Nvidia’s earnings were great The Minutes were somewhat sedate At OpenAI They got back their guy And traders, for closing, can’t wait In Europe, they’re still quite concerned Inflation’s not been overturned But positive news Twixt Arabs and jews A truce for four days has been earned
As we head into the holiday weekend, the truth is the macroeconomic story is quite dull. Not only has there been a dearth of Fedspeak (which is a good thing I think) but the data has been second-tier, at best, and sparse overall. The fact that Existing Home Sales fell further given the current mortgage market situation cannot be surprising. After all, folks are quite reluctant to give up the 3% mortgage on their current house to buy a new house and pay 7.5%. As to the Minutes of the last FOMC meeting on November 1st, they were deemed hawkish by some, although they are so out of date, it is not clear why any attention is paid to them.
Arguably, of much more interest to most every market participant were the earnings results from Nvidia, which beat lofty expectations as the AI phenomenon continues to grow. In that same vein, the OpenAI saga, where Sam Altman, one of the founders, was ostensibly fired, set to go to work at Microsoft and bring his entire team with him, but now is back at OpenAI has been garnering the lion’s share of market bandwidth. But I ask, does that really have a macro impact? I would argue not at all.
In fact, I would say that the market is quite ready for the Thanksgiving holiday, as most participants are far more concerned about the travel conditions than the market conditions. Yes, the ECB keeps trying to threaten that they are not done hiking interest rates, although given growth there is fading fast, this feels much more like brave talk than a precursor to action. And thankfully, it appears there is going to be a four-day cease fire agreement in Gaza with a release of some of the hostages, so that is clearly a good thing.
But really, it is very difficult to get too excited about too much at all today. There is some data due this morning, with Initial (exp 225K) and Continuing (1875K) Claims, Durable Goods (-3.1%, +0.1% ex Transports) and Michigan Sentiment (60.5). But none of it seems very enticing as a rationale to change any opinions or positions.
Reviewing markets, after yesterday’s very modest pullback in the US equity markets, Asia saw mixed price action with Tokyo a bit firmer while China was under pressure. In Europe this morning, other than the UK (-0.2%) there are modest gains despite a lack of new data. The UK story seems a reaction to a much weaker than expected CBI Industrial Trends report, indicating much slower growth ahead. As to US futures, they are a bit firmer at this hour (8:00), arguably benefitting from those Nvidia earnings.
In the bond market, Treasury yields continue to drift lower, down 3bps this morning and currently at 4.36%, just above that first key support level. European sovereigns are also rallying with yields down by between 3bps and 5bps across the board. The outlier here was Japan overnight, where yields rebounded 3bps after what had been a very quick decline given all the discussion about how the BOJ was set to tighten policy. For now, there is a great deal of enthusiasm over the soft-landing scenario which I believe is a key driver of the bond market rally. However, the future here will be highly dependent on the Fed’s actions going forward, and I, for one, continue to believe in the higher for longer story. Unless growth really drops quickly, or unemployment skyrockets, I don’t see a rate cut anytime soon.
In the commodity markets, oil (-2.0%) seems to be falling on the back of the de-escalation in the Middle East, as well as word that Russia is exporting diesel fuel again. Gold prices captured the $2000/oz level yesterday and are still hanging on, although copper and aluminum are both under pressure this morning, down about -0.5% each. Broadly, I would say that the commodity sector has been the one area most actively considering a recession is coming with the overnight price action merely a reflection of this.
Finally, the dollar is a touch firmer this morning, halting its recent declines with both USDJPY and USDCNY higher by about 0.2% this morning. Given the lack of news, this seems much more like a trading event, with traders closing positions ahead of the long holiday weekend. I maintain my view that if the Fed is actually done and beginning to lean toward easier monetary policy, the dollar will decline a bit further. But that is a big if in my mind. It is very difficult to get excited about the prospects of most other currencies given the inherent weakness in economies around the world. However, a change in Fed policy will definitely have an impact on the buck.
And that’s really all for today. There will be no poetry until Monday as I, too, will be taking a break from the action.
Good luck and have a wonderful holiday
Adf
fxpoetry 