Here is what you need to know for Wednesday, November 30:
Risk markets were touch and go as month end approached ahead of Fed Chairman Powell’s address on the economy on Wednesday and US Nonfarm Payrolls on Friday. Risk appetite had worsened on Monday after protesters and police clashed over the stringent COVID restrictions, supporting the US Dollar index, DXY, that had otherwise fallen to 106.82 from a 20-year high of 114.78 on Sept. 28.
Jerome Powell will be expected to reaffirm the Fed’s unwavering commitment to tackling inflation, analysts at ANZ Bank said. The analysts also highlighted the prospects of Powell mentioning the ''need for more measured rate rises taking account of increased two-way economic risks as policy becomes restrictive and a degree of optimism that the Fed will be able to pull off a soft landing.''
Meanwhile, the US central bank is expected to hike rates by an additional 50 basis points when it meets on Dec. 13-14, though the odds of a 75-basis-point increase have risen over the past several weeks and now stand at a 37% probability. WIRP suggests that is fully priced in, with around 15% odds of a larger 75 bp move. The swaps market is still pricing in a peak policy rate of 5.0%, with small odds of a 5.25% peak.
In markets, Wall Street was mixed on Tuesday, with losses in Apple and Amazon. At the time of writing, the S&P 500 was down 0.14% and is headed for its second straight month of gains in November amid bets that recent inflation readings showing a slight cooling in prices will lead the Fed to scale back. The Nasdaq declined 0.70% while the Dow Jones Industrial Average was flat. In Europe, the Euro Stoxx 50 was broadly unchanged and the FTSE 100 up 0.5%.
The US 10-year yield was up 6bp to 3.74%, weighing on the euro which was down some 0.1% to 1.0330. The inflation rate in Germany slowed to 10% in November from 10.4% in October but remained close to high levels not seen since the reunification. The sentiment remains supportive of the Euro in that the European Central Bank remains committed to raising interest rates to dampen high inflation. The British pound hovered at 1.1950 and down 0.1% on the day, meeting recent lows in what could turn out to be a double bottom on the hourly timeframe.
The Aussie was better bid as the sentiment improved on hopes that China would reopen from COVID shutdowns. AUD/USD rallied to a high of 0.6748 and was ending around 0.5% higher on the day. WTI was higher despite some speculation that OPEC will leave quotas unchanged, falling some 1.5% into channel resistance. Gold fell 0.3% to below $1,750 reaching a low of $1,747 while Bitcoin rallied over 1.5% after re-testing its yearly lows yesterday.
For the day ahead, Aussie Consumer Price Index and Chinese PMIs will be key in the Asian sessions.
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