We have seen this movie before…

Thoughts of the Day

The FED is now insisting on needing more evidence despite a faster-than-expected moderation in inflation. The impact of aggressive rate hikes is evident with a slowing job market as shown by the 3.9% unemployment rate, the highest since 2022. However, this is the same Fed that insisted inflation was transitory until they scrambled to start hiking rates aggressively. Fearful of declaring victory against inflation prematurely, they will keep insisting that they will hike further if required.

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Day Ahead

The Euro Area Consumer Price Index is expected to show that prices rose +2.9% in October on a Year-on-Year basis, down from +4.3% in September. The core index is expected to show that prices rose +4.2% YoY compared to 4.5% in September.

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What Happened Yesterday

Market Movements as of New York Close 16 Nov 23
  • The weekly jobless claims for the week ending on 11 Nov ticked higher to 231k (vs 220k expected) from 218k the week before (revised from 217k). Continuing claims for the week ending on 4 Nov rose to 1,865k (vs 1,847k expected) from 1,833k (revised from 1,834k). The jobless claims is the highest in 3 months, suggesting that the labour market is weakening.
  • The US Treasury Yield curve inversion widened slightly to 0.38% as the US 2-year bond yield fell -0.07% to 4.83% while the US 10-year bond yield fell -0.08% to 4.45%.
  • The US stock futures fell in the early Asian trading hours following reports that Biden called Chinese President Xi a “dictator”. It then started to trade higher following reports that the US Senate has passed a stopgap bill to avert a government shutdown. The stock futures market then traded sideways through the London trading session with more volatility entering the market as the New York session approached.
  • The US stock market opened almost unchanged from Wednesday. It then traded sideways through the New York session. Consequently, the S&P 500 inched a tad higher by +0.13% (high: +0.20%, low: -0.33%), the Dow Jones fell -0.13% (high: +0.09%, low: -0.49%) while the Nasdaq eked out a small gain of +0.10% (high: +0.16%, low: -0.50%).
  • The crypto market experienced a whipsaw from the previous day with Bitcoin (high: +0.17%, low: -6.34%) and Ether (high: +1.48%, low: -5.79%) down -4.47% and -4.80% respectively as longs were liquidated when Bitcoin hit 38,000.
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Headlines & Market Impact

Fed’s Mester wants ‘much more evidence’ that inflation has been defeated

Notable Snippet: Cleveland Federal Reserve President Loretta Mester said Thursday that this week’s news showing lower levels of inflation isn’t enough to convince her that the central bank has won its battle against higher prices.

“We’re making progress on inflation, discernible progress. We need to see more of that,” Mester told CNBC’s Steve Liesman during an interview on “The Exchange.” “We’re going to have to see much more evidence that inflation is on that timely path back to 2%. But we do have really good evidence that it has made progress and now it’s just, is it continuing?”

But Mester said she’s reserving judgement on where policymakers go from here.

“I haven’t assessed that yet. Where I think we are right now is we’re basically in a very good spot for policy,” she said.

Comparing the Fed’s position to navigating a ship, Mester said, “We’re at the crow’s nest. What does the crow’s nest let you do? It lets you look out on the horizon and see where the data is coming in, where the economy is evolving. And then we’ll have to see: Is it moving in the way that we forecasted?”

“My feeling is that it’s really not about cutting rates. It’s really about how long we stay in a restrictive stance and perhaps have to go higher given what happens in the economy,” she said.

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Biden removes sanctions from Chinese institute in push for fentanyl help

Notable Snippet: The Biden administration on Thursday removed the Chinese Ministry of Public Security’s Institute of Forensic Science from a trade sanction list, part of a bid to convince Beijing to do more to halt the flow of the synthetic opioid fentanyl into the United States.

Washington put the institute on the list in 2020 over alleged abuses against Uyghurs and other minority groups, effectively barring it from receiving most goods from U.S. suppliers.

Former Chinese ambassador to the U.S. Qin Gang last year described it as “shocking” that the U.S., which had expressed frustration over Beijing’s lack of cooperation on fentanyl, would sanction an institute he described as essential to controlling the drug.

Reuters had previously reported the institute would be removed as Biden sought more cooperation from Beijing on fentanyl in a meeting with China’s President Xi Jinping on Wednesday in San Francisco at the Asia-Pacific Economic Cooperation (APEC) forum.

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US Senate passes stopgap funding bill to avert government shutdown

Notable Snippet: The U.S. Senate took the risk of an impending partial government shutdown off the table on Wednesday as it passed a stopgap spending bill and sent it to President Joe Biden to sign into law before a weekend deadline.

The 87-11 vote marked the end of this year’s third fiscal standoff in Congress that saw lawmakers bring Washington to the brink of defaulting on its more than $31 trillion in debt this spring and twice within days of a partial shutdown that would have interrupted pay for about 4 million federal workers.

The last near-miss with shutdown led to the Oct. 3 ouster of Republican U.S. House of Representatives Speaker Kevin McCarthy that left the chamber leaderless for three weeks.

But lawmakers have bought themselves just a little more than two months’ breathing room. The Democratic-majority Senate and Republican-controlled House of Representatives’ next deadline is Jan. 19, just days after the Iowa caucuses signal the start of the 2024 presidential campaign season.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord