The data releases this week come hard and fast

On Friday, NY Fed chief Williams said he is more concerned about the labor market weakening than about inflation, where the risk has “lessened somewhat.” He said “Underlying inflation continues to trend downward, absent any evidence of second-round effects emanating from tariffs.” Rates are still “restrictive” and the Fed has room to cut to arrive as a neutral stance. 

The market was spectacularly impressed. The CME probability of a rate cut jumped from the 30’s to 69.4% in just a few hours. Well, he is the head of the New York Fed, which is traditionally the most important of the regional Feds. Still, wishful thinking? The stock market heard Williams. About an hour after his speech, all three major US indices were higher.

As of 6:10 am this morning, the probability of a cut has risen to 73.5%. We don’t look at the CME FedWatch site enough to be sure, but golly, this looks like a fairly rare sizeable pivot in an abnormally short time.

Boston’s Collins said over the weekend she’s still “leaning against” a cut. The market paid almost no attention.

The data releases this week come hard and fast. Tomorrow we get the ADP weekly, PPI, retail sales, home sales and prices, the consumer confidence. We will be a basket case by noon. On Wednesday, the US delivers durables, initial claims, the second GDP and the Chicago PMI. Later we get the New Zealand Reserve bank decision

Before the US on Wednesday, it’s the UK’s long-awaited budget. It may set off fireworks.

Then Thursday is Thanksgiving, an authentic holiday (meaning stores are closed). Many, maybe a majority, will take Friday as a holiday, too. The NY Stock exchange and the bond market close early on Friday.  This means we will not get much response to the Tokyo CPI late Thursday or Germany’s CPI on Friday, never mind Canada GDP’s. 

It’s not clear we will get much response to the US data, anyway. Most of it is for September, meaning Q3, and we are already getting ready for Christmas and year-end. At a guess, PPI could be important, with the last reading in Aug at 2.6% and falling, albeit with core at 2.9% and rising.

Some folks may try to make hay out of retail sales, but unless there is a shocker, we tend to stick to the usual observation that it takes a natural disaster to alter Americans’ endless materialism. Sales will be fine, and attention will focus on inflation/”affordability.” What will be somewhat interesting is the Black Friday sales next week. In practice, the sales are to some extent shady scams, but never mind.

Forecast

It’s too soon to say, but we suspect the fever has broken, thanks to Mr. Williams. While we must await the BoE decision, we can be fairly sure the ECB is done, so on the most simple of terms, the Fed’s presumed cut reduces the US advantage and that halts its rise/euro fall.

Some worrywarts expect BoJ intervention but we doubt it, meaning the dollar/yen can keep going well over 160, regardless of where the dollar is going against others.

To be fair, the appearance of progress in the Ukraine peace talks is risk-friendly, but remember, Trump lies. A blow-up could restore risk-off and therefore the dollar.

We are still worried about yields. In a logical world, yields should be trending upward because surely inflation is looming. In the longer run, maybe they will. But not yet and not now. The implication is that the dollar surge was just another corrective/consolidative move and not true underlying sentiment, which simply must be negative because of Trump. Holding it up and periodically rallying it is the lack of other reserve currencies and the splendid economy/stock market, if balanced on a knife-edge.

So, it’s too soon to say we will be reversing our signals, but it’s starting to look like it.We have 16 days to the Fed meeting. Sell on the rumor.

Tidbit: In the “serves ‘em right” department, bitcoin funds are losing some $3.5 billion in November alone, according to Bloomberg. See the chart. This is speculators realizing they are long magic beans—no return, no intrinsic value, no usefulness, no backstop.  Krugman writes “… at this point Bitcoin is largely a Trump trade. Bitcoin’s price surged after Donald Trump won last year, and its recent plunge coincides with a series of Trump political setbacks.” Well, going a bit far but kind of fun.

Tidbit: Probably completely irrelevant to the FX market but puzzling and worrying all the *same is the tremendous housing shortage in the US. NYT’s Ezra Klein has a chart and this to say: “The core of the problem is simple: Too much money chasing too few homes. How many more homes does America need? I’ve seen estimates ranging from two million to five million. It’s a shortage decades in the making — and one we’re nowhere near on track to solving. In 2025, America built fewer homes per 100,000 people than it did in 2005, 1995, 1985 or 1975.”

We have no idea what this means for the economy or politics. One implication: if politicians, especially real estate Donald, get it into their heads to do something about it, subsidies or other incentives could fuel an economy-wide recovery from whatever recession might be brewing.

Then you have to wonder where the construction workers will come from. That recent college graduate who can’t find a job living in mom’s basement? This reminds us of the time in 1964 when Washington deported Mexican field-workers  in droves and recruited teenagers to work in the fields. Needless to say, it was a catastrophic failure. Maybe we can devise a new type of visa to get the construction workers….

Note to Readers: Thursday is a national holiday in the US and markets are closed. Friday is not technically a holiday but markets close early and FX will be thin. We are taking both days as holidays and will not publish any reports.