| | Developments in markets for Friday 21 November...... - Snapshot: S&P500/Nasdaq?? yields??, crude oil??, gold??US dollar??
- AUD/USD:??halts slide just north of 0.6420, ends week above 0.6550
- AUD WoW?: NZD: -0.04%, JPY: -0.06%, EUR: -0.32%, GBP: -0.69%, USD: -1.24%
- Fed's Williams strikes dovish tone: target rate can fall further in near-term
- Implied probability of DEC. cut climbs to 70%, up from near 20%, earlier in the week
- Week ahead: U.S. PPI and retail sales; RBNZ to cut to 2.25%, UK budget in focus
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Each morning we bring you up to speed with the latest market news, including the events and themes that are impacting currencies and other related asset classes......
| | | | A tumultuous week ended on a more positive note, a risk rebound halting the precipitous slide in U.S. equity markets as influential New York Fed President, John Williams shared his thoughts regarding the outcome of the final FOMC meeting for the year. Delivering dovish comments, the Fed Vice Chair said that interest rates can fall "in the near term" without putting the Fed's inflation goal at risk. Williams comments were in contrast to most of his FOMC peers who of late have gone out of their way to pour water on expectations of a December cut.
Rebounding from an early session decline to pare some of Thursday's outsized losses, the three major indices logged intraday gains of around one percent, somewhat calming the nerves of a jittery market.
Commodity currencies benefitted from the improving sentiment, the Australian dollar advancing around a quarter of a percent, locating support a couple of pips above 0.6420 Asian trade before catching a measured bid to end the week back above 0.6450. The yen was the top performer amongst the G10 cohort, climbing over two thirds of a percent against the dollar amidst rising speculation of currency intervention. Since Liberation Day, USD/JPY has strengthened close to 13% at Thursday's highs. The yen benefitted from news Friday that cabinet approved a ¥21.3 trillion stimulus package, Japan's largest since the pandemic, with ¥17.7 trillion in fresh spending.
Two narratives currently influence near-term direction: doubts over whether the Fed will cut for a third time this year on 10 December and concerns bubble-like conditions in AI stocks will lead to a major market correction given sky high valuations. Regarding the former, the implied probability of a 25-bps cut took flight after Williams comments, Fed funds futures pricing in a circa 70% chance of a cut. Earlier in the week, this had plunged near 20%.
Should Powell's hawkish comments at the October FOMC presser in which he stated a December cut was not a forgone conclusion, prove idle and the Fed funds rate is lowered to 3.50-3.75% at year-end, equity market bulls may regain the upper hand. They have been sidelined throughout November, which is typically not the playbook given the month's historical performance, seasonally the best month for the S&P5500 dating back to 1927. The index is on track for its worst month since March. | | | | US equity markets as at time of morning update release and may not represent session closing prices | | | | Technical traders will have a sharp focus on the 50-day moving average this week, as last week's sell-off breached the trend following indicator for the first time since February. Following that breach, the benchmark index plunged over 20%, bottoming out after Liberation Day in which Trump announced his reciprocal tariff regime. Should price action fail to regain a foothold above the 50d MA this week, expectations rise for a deeper protraction.
To the week ahead, it's a shortened week due to Thanksgiving, U.S. markets closed, Thursday and likely to trade with lighter volume, Friday. On the data front, U.S. readings on producer prices and retail sales resume, reporting September's data following the government shutdown. Other key data releases include CPI (monthly) for AUS, Tokyo CPI and domestic retail sales for the September quarter.
The major central bank event is the RBNZ's meeting, widely expected to deliver a 25-bps cut following October's half point, to lower the OCR to 2.25%. With the economy showing signs that it is positively responding to the 300-bps of cumulative easing, the terminal rate is approaching. Wednesday's cut may well be the last for this easing cycle. The Aussie appears to have formed a topping pattern against the Kiwi, peeling over from last week's high located a few pips north of 1.1570. A bearish reversal tail formed following the 12-year high marked in the 1.1630's on 13 November.
Also in focus is the UK budget announcement, Wednesday - Chancellor Reeves set to deliver a budget that plugs a large fiscal hole, set to raise taxes to fill the gap. Market reaction will be determined by how contractionary the budget is and if it can restore some confidence in gilt (UK bond) markets. The Aussie continues to track sideways below 0.5000 versus the pound, AUD/GBP attempting to maintain a foothold above 0.4320.
Expectations for the Australian dollar?
We're not prepared to back a basing call as yet. Price action must reset into a higher range above 0.6500 to consider. Whilst odds for the Fed to cut in December may continue to firm as more key macroeconomic data is received - a positive for risk sentiment, this is likely to be offset by ongoing concerns regarding lofty tech AI valuations. As such, expectations are for sideways action, AUD/USD to oscillate either side of 0.6450.
Have a great week!
Stuart Talman (stuart.talman@xe.com)
Xe Corporate | | | | |
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