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Market movers today

The main release today will be ISM manufacturing for November this afternoon. It is expected to drop below 50 from 50.2 to 49.7. Focus will also be on the price and employment components. US also releases personal spending and PCE inflation.

German retail sales will be out this morning. It has been trending lower since February but is quite volatile on a monthly basis.

Euro unemployment is expected to be unchanged at 6.6%, which is low in a historical perspective and illustrating a still tight labour market despite a slowing economy.

In the Nordics we get manufacturing PMIs in both Sweden and Norway where the details will be scrutinised. For Sweden we expect to see continued weak orders, improvement in supply chains and receding price pressures. The Norwegian PMI surprised by climbing to 53.1 in October after trending down since before the summer. Further weak global growth but a solid upturn in oil-related industries suggest a mixed picture, but the PMI is most likely to drop back towards 50. For both the Swedish and Norwegian releases the employment components have held up well so far and it will be important to look for signs if this is changing.

The 60 second overview

Fed chair Powell-speech: following four consecutive hikes in the Fed fund's target rate this year Fed Chair Jerome Powell yesterday indicated that the forthcoming December hike will be of a smaller size of 50bp. Powell once again referred to the importance of risk management in setting Fed policy. Meanwhile, while this rhetoric previously has been used in the context of the risk of not tightening enough it was now used in the context of the risk of overtightening. Fed's confidence in bringing inflation down seems to have risen and Powell expressed guarded optimism on the prospects for a soft landing of the US economy.

Markets rally: Financial conditions eased considerably on the speech with equities rallying, yields declining, real rates falling sharply, credit spreads tightening and the USD weakening. Also commodities took the news positively with oil, industrial metals and precious metals all moving higher Overnight the big Asian equity indices have also followed their US counterparts into green territory - albeit not quite as much as the duration sensitive US indices.

Our take: Powell's speech clearly challenges our near-term call for a 75bp hike to the Fed funds target in December. Meanwhile, we also highlight that Powell expressed that policy rates are likely to be higher than assumed in September when the median Fed dot showed 4.6% for next year. In our view, that supports the narrative that it is still far too early to speculate in an actual Fed pivot - understood as the timing of Fed rate cuts. Instead a slower pace of rate hikes now only extends the hiking cycle further into 2023.

Powell emphasised that the length of time that monetary policy will be kept at restrictive territory is far more important than the near-term incremental pace of hikes. We share the same view. In that light we think the sharp rally in risk only lengthens this period and shows that it is still too early to declare victory in the fight against high inflation which also historically has proven a quite persistent phenomenon.

Equities: Bad news is bad news but investors do not get it yet. US equities rallied yesterday, as Powell guided for a 50bp hike instead of 75bp, a moment after dreadful macro data. A 50bp hike was already consensus but nonetheless S&P shot up 3% and Nasdaq 5%. Risk on with all sectors higher (including industrials despite the plunging PMI!) but tech, communications and consumer discretionary up 4-5%. Now, we expect this equity rally to reverse soon. Remember, we recommend to add more growth/quality stocks to leverage on rallies like yesterday without taking earnings risk.

FI: Powell's remarks were well received by the US Treasury market. 10Y Treasuries rallied some 15bp, while 5Y Treasuries rallied 18bp. The US curve 2-10Y steepened a few bps, but it is still significantly inverted as seemingly the risk of recession is seen to be much higher than expected by the Federal Reserve.

FX: The impact in FX markets of Powell's speech was clear with the USD weakening and risk sensitive currencies rallying. EUR/USD moved back above the 1.04 level while USD/JPY has hit new lows close to 136.

Credit: European credit markets had a relatively calm day prior to Powell with iTraxx main widening 1bp to 92bp while Xover was unchanged at 459bp. As we approach end of year we expect activity levels to decline somewhat in the coming weeks.

Daily Pivots: (S1) 1.0323; (P) 1.0376; (R1) 1.0462; More...

