Written Commentary
STOCK INDEX FUTURES
Global equity markets overnight were mixed with general weakness in Asian shares and gains in Western markets. Despite some very strong estimates of the kickoff to the holiday shopping season (with some records registered), the trade might decide to focus on the prospect of a rate cut next year instead of backward-looking earnings and forward corporate guidance. While the markets are not fully on board with a slowly evolving pivot from on hold to a potential rate cut bias, the markets typically look forward and attempt to anticipate future developments. Therefore, bad US data will be good for equity prices especially if evidence of softer inflation is posted.
CURRENCY FUTURES
While the dollar has managed to recoil from the overnight new low for the move, fundamentals remain squarely in favor of the bear camp. In fact, as indicated in other financial market coverage today the markets have embraced views that the US economy is now on a slowing track with some overly zealous views the Fed is rapidly pivoting from “on hold” to an easing bias.
US GDP reading is expected to hold steady around 5% and a reading at estimates could prompt a temporary dollar bounce which could be seen as a fresh short opportunity.
With the dollar currently under a liquidation threat from emerging slowing fears and growing speculation of a 2024 US rate cut (premature) the bias in the euro should remain generally higher.
We see the Pound as the primary leadership market with the currency benefiting from the ongoing weakness in the dollar. Overnight economic news from the UK was mixed with mortgage approvals jumping massively and net lending to individuals jumping while consumer credit came in much softer than expected.
While the Canadian was unable to hold the latest new high for the move this morning it should continue to see tailwinds from the ongoing and developing downtrend in the dollar.
INTEREST RATE MARKET FUTURES
In retrospect, yesterday’s US scheduled data was soft thereby extending the pattern of soft US data and in turn cementing the on-hold belief to the foundation of market sentiment. In fact, in addition to the Fed’s Waller who suggested yesterday current US rates could be lower, several prominent money managers have predicted a US rate cut in the first quarter of next year. While the CME Fed watch tool pegs the potential for a 25-basis points rate cut in the December 13th meeting at a slim 1.1%, at 3.1% in the January 31st Fed meeting, the March 20th probability of a 25-basis point cut in the top of the Fed’s target range is significant at 40.6%.
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