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US will release the PCE deflator and jobless claims data earlier today because of the Thanksgiving holiday weekend starting tomorrow. Assuming PCE headline and core inflation to stay unchanged in October at 0.2% MoM and 0.3%, respectively, the Fed appears divided over a third rate cut at its December 18 FOMC meeting. The FOMC Minutes for the November 6-7 meeting showed broader support for a gradual pace of rate cuts because of greater uncertainty over the neutral rate amid a resilient US economy. Another reading below 200k for initial jobless claims will ease the Fed’s worries over the labour market weakness that drove the 50 bps cut in September.
The US Conference Board’s consumer confidence index improved a second month to 111.7 in November, its highest reading since July 2023, most likely driven by the Trump Trade. The cutoff date for the survey was November 18, after Trump won the US elections held on November 5. Besides becoming substantially more optimistic about future job availability, consumers expected their financial situation to improve in six months. The perceived likelihood of a US recession over the next 12 months fell to a new low in November, with a record 56.4% of the respondents expecting US equities to rise over the year ahead. The Board also asked a special question about 2025, in which consumers overwhelmingly cited higher prices as their top worry and lower prices as their top wish.
Ironically, Trump’s vow to impose harsh tariffs on America’s top three trading partners – 25% on all goods from Mexico and Canada and an additional 10% on Chinese imports – threatened consumers’ aspirations. Minneapolis Fed President Neel Kashkari was worried that a tit-for-tat tariff war would reignite inflation. Mexican President Claudia Sheinbaum threatened to respond with retaliatory tariffs. In 2023, America imported USD475bn, USD418bn, and USD427bn of goods from Mexico, Canada, and China, respectively. These three countries accounted for more than 40-45% of the US’s total imports. With some 80% of Mexico’s exports and 75% of Canada’s exports heading to the US, the tariffs would also hurt the economies of America’s neighbours.
The greenback struggled to extend gains after its knee-jerk spike on Trump’s tariff pledge. Markets are digesting the DXY’s 6-7% rally, driven by the Trump Trade, ahead of the long Thanksgiving weekend. The Mexican peso has already depreciated more than 20% this year, mainly in the past six months. Interestingly, the Japanese yen has bucked the trend by appreciating this week, probably as a haven. Having traded below 153 this morning, USD/JPY could target its early November low of 151.30.
Quote of the Day
“I intend to leave after my death a large fund for the promotion of the peace idea, but I am skeptical as to its results.”
Alfred Nobel
November 27 in history
The Nobel Prize was established in 1895 according to Swedish chemist Alfred Nobel’s will, which was written a year before his death. The first Nobel Prizes were awarded in 1901, on the fifth anniversary of his death. 
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