Markets pause for reflection amid dovish Fed repricing

With US markets observing the Thanksgiving holiday, global equities took a collective breath yesterday. This respite stems principally from the dovish Fed rate pricing, with investors assigning about an 80% probability of a December cut (-20 bps), with cumulative easing of roughly -90 bps anticipated until year-end 2026.

All in all, there is not much going on in the markets, a lull exacerbated by yesterday's technical mishap at the CME Group – reportedly stemming from a cooling system malfunction at one of its data centres. This brought futures and options trading to a standstill, removing a source of market liquidity. 

USD trading south of 200-day SMA

In the FX space, Fed rate-cut expectations have been a headwind for the USD so far this week, down 0.5% WTD. Chartists will also acknowledge that the USD Index recently dipped a toe back under the 200-day SMA at 99.71 after a brief spell at highs of 100.40.

As you would expect, the USD downside has provided a tailwind for USD peers; the EUR, GBP, and AUD are up 0.6%, 0.9%, and 1.1% WTD, respectively.

Hotter-than-expected Japanese inflation

Versus the JPY, however, bids and offers are pretty much even against the USD this week. Overnight, we also had the November Japanese CPI inflation data make the airwaves. YY Tokyo core consumer prices rose 2.8%, outpacing the 2.7% consensus, and matching October’s print. In other data, MM October industrial production jumped 1.4% against forecasts for contraction, and YY retail sales climbed 1.7% – double the market expectations.

Despite these stronger-than-anticipated readings, swaps markets are assigning only around a 50% chance of a rate hike at the BoJ’s December meeting. This essentially affords the new Prime Minister, Takayichi, breathing room to establish her fiscal agenda without policy complications.

Day ahead?

All in all, there is not much to get our teeth into today regarding event risk. Next week – the opening week of December, if you can believe that – welcomes a more substantial calendar. This includes the US November ISM manufacturing and services PMI reports, the November ADP employment data, unemployment claims for the week ending 29 November, and the delayed September PCE figures.

Outside of the US, the November European flash CPI inflation numbers land, along with Q3 25 Aussie GDP data, November Swiss CPI inflation, and the November Canadian jobs report.