EUR/USD is still bounded in range below 1.0496 and intraday bias stays neutral first. Further rally is expected as long as 1.0222 support holds. Break of 1.0496 will resume the rise from 0.9534 to 1.0609 fibonacci level. However, firm break of 1.0222 will turn bias back to the downside for 1.0092 resistance turned support.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. This will now remain the favored case as long as 1.0092 resistance turned support holds.

Daily Pivots: (S1) 1.1944; (P) 1.2015; (R1) 1.2130; More...

Intraday bias in GBP/USD stays neutral as it's still bounded in range below 1.2152. Further rally is expected with 1.1777 support intact. Break of 1.2152 will target 100% projection of 1.0351 to 1.1494 from 1.1145 at 1.2288 first. Sustained break there will pave the way to 1.2759 medium term fibonacci level.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1145 support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Daily Pivots: (S1) 0.9409; (P) 0.9478; (R1) 0.9525; More...

Sideway trading continues in USD/CHF and intraday bias remains neutral. Near term outlook will remain bearish as long as 0.9680 minor resistance holds, in case of another recovery. On the downside, firm break of 0.9355 will resume the decline from 1.0146 to 0.9287 fibonacci level.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 55 day EMA (now at 0.9726) holds.

Daily Pivots: (S1) 137.19; (P) 138.55; (R1) 139.44; More...

USD/JPY's decline form 151.93 resumed by breaking through 137.46 temporary low. Intraday bias is back on the downside for 133.07 medium term fibonacci level next. On the upside, break of 139.88 resistance is needed to indicate short term bottoming. Otherwise, further fall will remain in favor in case of recovery.

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It's too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 131.51).

Daily Pivots: (S1) 1.3355; (P) 1.3476; (R1) 1.3537; More....

Intraday bias in USD/CAD remains neutral for the moment. On the upside, break of 1.3644 resistance will affirm the case that correction from 1.3976 has completed at 1.3224. However, break of 1.3315 will resume the fall from 1.3976 through 1.3222 cluster support, which carries larger bearish implications.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

Daily Pivots: (S1) 0.6705; (P) 0.6753; (R1) 0.6836; More...

AUD/USD's rally resumed by breaking through 0.6796 and intraday bias is back on the upside. Next target is 0.6871 fibonacci level first. Break there will target 61.8% projection of 0.6271 to 0.6796 from 0.6641 at 0.6965. For now, near term outlook will stay bearish as long as 0.6641 support holds, in case of retreat.

In the bigger picture, a medium term bottom is in place at 0.6160 already. But it's too early to call for trend reversal. Nevertheless, even as a corrective move, rise from 0.6169 should target 38.2% retracement of 0.8006 to 0.6169 at 0.6871. Sustained trading above 55 week EMA (now at 0.6927) will raise the chance of the start of a bullish up trend. This will now remain the favored case as long as 0.6521 resistance turned support holds.

Market are back in full risk-on mode after Fed Chair Jerome Powell affirmed that smaller rate hike would be delivered in December. Positive sentiment continued in Asia with China softening some of its pandemic restrictions. Dollar is in broad based selloff, followed by Canadian Dollar and Swiss Franc. Yen is currently the strongest one, responding more to falling treasury yields. Australian and New Zealand Dollar are the next strongest on positive sentiment and development in China, while Euro trails.

Technically, breaks outs are seen in AUD/USD through 0.6769 resistance and USD/JPY through 137.46 support. Now, focus will be on when EUR/USD will break through 1.0496 resistance, GBP/USD through 1.2152 resistance and USD/CHF through 0.9355 support. Also, break of 1786.83 resistance will resume the rise from 1616.51 to 61.8% projection of 1616.51 to 1786.83 from 1728.43 at 1833.73. If happens, that would be another indication of broad based Dollar weakness.

In Asia, Nikkei rose 1.01%. Hong Kong HSI is up 1.31%. China Shanghai SSE is up 0.56%. Singapore Strait Times is up 0.39%. Japan 10-year JGB yield is up 0.0075 at 0.258. Overnight, DOW rose 2.18%. S&P 500 rose 3.09%. NASDAQ rose 4.41%. 10-year yield dropped -0.045 to 3.703.

