• Powell: FOMC is ‚moving forward carefully‘ as risks around rates becoming more balanced
• Powell Q&A: Inflation is still well-above target but moving in the right direction
• US November ISM manufacturing PMI 46.7 vs 47.6 expected
• Canada November employment +24.9K vs +15.0K expected
• Gold touches an all-time high at $2075
• Atlanta Fed Q4 GDPNow 1.2% vs 1.8% prior
• Baker Hughes US oil rig count 505 vs 500 prior
• Fed’s Goolsbee: Inflation is coming down exactly as we want
• US October construction spending +0.6% vs +0.4% expected
• US S&P Global manufacturing PMI final for November 49.4 vs 49.4 prelim
• Canada November S&P Global manufacturing PMI 47.7 vs 48.6 prior

Markets:

• S&P 500 up 27 points, or 0.6%, to 4603
• Gold up $35 to $2071
• WTI crude oil down $1.70 to $74.26
• US 10-year yields down 13.3 bps to 4.56%
• AUD leads, EUR lags

Welcome to the new month, same as the old month.

The mood was to buy everything and sell oil, same as it was for all of November. It started out as a quiet one and a good Canadian jobs report moved the loonie into the poll position with it only up 30 pips on the day. From there though, a softer US ISM manufacturing report helped to kick off a wave of USD selling, particularly in USD/JPY.

In addition, stocks began to rip. Powell spoke similarly to Daly and Williams yesterday, which was mildly hawkish but in time the market ignored it and priced in even more rate cuts next year. Fed funds futures are now at 133 bps next year and 70% for the first one in March. That’s aggressive to say the least.

But the bigger picture theme is that we’re going back to the world of low rates and low inflation, not some kind of sticky, 1970s redux. That’s a major change and it’s what is driving everything.

Adding to that was another slump in oil, most of which came after Baker Hughes data showed the US adding more rigs. There’s a creeping feeling that we’re headed for another battle for market share because OPEC isn’t going to cut production again. That could be a big deflationary impulse, at least initially.

The euro didn’t benefit from the USD selling because inflation numbers in Europe are cratering, along with yields. The euro was particularly soft into the London fix, which points to flows and it staged a 50 pips recovery later to finish almost flat but still at the bottom of the pile beside the US dollar.

AUD is going to be one to watch in the year ahead. It was tops today and the housing market there just hasn’t cracked. That could keep the rate hiking cycle going longer but note that Chinese ETF FXI also hit at 52-week low today so maybe that’s an upside risk? Sentiment about China surely couldn’t get much worse.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

• S&P 500 +0.6%
• DJIA +0.8%
• Nasdaq Comp +0.6%
• Russell 2000 +2.9%
• Toronto TSX Comp +1.0%

This is the fifth straight week of gains, sentiment is bubbly and Jim Cramer is bullish.

This article was written by Adam Button at www.forexlive.com.

Oil fell sharply today in the past two hours. The catalyst: US oil drilling rigs rose by 5 in the latest Baker Hughes weekly count. OPEC+ now has around 5 million barrels per day of spare capacity and there’s no sign yet of US production growth falling (let alone declining). There had been hopes that demand growth next year would absorb OPEC spare capacity but even OPEC is only forecasting 2.5 million barrels per day in demand growth; so it would take another year like that to tighten the market.

In the meantime though, US production continues to expand, with some help from Canada, Guyana, Iran and Venezuela.

Worse is that this is very likely to be the limit of OPEC discipline. There won’t be another cut and there’s the very real possibility of a war for market share next year and a free-for-all, leading to oil in the $40s.

Now that would be great for the inflation picture but would put most private oil companies into a money-losing position. You would think that threat would discipline them, but here we are with rigs growing.

So the market is starting to price in a real mess in oil next year, or at least the risk of that.

This article was written by Adam Button at www.forexlive.com.

US 2s are down 15.6 bps to 4.55% and Fed funds futures are pricing in 132 bps of cuts next year. Pricing for the first cut on March 20 is now at 73%.

It’s tough to square this with a series of Fed officials saying they’re still more likely to hike rates and that it’s too early to abandon the hawkish bias. If you are to take them at their word, we shouldn’t even be talking about cuts until H2.

And that’s how markets used to work but it’s changed. Ten or 15 years ago, the market parsed Fed comments and then leaned one way or another.

Today, markets expect Fed officials to know exactly what’s priced in via the Fed funds futures market. Instead of watching what Fed officials say, it’s all about what they don’t say. The market has been pricing in cuts and waiting for the Fed to pushback, instead, it was Waller this week (a hawk) came out and said there are good arguments that if inflation continues falling for several more months that you could lower the policy rate.

That led to the market pricing in even more easing and still, no Fed official offered a hard pushback and Barkin address markets directly saying:

„Market bets on 4 rate cuts next year might be based on expectations for soft landing. I hope they are right“

The market is running with that now the Fed is headed into a blackout until December 13.

This article was written by Adam Button at www.forexlive.com.