higher again. For now there seems to be short term interest in selling gold with a close stop. You may recall that back on 26th Oct I looked at a one month gold call with a strike of $2000, cheapened up with a $2075 knock out. That expires on 28th Nov so I’m rather hoping we hold above $2000, preferably ticking up a little higher but not too far!

I’ve not been following this AI story much but perhaps I should have done as it all sounds rather intriguing. Sam Altman was the CEO of OpenAI until just a few days ago when he was fired by the board. He was offered a job by Microsoft but it now appears that Altman is returning to OpenAI. I’m going to have to get to the bottom of this just to see if I can work out what really went on.

Israel and Hamas have agreed to a pause in fighting which leads to the release of 50 Israeli hostages, which in turn will lead to the release of 150 Palestinian women and children held in detention by Israel. Those numbers may increase on both sides and would then lead to an extension of the ceasefire. We haven’t yet been told when the ceasefire will begin but it is supposed to be imminent. Whether this will lead to the end of fighting remains to be seen, Israel is still intent on getting rid of Hamas.

Attention this afternoon will be on the UKs Autumn Statement. It is just over one year ago that Truss and Kwarteng triggered the UKs financial crisis with their disastrous mini-budget. We are hoping that todays announcement is a little more restrained and sensible. Otherwise we have a fairly busy US calendar with some releases brought forward due to tomorrows Thanksgiving.

Thanksgiving tends to send financial markets to sleep as many Americans make a long weekend of it. Black Friday sales have pretty much started already, some of which aren’t great, but there are some decent bargains to be had. For example Nike have a 25% off everything deal on their website, which makes the cost of the kids trainers mildly more bearable.

- 09.30 BoE monetary policy hearings

- 12.45 UK autumn forecast

- 13.30 US durable goods, initial jobless claims

- 15.00 US Michigan sentiment survey

- 15.00 EU consumer confidence

- 16.30 BoCs Macklem speaks

USD stays weak, Yen higher

Good morning

One week ago today the US CPI data was released which triggered something of a reversal for the US dollar. One could argue that the early November nonfarm payroll release that came out weaker than expected was the catalyst, but the bigger and longer-lasting move has been since the inflation numbers. GBPUSD is now 1.2535, EURUSD 1.0955, both only a few pips short of the highs seen in the early hours of this morning.

However for me it is USDJPY that shows the scale of the move. Last Monday we hit 151.90. As I type we are down at 147.15, a drop of over 450 points and just lower than the Oct 2023 low which came from what looked like intervention. We are now at the lowest levels seen since mid-Sept and technical traders will be getting excited about the approach to 147.00 and 146.70, both of which mark some decent levels.

I mentioned yesterday that Pimco said they had started building long yen positions, I wonder whether all those blips that looked like intervention was actually Pimco or the like selling enough USDJPY to spook the market just a little. Someone is going to be feeling happy. OK, no one in their right mind will say we’ve definitely seen the top in USDJPY, or indeed the peak in US rates, but for now it does feel that way.

AUD was little moved after hearing from both RBA Gov Bullock and the RBA minutes. Bullock reminded us that inflation remains a key challenge and Is likely to be do for another year or two, while the minutes showed RBA thought they had no choice but to raise rates at the last meeting to prevent inflation from ticking higher. More importantly, RBA are willing to raise again if needed. GBPAUD now 1.9050, almost exactly where it was this time yesterday, I’m a little surprised AUD didn’t push higher on the back of the comments.

USDCAD is currently 1.3725 ahead of Canadian inflation numbers this afternoon. Earlier this month we heard from BoCs Macklem who sounded pretty hawkish, indeed USDCAD fell from the 1.3900 area down to 1.3635 in the first few days of November, reflecting the hawkish tone. The pair is now off those lows despite this USD weakness. I’d normally look for an overnight option play but will give it a miss this time, however we are seeing a series of higher lows and lower highs which means the range is getting narrower. Something will have to give at some point.

PBoC surprised with their latest USDCNY fix. It was struck at 7.1406, the lowest level since early August but reflects recent PBoC fixes which are struck well below levels traded in the market. They will be grateful for this spell of USD weakness.

One piece of news I missed over the weekend was the SpaceX Starship launch which didn’t go exactly to plan after suffering what Musk calls a ‘rapid unscheduled disassembly’ just eight minutes or so into its flight. Yes, that’s his wording for an explosion. The SpaceX engineers sounded remarkably upbeat, boosted by the fact it got up to 140km, so did reach space which comes in at around 100km. As such it got a lot further than the previous attempt in April and also now holds the record for the most powerful rocket ever developed to leave earth.

