As the North American session begins, the NZD is the strongest and the USD is the weakest.
The JPY is also stronger, leading to a 0.5% move in the USDJPY today. That comes after 3 other days of declines in the USDJPY. The pair has been down 5 of the last 6 trading days since getting within 3 pips of a 32-year high at the start of last week's trading. The pair has stepped to the next target at the swing low from October 3 (see daily chart below), which was also near a swing low from September 21. The next key target comes against its 100-day MA at 146.56. The last time the market tested the 100-day MA back in July, the price bounced (the 200-day MA was near the level as well). The last time the price of the USDJPY was below the 100-day MA was back in April. The key target level below will provide a barometer for both the buyers and sellers going forward.
Overnight the RBA Australia released its Monetary Policy minutes. The key takeaways are:
Inflation Trends: While overall inflation is decreasing, the decline in underlying inflation (trimmed mean) has been slower than anticipated a year ago.
Domestic Market and Labor Resilience: Domestic demand and the labor market have shown greater resilience than expected, particularly outside the consumer sector. This resilience is partly attributed to robust population growth, especially with the recovery of student numbers post-border reopening. However, due to inflation and higher interest rates, real household income has been squeezed, leading to weak consumption, aligning with the RBA's earlier forecasts.
Unemployment Forecast for 2025: The RBA has revised its unemployment forecasts for 2025 downwards, reflecting a belief that economic slowdown will manifest more in reduced average work hours and underemployment, rather than in significant job losses.
Business Investment Outlook: Questions linger about whether the resilience in business investment observed in early 2023 will persist. There's a view that part of the investment strength could be attributed to tax incentives and a catch-up post-supply chain disruptions.
Forecast Comparison and Inflation Expectation: The RBA’s comparison of its forecasts with those from November 2022 raised questions. It appears that some of the recent economic surprises had already been factored into the February forecasts. The RBA is increasingly concerned about higher inflation expectations becoming entrenched in business behavior, as indicated by financial market measures.
Consumer and Business Behavior: There's a growing trend among businesses to pass cost increases onto consumers. This trend contrasts with the decline in goods inflation and the persistent rise in services inflation, indicating a shift in focus from global to domestic cost pressures.
Monetary Policy and Cash Rate Path: The minutes suggested one to two increases in the cash rate, based on market pricing and economists' forecasts. The impact of single rate increases on inflation is minimal in the RBA's models. Future policy decisions will hinge on observed demand and inflation trends, with each upcoming meeting being potentially significant.
Board's Tolerance and Strategy: The Board has a low tolerance for further surprises in inflation or delays in returning inflation to the target range. The focus is on mitigating risks of rising inflation expectations and managing the balance between tightening monetary policy and its impact on households and businesses.
The FOMC meeting minutes from their last meeting will be released at 2 PM today. The Fed kept rates unchanged at that meeting.
BOE's Bailey testified at the monetary policy report hearings. He reiterated his stance that it is sensible to maintain current interest rates, following the latest inflation data, which was largely in line with expectations. He anticipates that inflation will close the year slightly lower than the BoE's projections, but the difference won't be significant. Bailey has observed some weakening in the labor market, particularly in terms of quantity. Despite these challenges, he remains confident that the BoE is on track to bring inflation back to its 2% target.
However, Bailey acknowledges that there are risks of inflation trending higher, with an inefficient labor market being one such risk. He also expressed concern about the potential for persistent inflation and believes that financial markets are placing too much emphasis on current data releases and underestimating the risk of ongoing inflation. Regarding Quantitative Tightening (QT), Bailey notes that its impact on yields has been minimal, estimating it at around 10-15 basis points.
In his assessment, if the BoE were to aggressively increase rates now in an attempt to quickly bring inflation back to the target, it could inadvertently push inflation below the target, suggesting a more measured approach to rate adjustments.
In the US, the stocks are marginally lower after rising yesterday led by the Nasdaq index.
OpenAI was the main event yesterday. It is facing internal upheaval following the ousting of its former CEO, Sam Altman. Yesterday, over 700 of its 770 employees, including key figures like chief scientist Ilya Sutskever, signed a letter demanding Altman's reinstatement, threatening to quit if their demands are not met. This development has led to tensions within the company, with some investors considering legal action against OpenAI's board. The board remains unmoved so far, despite the significant employee backlash. Microsoft, a major investor in OpenAI, has expressed support for Altman offering to hire him and OpenAI co-founder Greg Brockman to head a new advanced AI research team. However, in response to the turmoil, Microsoft's CEO Nadella said "something has to change" around the governance structure of OpenAI. Microsoft shares advanced 2.05% yesterday as investors saw them as a winner from the turmoil. It closed at a record $377.44. In premarket trading today, the shares are down -0.61%.
Also closing at record levels yesterday was Nvidia. Its shares were up at 2.25% to $504.09. Nvidia is set to report its September quarter results after the U.S. market closes on Tuesday. Is it more important than the Fed minutes today?
Oil prices are lower with U.S. crude futures are marginally lower in premarket trading, after settling up 2.25% yesterday. On Friday prices rose around 4%. The fall in prices comes as traders exercise caution ahead of an upcoming crucial OPEC+ meeting on November 26, where the organization is expected to discuss potential additional oil supply cuts. The market is also awaiting weekly U.S. inventory reports from the private and the EIA, due on Tuesday and Wednesday respectively.
A snapshot of the markets as the NA session gets underway shows:
- Crude oil is trading down $0.43 or -0.55% at $77.40. Yesterday, the price was trading at $77.47
- Spot gold is trading up $12.50 or 0.63% $1989.91. Yesterday, the price was trading at $1972.75
- Spot silver is trading up $0.22 or 0.93% at $23.63. Yesterday, the price was trading at $23.42
- Bitcoin is trading at $37,212. Yesterday, the price was trading at $37,166
In the US stock market, the major indices are trading lower in pre-market trading. The major US stock indices rose yesterday led by the NASDAQ index
- Dow Industrial Average futures are implying a loss of -50 points. Yesterday, the index rose 203.76 points or 0.58%
- S&P index futures are implying a loss of -8.2 points. Yesterday the index rose 33.36 points or 0.74%
- NASDAQ futures are implying a loss of -37 points. Yesterday the index rose 159.5 points or 1.13%
In the European equity markets, the major indices are trading lower.
- German DAX, -0.02%.
- France's CAC, -0.39%
- UK's FTSE 100, -0.63%
- Spain's Ibex, -0.22%.
- Italy's FTSE MIB, -0.88% (10 minute delay)
In the Asia Pacific market, major indices closed mixed on the day:
- Japan's Nikkei index, -0.10%
- China's Shanghai Composite Index, -0.01%
- Hong Kong's Hang Seng index, -0.25%
- Australia's S&P/ASX index, +0.28%
In the US debt market, yields are lower
- US 2Y T-NOTE: 4.893% -1.7 basis points. Yesterday at this time, the yield was at 4.906%
- US 5Y T-NOTE: 4.429% -1.1 basis point. Yesterday at this time, the yield was at 4.475%
- US 10Y T-NOTE: 4.408% -1.4 basis points. Yesterday at this time, the yield was at 4.474%
- US 30Y BOND: 4.551% -2.4 basis points.. Yesterday at this time, the yield was at 4.67%
- 2 – 10-year spread is at -48.3 basis points. This time Friday, the spread was at -43.1 basis points
- 2 – 30 year spread is at -34.1 basis points basis points. This time yesterday the spread was at -27.9 basis points
In the European debt market, benchmark 10-year yields are trading higher:
