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Stocks dip, dollar climbs after Powell comments
Updated Updated Thu, 2024 November 14 11:23
* Fed Chair Powell says in no rush to cut rates, USD higher for a fifth day
* US Treasury yield rise stalls as investors weigh economic data
* Stocks slip as post-election rally turns modestly down
* Bitcoin speculative frenzy begins to show signs of cooling in futures market
FX: USD hit levels seen in November last year, with the high just penetrating the 107 handle. PPI data was hotter than expected with upward prior revisions. But the buck sold off intraday on stretched positioning and profit taking before finding a bid after Powell’s text. This was seen as hawkish as he noted the economy is not sending signals that the Fed needs to be in a hurry to lower interest rates. The October 2023 top resides at 107.34.
EUR slid to a fresh low at 1.0495 before paring losses modestly. Its October low from last year is 1.0448. The ECB minutes didn’t give us any clear signal on the December meeting. There’s around a 40% chance of a 50bp rate cut at the last meeting of the year. The latest Reuters poll found that 43 out of 46 economists surveyed expect the ECB to cut the deposit rate to 2.0% or the lower by end-2025.
GBP dropped to a new low at 1.2629. That is below a key Fib retracement level at 1.2729. BoE official Mann was speaking again, who warned that the US election would see an upward bias to inflation. The Q3 GDP figure out today is seen easing from the previous 0.5%. Recent PMIs pointed to a cooling in both manufacturing and services, though the budget is seen boosting growth.
USD/JPY continued its bull move up to 156.41. The 10-year US Treasury yield posted a new cycle high at 4.48% though ended printing a doji candle denoting some indecision.
AUD sunk below the major Fib level of the August move higher, at 0.6475 which is also close to the July low. The overnight labour market data showed tentative signs of cooling in October, but without really endangering the broader healthy picture. Markets discount a first rate cut by the summer next year. USD/CAD surged again hitting the highest since 2020. The top from May 2020 is 1.4173.
US Stocks closed lower with all sectors lower aside from energy and tech. The S&P 500 settled 0.6% lower at 5,949. The tech-heavy Nasdaq 100 lost 0.66% to finish at 20,897. The Dow finished down 0.47% at 43,751. Industrials, consumer discretionary and health were hit the hardest. Disney results saw EPS and revenue beat with FY25 profit guidance above consensus. Cisco EPS and revenue exceeded forecasts, although the latter declined on a quarterly basis. Powell’s relatively hawkish comments hit bets on a December 25bps rate cut. They are now back to 60/40 on cut or pause versus more than 80/20 yesterday.
Asian stocks: Futures are in the red. Asian equities were mostly muted again after the downbeat finish on Wall Street and the inline inflation figures. The ASX 200 gained as tech and financials strength offset commodity-related sector weakness. The Nikkei 225 dropped below the 39,000-level wiping out its initial gains. The Hang Seng and Shanghai Composite were pressured ahead of today’s activity data with softness in real estate stocks.
Gold dropped for a fifth straight day. The preciousl metal neared the 50% mark of the June to October move at $2533 and tapped the 100-day SMA at $2545. The stronger dollar is sapping interest while forcing long liquidiation.
Day Ahead – China data, US Retail Sales
We get the data dump out of China first thing. Retail sales are forecast at 3.4%, up from the prior 3.2%. Industrial production is predicted to expand 5.7%, up from 5.4% in September, and fixed asset investment up one-tenth at 3.5%. It will be the first full month since the monetary easing in September. That is expected to see a slight improvement in the figures with strong travel during Golden Week providing support for services consumption. All in, growth in industrial production, fixed asset investment and retail sales could suggest that domestic demand may have bottomed out. Of course, the economy is facing a trade war with the US next year when Trump regains the presidency.
US retail sales will be eyed as a key gauge of the US consumer, who has powered the ongoing growth in the wider economy. The headline figure is forecast to rise 0.3% m/m, down from the 0.4% print in September. Consumer spending is seen remaining relatively robust, while the clear-cut election result may help extend this. The current story is one of decent US activity and inflation, bumpy but relatively under control for now. This should keep the dollar very well supported.
Chart of the Day – Nasdaq turns lower
The Trump Trade has boosted stocks, both pre- and post-election, as we have written and talked about extensively. Sector wise, energy, defence, finance and technology sectors are predicted to outperform. Republicans intend to make the US the largest oil and gas producer, to lower energy costs. Defence spending should increase, while deregulation and lower corporate taxes will help banks and technology.
Interestingly, history suggests presidents do not have as much influence on sectors as is commonly thought. In fact, sector returns are sometimes the exact opposite of what was anticipated pre-election. For example, Trump 1.0 denigrated the technology sector in his 2016 campaign and pushed to expand US energy production. But technology turned out to be the best-performing sector during his administration and energy the worst. It is well-known the Nasdaq is dominated by tech stocks. First level of interest is the July high at 20,690 with the first Fib level of the August bull move at 20,381. The record high from Monday sits at 21,182.
