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DXY appreciated by 0.2% to 103.94 as a haven. The 10-year US Treasury yield eased 9 bps to 4.16% from interest rate futures pricing in a 61% chance of an earlier Fed cut in March 2024. The bond market is steering from a Goldilocks outlook for the US economy towards a faster slowdown. The Atlanta Fed GDPNow model predicts US GDP growth slowing from an exceptional 5.2% QoQ saar in 3Q23 to 1.2% in the final quarter of the year, weaker than the 2.1% projected on 22 November.
However, we see the DXY possibly capped around 104 after recovering in four out of the five past sessions. Although the S&P 500 Index was modestly lower by 0.1% to 4567, it has been consolidating primarily between 4540 and 4570 since 22 November. The larger-than-expected drop in October’s US JOLTS jobs opening data was more about the weaker-than-expected nonfarm payrolls (NFP) that month. Consensus sees Friday’s NFP recovering to 187k in November after its plunge to 150k in October from 297k in September. The ISM services employment improved to 50.7 from 50.2 for services, though manufacturing slowed to 45.8 from 46.8. Also, ISM prices paid rose to 52.7 from 51.8 for services and 49.9 from 45.1 for manufacturing, suggesting next week’s US CPI data may be sticky around current levels, underpinning the Fed’s belief that it has yet to win the fight against inflation.
AUD/USD depreciated 1% to 0.6552, its lowest close since 22 November. The Reserve Bank of Australia kept the cash rate target unchanged at 4.30% at the final meeting for 2023. When it returns in February 2024, it will shift from meeting once a month to twice a quarter in 2024, aligning with US, Eurozone, and UK practices. RBA’s decision was a reminder that the Fed was not the only central bank expected to pause in December. Today, we expect the Bank of Canada to keep its overnight lending rate at 5% for a fourth consecutive meeting. Next week, the European Central Bank and the Bank of England will likely keep rates unchanged one day after the FOMC meeting on 12-13 December. Following the drop in the Eurozone’s CPI inflation to below the US, ECB Executive Board Member Isabel Schnabel, a renowned hawk, said another hike would now be unlikely. Interest rate futures subsequently priced in a higher chance of the ECB cutting rates before the Fed. The fact that central banks are on the same page regarding the direction of monetary policy amid a softer growth outlook suggests that their currencies are more likely to consolidate than a trend in either direction.
USD/CNH rose a second session by 0.3% to 7.1734. Moody’s downgraded China’s sovereign debt rating outlook to “negative” from “stable” yesterday. The international ratings agency sees the economy slowing from the government’s projected 5% growth this year to 4% in 2024 and 3.5% by 2030. Earlier Monday, Goldman Sachs reported net outflows from Chinese equities from long/short fund managers for a fourth consecutive month in November. Last weekend, US Commerce Secretary Gina Raimondo stressed that China was “not our friend,” dampening optimism from the Xi-Biden meeting that relations between the two largest economies may stabilize. However, USD/CNH is still confined in the 7.1120-7.1760 range set on 22 November. China’s top leaders are holding a closed-door meeting in December to determine the 2024 GDP growth target which will be announced later at the Chinese People's Political Consultative Conference (CPPCC) in March. Given the dampened sentiment, many wonder if Beijing can convince investors of its goal to double China’s economy by 2035 from 2020 levels. On the other hand, growth worries are no longer confined to China alone and are becoming a concern for the US and other Western economies, too.
Quote of the day
“If misery loves company, misery has company enough.”
Henry David Thoreau
6 December in history
In 2010, a record price for a printed book was achieved when a first edition of "The Birds of America" by John James Audubon auctioned at Sotheby's, London, England, for £7,321,250.
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