They are still a long way short from getting to the moon, something US managed over 50 years ago and something India managed with a tiny budget if you believe their numbers. Still, the ultimate aim of Starship is not just a moon landing but more about a trip to Mars. I’d love to see one of these take off. The Starship and booster stand some 120m tall at take-off, powered initially by 33 raptor engines. Must be an incredible sight.

Just realised that its December next week. That’s coming around pretty quickly. No doubt I’ll soon be asked to drag the tree out of the attic, never sure why I don’t look forward to that as I like it when its up. Perhaps its just the thought that it’ll all go back to where it was in a few weeks. Still, at least its fake and doesn’t drop its needles. I’ve got enough leaves to deal with. The garden looked fairly pristine at the weekend after I got the leaves up, now it looks as though I had never bothered. And still the trees look full of leaves. Ah well there are worse things to worry about…..

- 13.30 CAD CPI

- 15.00 US existing home sales

- 17.15 ECBs Schnabel speaks

- 19.00 FOMC minutes

Weaker USD suggests we have reached a peak in US rates

Good morning

Ongoing hope that we have seen the peak in US rates is helping stocks push higher and USD lower. GBPUSD is back up to almost the high seen after last weeks US inflation numbers at 1.2495, EURUSD hit 1.0945 overnight, now 1.0920, and USDJPY has traded as low as 148.70. Even USDCNY has moved lower which will no dount please China who, as we know, have been working hard to prevent CNY depreciation recently. USDCNY fixed on a 7.16 handle, the lowest level since mid-August. In the crosses, GBPEUR remains close to the bottom of recent ranges at 1.1425.

There has been talk that Pimco have been steadily building long yen positions, hoping they will benefit from a US inflation slow down and eventual BoJ tightening. As we know, they could be waiting a long time but they’ll be feeling a little more comfortable with USDJPY back below 150.00. Well worth watching USDJPY and yen crosses for any sign of unwinding of short yen positons.

The Gaza crisis continues, Israel unrelenting in their search for Hamas and their network of tunnels beneath Gaza. Some are reported to be over 80 metres below the surface, covering 500km. Israel have released some footage which is said to show some the tunnel network. Some talk of a potential hostage release, brokered by Qatar, taking place sometime this week but don’t be too excited until it actually happens.

Just back on China for a bit, while the lower USDCNY fix looks positive, I have been reading a few things about vacant China property, either built or partially built. Millions of units are unfinished leaving a black hole in the region of US$440 billion that would need to be filled eventually. It would obviously ridiculous to suggest China could fill those with some of the refugees that are in desperate need of somewhere to live.

Its US thanksgiving this week and as such will feel like a short week in the financial markets even if we have to turn up to our desks. Not much on the calendar today although overnight we will have RBA Gov Bullock speaking ahead of the RBA minutes from the recent meeting where they chose to raise rates. They had tried to offer a dovish rate rise, where rates were pushed up 25bps to 4.35% but they cast some doubt as to whether further rate rises would be necessary. Bullock may offer some additional thinking here. For now GBPAUD is 1.9055, over 250 pips lower than last weeks highs.

As for the weekend, just been and gone, it turned out to be pretty decent. In between picking up what felt like millions of leaves I managed to watch the Las Vegas F1, which was pretty decent in the end despite the problem they experienced in Friday’s practice. Congratulations to the Aussie’s for their surprise win over India in the cricket world cup. I say ‘surprise’, I don’t mean Australia were not up to the task but India on home soil had looked like favourites through the whole tournament.

Englands footballers managed to beat Malta on Friday evening in a pretty unimpressive display, they take on North Macedonia this evening to round off what has been a very successful qualifying campaign. Scotland have also qualified for Euro 2024, drawing 3-3 in their final group match to leave them second in the table.

Finally, have to feel a little sorry for Everton who have been deducted 10 points in the Premier League for breaking financial fair play rules. Not sure why I do feel sorry, they did break the rules, but they cannot be the only ones can they ! As we know Man City and Chelsea are facing charges under FFP, if Everton get a ten point deduction, Man City could be looking at non-league football soon!

- 10.00 German Buba monthly report

- 18.45 BoEs Bailey speaks

- 21.45 NZ trade balance

- 23.00 RBAs Bullock speaks

- 00.30 RBA minutes