Fed Powell: Makes Sense to start slowing, as soon as in Dec

Fed Chair Jerome Powell indicated in a speech that it "makes sense" to start slowing the pace of tightening as soon as in December. But, the level of the terminal rate, and the time to stay there are now more significant than when to start slowing down.

"Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt," Powell said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting," he added.

But Powell also indicated, "the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done."

BoJ Noguchi: Must maintain monetary easing

BoJ board member Asahi Noguchi said the central bank must continue to maintain monetary easing, keep interest rates at low levels now as achievement of 2% inflation target remains uncertain.

"While not as much as other countries, Japan's consumer prices have risen sharply. This increase is driven mostly by rising imported goods prices," he said. "What's more important in deciding monetary policy is trend inflation based on domestic macro-economic factors, which remains at low levels."

Inflation is likely to fall back below 2% once these cost-push factors dissipate.

China Caixin PMI Manufacturing rose to 49.4 in Nov, pandemic continued to take a toll

China Caixin PMI Manufacturing rose from 49.2 to 49.4 in November, above expectation of 48.6. Caixin said that Covid-19 restrictions continued to constrain output. New orders fell, albeit at softest rate in four months. Supply chain delays worsened.

Wang Zhe, Senior Economist at Caixin Insight Group said: "Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure. As the measure for suppliers' delivery times is negatively correlated to the PMI, the fall in the measure partially offset the drop in the PMI, leading the decline in November manufacturing activity to be underestimated."

Elsewhere

Australia AiG Performance of Manufacturing Index dropped sharply from 49.6 to 44.7 in November. Australia private capital expenditure dropped -0.6% in Q3. Japan PMI Manufacturing was finalized at 49.0 in November. Japan consumer confidence dropped from 29.9 to 28.6 in November.

Looking ahead, Germany retail sales, Swiss retail sales and CPI, Eurozone PMI manufacturing final and unemployment rate, UK PMI manufacturing will be released in European session.

Later in the day, US will release jobless claims, personal income and spending with PCE inflation, ISM manufacturing, and construction spending. Canada will release labor productivity and PMI manufacturing.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6705; (P) 0.6753; (R1) 0.6836; More...

AUD/USD's rally resumed by breaking through 0.6796 and intraday bias is back on the upside. Next target is 0.6871 fibonacci level first. Break there will target 61.8% projection of 0.6271 to 0.6796 from 0.6641 at 0.6965. For now, near term outlook will stay bearish as long as 0.6641 support holds, in case of retreat.

In the bigger picture, a medium term bottom is in place at 0.6160 already. But it's too early to call for trend reversal. Nevertheless, even as a corrective move, rise from 0.6169 should target 38.2% retracement of 0.8006 to 0.6169 at 0.6871. Sustained trading above 55 week EMA (now at 0.6927) will raise the chance of the start of a bullish up trend. This will now remain the favored case as long as 0.6521 resistance turned support holds.

Economic Indicators Update

China Caixin PMI Manufacturing rose from 49.2 to 49.4 in November, above expectation of 48.6. Caixin said that Covid-19 restrictions continued to constrain output. New orders fell, albeit at softest rate in four months. Supply chain delays worsened.

Wang Zhe, Senior Economist at Caixin Insight Group said: "Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure. As the measure for suppliers' delivery times is negatively correlated to the PMI, the fall in the measure partially offset the drop in the PMI, leading the decline in November manufacturing activity to be underestimated."

Full release here.

BoJ board member Asahi Noguchi said the central bank must continue to maintain monetary easing, keep interest rates at low levels now as achievement of 2% inflation target remains uncertain.

"While not as much as other countries, Japan's consumer prices have risen sharply. This increase is driven mostly by rising imported goods prices," he said. "What's more important in deciding monetary policy is trend inflation based on domestic macro-economic factors, which remains at low levels."

Inflation is likely to fall back below 2% once these cost-push factors dissipate.